Global Business Guide Indonesia

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Business Updates | Indonesia’s Law on Foreign Ownership of Property: What are the Changes?

On 28th December 2015, Indonesia put into effect a new regulation stipulating revised and newly-introduced rules on property ownership for foreigners. The Joko Widodo administration last year hinted at a complete regulatory revision to the now defunct Government Regulation No. 41 of 1996 (See Indonesia Opening the Door to Foreign Ownership of Property). While the new regulation – Government Regulation No. 103 of 2015 regarding the Ownership of Homes or Residences by Foreigners Residing in Indonesia – sheds light on the legal rights for foreigners seeking to purchase a home in Indonesia (See Ownership of Homes or Residences by Foreigners in Indonesia), it is not considered a groundbreaking policy. Though Government Regulation No. 103 of 2015 clears up several ambiguities that plagued the original law on foreign ownership of property including eligibility requirements and inheritance issues, property consultants and industry analysts remain underwhelmed. The primary criticism of the regulation is its failure to allow property purchases by foreigners residing and working outside of the country which therefore limits the potential of Indonesian property as an investment vehicle.

In spite of the market’s unimpressed reaction to Government Regulation No. 103 of 2015, the law complements President Joko Widodo’s first economic policy package (See Indonesia's New Economic Package: A Disappointing Start to Deregulation) by allowing foreign ownership on landed houses and apartments under certain circumstances. While Indonesia maintains strict restrictions on foreign ownership of property in comparison to ASEAN counterparts Malaysia and Singapore – whose policies only require foreigners to meet technical criteria such as a minimum price threshold and government approval, respectively – the issuance of Government Regulation No. 103 of 2015 demonstrates a forward-thinking approach to push for greater liberalisation in Indonesia’s property market.

Regulation details

Setting itself apart from preceding amendments, the new regulation introduced by the Joko Widodo administration clarifies the qualifications needed to be met by foreigners in order to purchase residences which were not specified in the pre-existing regulation. Expatriates with a legal stay permit, diplomatic stay permit, official stay permit, residence stay permit, limited stay permit or permanent stay permit that give benefit, conduct business, work or invest in Indonesia will now have access to own apartments and landed houses under the Right of Use title. As part of the new regulation, foreigners are entitled to property ownership for a maximum of 80 years which is an extension from what was previously 70 years.

Through this regulation, Indonesia’s government has sought to clarify the qualifications and criteria for foreigners authorised to own properties in the country in addition to clearing up confusion in regards to inheritance rights for heirs; children of expatriates are only allowed property ownership rights should they also hold a legal stay permit.

Enough of an impact?

As the latest addition to Indonesia’s property laws, Government Regulation No. 103 of 2015 remains largely overshadowed by unmet expectations. Analysts are waiting for a breakthrough in existing regulations on foreign ownership of property that would make Indonesia regionally competitive alongside highly-attractive property markets such as Singapore. Despite the recently-announced regulation’s perceived failure to bring about any significant changes, Indonesia’s property market is still expected to incur growth of up to 10-12% in 2016. These improvements are likely to take place due to improved economic conditions, the implementation of the government’s economic packages, and the push for rapid infrastructure development, according to Mr Eddy Hussy, Chairman of Realestat Indonesia (Reuters) – the country’s leading property industry organisation.

Opening the door to internationalisation

The longstanding negative sentiment surrounding foreign ownership of property in Indonesia has not prevented President Joko Widodo in going forward with plans to resolve an issue deemed unfavourable by the public. Having been criticised last year for issuing a number of policies perceived to be nationalistic by foreign investors, the Joko Widodo administration through the introduction of Government Regulation No. 103 of 2015 is making headway in improving Indonesia’s image as an investment destination open to the international community.

As the country participates in greater regional integration which includes its role in the ASEAN Economic Community (See Indonesia and the ASEAN Economic Community – Ready for Regional Integration?), the issuance of Government Regulation No. 103 of 2015 – while lacking in substance – is a noteworthy measure in support of a more investor-friendly business climate.

Global Business Guide Indonesia - 21st january 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)