Indonesian Property Laws and Foreign Purchasers
Contributors to and readers of this thread may be interested in checking out a fairly comprehensive posting that I have submitted regarding property in Indonesia. It appears in this forum under the thread headed
Buying in Bali?
As mentioned there, I have lived in Batam, Indonesia (just 12 miles across the water from Singapore) for eight years and am involved in property development here – hence a very powerful reason for getting up to speed on how the Indonesian land system works and how to purchase with security of tenure.
By the way, provided you take the trouble to do your homework there are great opportunities in selected parts of Indonesia and some of the other countries of the region.
We are doing renovations and remodelling of a previously run-down housing complex and converting the properties into blocks of up to four Western standard apartments (typically 2 bedrooms x 2 bathrooms of about 85 to 100 sq m) within a gated community. We are targeting expatriates.
We are retaining most of the renovated properties as serviced apartment rentals for the expatriates working under contract in this island’s booming heavy fabrication and manufacturing industries – we cannot meet the demand as the regional economy is booming (in part because of work being done for major oil and gas industry projects in Autralia).
Unfortunately the banking system here simply does not provide finance for property and housing purchases in the way we are all familiar with in Australia and other developed Western countries.
Consequently we are now selling some of our properties (15 blocks of three or four apartments) in order to release capital for further acquisitions and construction. By the way, we cannot sell them as individual apartments as there is no strata title system as we know it.
As someone interested in property investing in Australia you might find some of the numbers here a little startling – we are selling newly-completed and fully fitted out (but unfurnished) apartments at around SGD$120,000 (AUD$94,500).
We are then offering to lease them back for an initial term of 10 years at 11% of the purchase price with an annual rental inflation adjustment typically of 5% a year. There are also buy-back provisions after two years.
A purchaser who borrows against property assets at home as security to buy here will have positive cashflows with 100% gearing at interest rates up 7.5 from Year 1 (after allowing for quarterly common property contributions, local authority charges, insurances and taxes).
We then add the furnishings and decorations and operate the properties as serviced apartments and we still make money from the sub-leasings.
Yes, we are in a niche market but it demonstrates the kind of opportunity that is around for those prepared to look. Generally you need to be looking to expatriates as tenants or prospective buyers. As yet too few locals have enough income or money and those that do probably will prefer not to buy from a “foreigner”.
In our experience most Westerners buying in Asian countries – other than those with employment, business or immediate family reasons (Asian spouses) – tend to be looking to retirement or for a holiday retreat.
Many are looking at property in places like the beaches of Thailand, the Philippines, Malaysia and Bali where they can usually get much more for much less than the popular retirement destinations in Australia.
Usually they also can live for much less and enjoy a higher standard of comfort with a limited retirement income while experiencing involvement in a different and interesting culture. Not everyone’s cup of China tea but a real appeal for increasing numbers.
As mentioned earlier in this thread by
Melbournian a number of countries in the region are encouraging relocation by Western retirees with Malaysia leading the way with its
Malaysia My Second Home program – it’s worth checking it out on the Internet.
A couple of other quick points –
1. You certainly do not need to be a citizen or a permanent resident to purchase property in Indonesia (see the post referred to above for more information).
2. Let’s put the Freehold v Leasehold issue into perspective – remember that virtually ALL of the residential land in Canberra and the ACT is held under 99-year leasehold title and there are plenty of people posting on this forum who are very happy indeed with the property investments they have made there. Much of Singapore also is held as leasehold.
For those interested there is more about the economics of our Batam project at
www.smilinghillbatam.com.
For authoritative information on the Indonesian land laws and foreign purchasing check
www.okus.net. Go to the resources pages where there is a paper by highly regarded corporate and business consultant Gary Dean. One small erratum – the paper indicates the main form of leasehold is limited to 50 years but the term in fact varies from province to province and in Batam is 80 years.