RI needs to ease foreign ownership limit

JAKARTA. Indonesia needs to remove the restrictions on foreign ownership of property in order to allow its property market to grow and become more attractive for overseas investors, a top executive of one of the world’s leading real estate firms has said.

President and CEO of Jones Lang LaSalle Colin Dyer said that as a short-term measure, the government’s policy to limit the ownership of local property by foreign investors was good as it curbed speculation in real-estate investment. However, the measure will become a major hurdle for international investors to invest in the country’s property market in the long term.

“For a long-term measure, Indonesia will probably have to move away from it. From an international investor’s perspective, it is disappointing because many of them would like to invest in real estate here,” he told The Jakarta Post in an exclusive interview on Tuesday in Jakarta.

Dyer added that the government could remove the restriction once the country achieved certain necessary conditions, such as the development of social housing and infrastructure.

At present, foreign investors, including international corporations, are not allowed to own a freehold title that can be bought, sold, mortgaged or inherited and can only buy leasehold property under the right to use land for a specific and pre-agreed purpose for a certain period of time.

Under the prevailing law, foreigners can own a leasehold on a property in Indonesia for up to 25 years, which can then be extended for another 20 years, and then 25 years more. So the total time period can reach 70 years. Investors, however, want the government to allow leasehold ownership for the full 70 years.

At present, foreign buyers, for example, can only buy a strata-title apartment in an apartment block standing on leasehold land owned by the state.

In terms of property rights, Indonesia ranked 84th out of 139 countries in the World Economic Competitiveness Report in 2010-2011.

Jones Lang LaSalle’s country director, Procon Todd Lauchlan, said the removal of the restriction could most logically be applied to high-end apartments above a certain size and/or price.

“Such a move would leave the other sections of the residential market as the domain for Indonesians and so eliminate the risk of price increases in these areas,” he explained.

Ownership, he went on, would ideally be extended to foreign investors according to the same title as that available to local buyers. The removal of the restriction would have a positive impact on the country’s economy, leading to a surge of investment in the property sector, Lauchlan said.

According to Lauchlan, the government, however, has to take all necessary measures to limit any speculative activity in the market if the market becomes overheated.

“[The government] can also reduce the amount banks will lend against a property, impose increased transaction charges and reduce the numbers of units one investor can buy,” he said.

Dyer said over the long term, Indonesia’s property market had a positive outlook, while in the short term, especially during the next one or two years, there would be a high demand for property, mainly in the capital city Jakarta. Indonesia’s recently upgraded sovereign rating to investment grade would boost investors’ business confidence to invest in the country, which would largely affect the local property landscape.

“We’re predicting that rental prices and the value of real estate will rise in Jakarta faster than anywhere else in Asia in 2012 but in both areas, we estimate a 20 percent increase.” (Linda Yulisman/ The Jakarta Post)