Plans to enable foreigners to purchase property in Indonesia

Congratulations to Joko Widodo who was yesterday announced as the new president. During his campaign in the lead up to the Indonesia presidential election 2014, Joko Widodo, widely known as Jokowi, announced intentions to allow foreigners to purchase apartments. This is in an attempt to increase tax revenues; and investor demand may begin to rush towards low prices in the luxury market.

If plans are to go forward, foreign investors will be able to purchase apartments worth at least 2.5billion rupiah in the Jakarta capital, as well as other major cities and within Bali island. Foreigners are currently barred from direct purchases of Indonesian property, which has led to illegal transactions via proxies, therefore enabling them would allow a luxury tax to be imposed on sales.

If the market is open to foreigners, the government will be benefited as they can gain more revenue from tax, as attractiveness of the property market increases. This is according to Anton Sitorus, who is the head of research at Jones Lang LaSalle Inc. Indonesian unit. In terms of pricing, foreigners would be able to purchase five to eight apartments in Indonesia, whereas in Australia, Hong Kong and Singapore, only one could be purchased.

Overseas investors would have the ability to purchase at least 200 square metres in areas such as Batam island nearby Singapore, as well as the Makassar and Surabaya port cities. Jones Lang LaSalle reported yearly luxury apartment rents averaged US$220 per square metre during the first quarter.

A young population, with high inflation and property price gains, outrunning interest rates have stimulated domestic real estate sales during recent years. With foreigners constrained from owning property in South East Asia’s largest economy. Indonesia experienced a surge from local demand rather than capital inflows which were what drove record home values within neighbouring Hong Kong and Singapore. Last year, the central bank enforced firmer loan-to-value ratios for mortgages.

Bank Indonesia viewed residential property prices during the second quarter, increasing by 7.9% from a year before. Jones Lang LaSalle assumes demand in the luxury apartment market to cool this year, due to last year’s interest rate increases, this had slowed business expansion and the 2014 elections.

Jokowi also announced hoped to shift tax collection online, in order to boost revenues.