The past five years have seen strong economic growth in Indonesia, on average by 6 percent (2009-2014).
- Economic growth creates a rising demand for properties
- Rising prices combined with inflation cause poor price performance for investors
- Renting is hit by high taxes, which lowers yields\
- Purchasing property is difficult for foreign nationals.
- The best option is properties in Bali which have a reasonable rental return.
This brought a 7.4% growth in the Indonesian residential property price index in 2013. Adjusted for inflation, however, property prices increased by just 2.04%.
The trend has been a 27% growth in sales of residential property and the sales of small houses grew by 41% in 2012. At the end of 2012, housing loans reached US$22.79 billion. The cities with the most growth were Makassar (Sulawesi/Celebes) with 15.6% and Palembang area 10.57% and Denpasar with 9.97%. Bumi Serpong, the property arm of Indonesian conglomerate Sinar Mas Group, expects property sales in 2015 to increase 15% to 7.5 trillion rupiah (US$600 million).
Residential property in Indonesia has relatively poor price performance. It has been something of a puzzle. There is tremendous pent-up housing demand. Despite strong economic growth and high levels of investment, a number of factors have hampered the growth of Indonesia’s housing market:
- High mortgage interest rates
- Foreign ownership restrictions
- High cost of building materials
- High tax rates
- Government red tape
Foreign ownership is difficult in Indonesia. Only Indonesian citizens can hold land titles (hak milik). Foreign land ownership is prohibited by the constitution. For apartments, the 1996 regulation (No. 41/1996) states that foreigners who reside in Indonesia or visit the country regularly for business purposes, can purchase a home, apartment or condominium as long as it isn’t a part of a government-subsidized housing development.
Prices in Jakarta are rising quickly and rental yields are falling. There is high demand for high-end apartments in Jakarta. Prices have been rising significantly, now around US$2,100 to US$ 2,800per square meter. Rental yields have therefore fallen significantly to around 7 to 9.6%, down compared to 10 to 13% two years ago. The disadvantage of buying in Jakarta is complex legality and high transaction costs. Villas on Bali are attractively priced at around US$1,700 to US$2,300 per sq. m. Bali, however, has lower rental yields, at around 5%.
Indonesia’s laws on foreign ownership were expected to be relaxed this, but this now appears unlikely.
Rental income tax is high in Indonesia
Rental Income: Nonresident individuals’ rental income is subject to withholding tax at 20% of gross income. Rents are also subject to a 10 percent Value Added Tax (VAT).
Capital Gains: Gains derived by nonresident individuals from selling real property are taxed at a flat rate of 20%.
Inheritance: There is no inheritance tax.3
Residents: Residents are taxed on their worldwide income at progressive rates, from 5 to 30%.
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How to buy and own property in Indonesia
How to own property in Indonesia
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