Property sales to overseas property investors in Indonesia are not common, however this does not mean that the market should be ignored.
Over the last decade, Indonesia’s GDP rose by an average of 7.31 per cent year on year. The country has a burgeoning middle class which fuels the demand for property, which then drives up prices across the market. However, there remains a shortage of affordable investment properties, particularly in the Greater Jakarta area.
Property in Indonesia offers a strong investment opportunity as there is a relatively low entry capital requirement in comparison to markets which are more developed. A property investment would generally start at Rp1 billion which is equivalent to around US$67,000.
Gains and yields vary vastly across regions and per property. It is therefore important for investors to strategically consider the location of their properties.
According to data from Lamudi.co.id, the top three areas for overseas investors to buy property in Indonesia are in Bali, South Jakarta and Batam. These are also areas where foreigners live, which means that they are usually at the forefront of overseas investors minds.
However, these are not always the best areas to achieve the highest capital gains. Larger gains can be made in so-called ‘sunrise’ areas, which are developing cities with major infrastructure projects being developed. These developments, such as the LRT/MRT and new toll roads will vastly decrease travel time to Jakarta.
Sunrise cities include Tangerang, Bekasi and Depok. Capital gains in these areas over the last three years stand at 4 per cent, 7.68 per cent and 4 per cent respectively.
It is also important for foreign investors to be mindful of Indonesian law, for example the right to use (hak pakai) is used as the right of a foreigner to purchase a property.
The property in question can be a single house built upon right to use or right to use above a land with ‘right to own’ (hak milik). It can also be the right to use above a land with right to build (hak guna bangunan). A foreigner is able to obtain an apartment which is built upon the right to use.
It is also important to be mindful of the time such permits allow. For example, for a single house provided on the right to use only, the duration is 30 years. This can be extended by 20 years and again to 30 years when it expires.
For a single house provided upon the right to use above the right to own, the duration is not able to exceed 30 years. This right to use can then be extended by 20 years by agreement with the land owner. When this expires, it is possible for the overseas investor and the land owner to enter into an agreement to extend it for another 30 years. It is possible such an extension can be conducted as long as the respective foreigner still has a stay permit in Indonesia.
Finally, in order to prevent property prices from becoming too high for local Indonesian citizens, Indonesian property law provides minimum prices for foreigners to purchase property, which means that the purchase price for a foreigner is typically far higher. However, for new developments property developers offer attractive payment terms allowing for installments to be paid directly to the developer.
Indonesia can offer a good return for overseas property investors, but make sure you do your homework.