A Guide for Foreigners Buying Property in Indonesia

Property investment is one of the preferred investment opportunities for Indonesians, but property sales to foreigners – especially for investment – is far less common. This article will guide you on what you should be aware of prior to buying a property in Indonesia.

Over the last ten years, Indonesia's GDP grew an average 7.31 percent YoY. Each year, eight to nine million people enter the middle class. This new middle class fuels the demand for properties in the middle segment. This drives up the prices since overall there’s a shortage of affordable properties, especially in the Greater Jakarta area. This offers a great investment opportunity.

Reasons to buy property

Often buying property is associated with finding a place of residence, whereas property in Indonesia can offer an interesting investment opportunity with a relatively low entry level capital requirement compared to developed markets. A property investment would generally start at Rp1 billion, or around US$ 67,000.

So how much capital gain and rental yield can be realised from investment in property in Indonesia? Of course the gains and yields vary per property and per region, and for example depend on how strategic the location of the property is and if there are major infrastructure developments in the area.

According to data taken from Lamudi.co.id search engine, the top three areas for foreigners to buy property in Indonesia:

1. Bali

2. South Jakarta

3. Batam These are generally also areas where many foreigners reside so it makes sense that these are top of mind for foreigners thinking to invest in property, but these may not always be the best areas to invest when looking for pure capital gain potential.

The largest capital gains are made in so called “sunrise” cities, cities that are being developed. In these cities, major infrastructure projects are underway such as the LRT/MRT and new toll roads. These developments can decrease the travel time from these areas to Jakarta by half or even more, which will greatly impact the property prices in these areas.

Lamudi.co.id property data gives us an accurate indication of the capital gains that have been realised over the last three years in these areas:

1. Tangerang: 4%

2. Bekasi: 7.68%

3. Depok: 4% Once you decided you’re interested to invest in property there are certain things to ensure:

1. Ensure you have a valid stay permit

Such as diplomatic stay permit ( izin tinggal diplomatik), service stay permit ( izin tinggal dinas), on-visitation stay permit ( izin tinggal kunjungan), limited stay permit ( izin tinggal terbatas), or permanent stay permit ( izin tinggal tetap).

2. Understand the certificate types

Under Indonesian law, right to use ( hak pakai) is used as the right of a foreigner to purchase a property. The property itself can be a single house built upon right to use or right to use above a land with “right to own” ( hak milik), or right to use above a land with right to build ( hak guna bangunan).

A foreigner can obtain an apartment which is built upon the right to use.

3. Understand the duration of title

For a single house provided upon the right to use only, the duration is 30 years. This right to use can be extended by 20 years and can be extended again to 30 years when it expires. For a single house provided upon the right to use above the right to own, the duration shall not last for more than 30 years. This right to use can be extended by 20 years by agreement with the land owner. When this expires, the foreigner and the land owner can again enter into an agreement to extend it for another 30 years. Note that such extension can be conducted as long as the respective foreigner still has a stay permit in Indonesia, and the agreement must be recorded in the related land book ( buku

tanah) and land right certificate ( sertifikat hak atas tanah). For a single house provided upon the right to use above a land with right to build ( hak guna bangunan), the duration is as long as the available remaining time of the previous right to build. This right to use can be extended by 20 years and can be extended again by 30 years when it expires.

4. Find a suitable property that matches the minimum price requirement

To prevent property prices from becoming too high for ordinary Indonesian citizens, Indonesian property law provides minimum prices for foreigners to purchase property. As a consequence, the purchase price for a foreigner is much higher than for locals. Other than the minimum price policy, Indonesian property laws limits foreigners to a) one plot of land per person/ family, and b) the plot of land is limited to 2000 meter squares. The limitation of 2000 meter squares can be exempted if the land fulfills the condition that it has extraordinary positive effects on the economy. These limitations are not applicable to the premises of the representatives of foreign countries and/or international bodies.

5. Arrange financing

Especially for new developments, property developers offer attractive payment terms that allow payment by installments directly to the developer. Generally this would require a down payment of for example ten percent of the property value, with the balance payable over 36 months.