Past Obstacles for Foreigners Who Want to Buy A House in Indonesia
Developers believe that the price limit for foreign housing will not make a significant impact on the property market if the government does not make some other regulatory breakthroughs.
Deputy General Chairman of Real Estate Indonesia (REI) for Law and Legislation, Igneszj Kemalawarta, said that developers welcome the issuance of Regulation of the Minister of Agrarian Affairs and Spatial Planning or Head of the National Land Agency No 13 of 2016.
The law regulates the issue of price limits for residential properties that foreigners can buy. The regulation stipulates that foreigners can only buy Jakarta property for a minimum price of IDR 10 billion for landed houses and IDR 5 billion for flats or apartments.
For other regions, the price limit ranges from IDR 1 billion to IDR 5 billion for landed houses and IDR 750 million to IDR 2 billion for apartments. However, the regulation will not have a practical impact on increasing the foreign national property market because of other obstacles.
The government needs to fix at least five things to loosen the faucet of foreign ownership, which will stimulate the domestic property sector.
- Banks are often reluctant to accept properties with the status of Right to Use as collateral for loans. This has created a wave effect in which people are not focusing on any Right to Use properties, and developers have not focused on developing such properties.
- The regulation that allows foreigners to get credit facilities to buy a house in Indonesia is still not made yet. Since the price limit set by the government is still high, foreigners being targeted are in the upper segment.
- The process for foreigners to obtain a residence permit in Indonesia is still quite complex and needs to be simplified. This includes both temporary and permanent residence permits. In fact, the government regulation only opens up opportunities for foreigners with a permit to buy a house, whose existence within the country provides benefits such as business.
- Developers still hope that the government will open homeownership opportunities for foreigners who are not domiciled in Indonesia to expand the market. Even so, developers are hoping for an increase in foreign markets after opening the Asean Economic Community era.
- The Right to Use dilemma in the domestic property market must be fixed. The foreigner market is still relatively new, so developers are still very hesitant to build properties with the Right to Use, especially for apartments. This is because the local market prefers properties with the Right to Build status over the Right to Use.
Terms and Conditions for Foreigners to Buy A House in Indonesia
There are several regulations that a foreigner must follow in order to buy a house in Indonesia. The landed house purchased must be with the status of Right to Use on state-owned land or land with ownership rights. Check out the details on land ownership for foreigners in Indonesia here.
The government has also set a price limit on various regions in Indonesia with a minimum and a maximum price. Official immigration papers with a residence permit are also a prerequisite for foreigners to buy a house in Indonesia.
Since the Indonesian government passed the Omnibus law, the law states that every local government must upload a spatial plan to the OSS System. Businesses can self-assess their proposed business operations to check whether they comply with the specified use and proceed with licensing.
Some criteria and regulations still apply for foreigners who want to construct apartments or villas from scratch, even after having the process simplified. Building owners must designate a group of service providers with a planner, manager, and supervisor. With a high manufacturing cost, the hope is to get foreign investors to purchase existing properties instead of building one.
Understanding Property Tax
Since its economic reform, Indonesia has become a sought-after destination for many foreign business owners and investors to purchase a piece of property. Foreigners can benefit highly from one of the lowest property taxes on their properties compared to many other South-East Asian countries.
The land and building tax, a state tax that is the most basic property tax in the country, is levied at 0.5% and plays as a regional income for local and central governments for their facilities.
Both parties must pay certain taxes when transferring land and building rights in Indonesia. The sellers pay an income tax on the sale of land or property, and buyers pay an acquisition tax for the purchase. The seller tax is as follows:
- 1% for simple flats or simple houses for their transfer of land or building rights
- 2.5% for regular buildings except for simple houses or simple apartments for their transfer of land or building rights
- 0% for government buildings and government’s special-assignment buildings for their transfer of land or building rights
The transaction value determines the buyer’s tax, which is 5%. However, specific individuals like diplomatic consulates or representatives of agencies of NGOs can get away from these taxes.
Other taxes related to the property are lease taxes applicable for tax & non-tax residents and construction tax which applies when the construction of the building is done.
Taxation in Indonesia can be somewhat complicated and tricky. Cekindo can assist with a tax consultation to avoid administrative risk.
Leasing Property as an Alternative to Buy A House in Indonesia
A Guide to Lease Property in Indonesia
There are six main items we have pointed out to check before renting a property. They are:
Quotation and Payment
Renters must pay rent in Indonesian Rupiah. Some quotations still have US Dollars as their main nominals. However, foreigners must do prior planning before losing out on currency exchanges.
Duration of Lease
The usual lease term is 20-30 years, depending on the agreement. Ensure the lease can be extended if necessary and agree on payment terms beforehand.
Find out what items are covered in the leasing contract. The renter usually covers maintenance costs, air conditioning cleaning, water pump repair, and other utilities. Discuss an agreement where more significant expenses need to be paid by the rentee. An agreement on whether monthly fees like electricity, water, internet, and phone bills are included in the payments should be made.
Making a security deposit is standard and is usually priced at one month’s rent after signing the lease. Ensure that the security deposit is 100% refundable and no fine print is included in the agreement.
The option to renew the lease should be made available and priority to the renter. During renewal, the price will usually increase. Ensure that you know the current land pricing to avoid getting duped.
Sometimes, some homeowners allow tenants to sublet the area to other renters. Renters or foreigners must discuss this with the landlord before the agreement is signed.