Written By: Jacquelyn Annete García Vadnais
A growing middle class and rising levels of urbanisation have supported rapid real estate growth in Indonesia, and there remains substantial room for expansion in the coming years.
In recent years especially, there has been a great deal of real estate investment activity occurring in Indonesia. The reasons for this are myriad. In order to learn more about the growing real estate investment opportunity in Jakarta, consider the information below.
Pro-growth political agenda
In the years since 2014, the Indonesian government has increasingly shifted its real estate policies towards attracting new investment and increasing property borrowing and purchasing, thus supporting a gradual turnaround in the sector.
The government also moved to encourage foreign investment in the real estate sector with a 2015 decision allowing foreigners to “own” luxury apartments under a right-of-use scheme. Foreigners are not permitted to own property in Indonesia, although the government’s new right-of-use scheme for luxury properties does not have a fixed duration for long-term leases. Despite this issue, the measures are expected to support long-term expansion of the luxury property market and encourage inflows of FDI.
The government also announced in 2015 that it would allow foreigners residing in Indonesia to “own” houses under an 80-year right-of-use scheme, with the option to extend the original 30-year lease on the property by 20- and 30-year increments.
For both houses and luxury apartments, right-of-use ownership allows the owner’s next-of-kin to inherit the property, although this only applies to residents of Indonesia.
Tax reform
In November 2015 the Ministry of Finance announced plans to raise the threshold for a 20% luxury tax on property, from any property worth more than Rp2bn ($151,000) to any valued at more than Rp10bn ($754,000), a move that should further support expansion. In addition, the expectation is that high-end apartment stock is forecasted to rise by 8.8% in 2018, and rise by 57.7% in 2019.
Economic modernization
Rising internet uptake and growth of e-services, including e-commerce, will have a tremendous impact on the industrial property market in Indonesia in the coming years, especially after the government removed the foreign ownership restriction on e-commerce businesses in May 2016.
The country’s ongoing digital transformation and burgeoning e-commerce industry will also have significant, positive ramifications for the industrial land and office segments, leaving the real estate sector in a strong position and supporting the sector’s expansion well into 2018.
A Brief History of Indonesia
Now that we have touched on modern Indonesia, a bit of history can add context to this vibrant nation. In order to understand the current market climate in Indonesia, it is helpful to understand the history and background of Indonesia as a whole.
Indonesia’s history can be broadly categorized into several periods. From the 7th century, Buddhist and Hindu influence from several regional kingdoms ruled what is now modern day Indonesia. Since this time, and possibly even before, Indonesia had close contact with China and India.
Islam has also had a documented presence in Indonesia since the 7th century. However, its significance in the region was solidified In the 13th century, when Islam was brought to Indonesia by merchants traveling to Sumatra. Increased trade brought prosperity to the region, as well as the religious conversion of local sultans, rulers, and the local populace.
In the early 16th century the Portuguese arrived for spices. The Dutch soon followed with the Dutch East India Company, which sought to rule the region as well as monopolize trade. In World War II the Japanese invaded, ending Dutch rule. However, after World War II Dutch powers sought to regain power, and it was not until 1949 that Indonesia obtained its independence.
Since its independence, Indonesia has grown steadily economically. As a place to reside, or spend extended holidays, it is worth noting that Jakarta and the surrounding region is renowned for its burgeoning modernity, as well as its spectacular scenery, and natural beauty. Indonesia has also attracted a great deal of attention since its location is in the center of the region and it has cultural diversity that is among the most unique in the world. Jakarta has a mixture cultures reflective of its varied history from the Hindu and Buddhist kingdoms of the 7th century, to its rich Islamic history all the way through colonization, and independence. For this reason, the city is vibrant with a melange of culinary styles, stunning historical and modern architecture, mosques, and impressive museums full of tribal artifacts.
Now that we have touched on modern Indonesia, a bit of history can add context to this vibrant nation. In order to understand the current market climate in Indonesia, it is helpful to understand the history and background of Indonesia as a whole.
Indonesia’s history can be broadly categorized into several periods. From the 7th century, Buddhist and Hindu influence from several regional kingdoms ruled what is now modern day Indonesia. Since this time, and possibly even before, Indonesia had close contact with China and India.
Islam has also had a documented presence in Indonesia since the 7th century. However, its significance in the region was solidified In the 13th century, when Islam was brought to Indonesia by merchants traveling to Sumatra. Increased trade brought prosperity to the region, as well as the religious conversion of local sultans, rulers, and the local populace.
In the early 16th century the Portuguese arrived for spices. The Dutch soon followed with the Dutch East India Company, which sought to rule the region as well as monopolize trade. In World War II the Japanese invaded, ending Dutch rule. However, after World War II Dutch powers sought to regain power, and it was not until 1949 that Indonesia obtained its independence.
Since its independence, Indonesia has grown steadily economically. As a place to reside, or spend extended holidays, it is worth noting that Jakarta and the surrounding region is renowned for its burgeoning modernity, as well as its spectacular scenery, and natural beauty. Indonesia has also attracted a great deal of attention since its location is in the center of the region and it has cultural diversity that is among the most unique in the world. Jakarta has a mixture cultures reflective of its varied history from the Hindu and Buddhist kingdoms of the 7th century, to its rich Islamic history all the way through colonization, and independence. For this reason, the city is vibrant with a melange of culinary styles, stunning historical and modern architecture, mosques, and impressive museums full of tribal artifacts.
Factors Investors Should Consider When They Are Investing in Jakarta, Indonesia
It is important to note that Indonesia is not a typical market for foreign investors. For example, the term “Hak Milik” is defined under Indonesian law as “freehold of title.” Typically, foreign individuals and companies are not legally allowed a freehold title, but are relegated to “Hak Pakai” or right of use. For example, the initial Hak Pakai deed available for foreigners for a condo is 25 years, and can be renewed for another 25 years, and then a final 20 years, making a total 70-year lease. While there are ways for foreigners to acquire land, “Hak Pakai” is far more common. Investors should be well aware and carefully research these legal terminologies in order to avoid common pitfalls. It is for this reason that it is advisable to hire on a lawyer in Indonesia when making property transactions rather than a real estate agent alone.
Investment Outlook for Foreign Investment in the Coming Years
Keeping the above in mind, many speculators, analysts, and investors are anxiously awaiting the anticipated deregulation of real estate restrictions in Indonesia.
The Joko Widodo government has in an unprecedented move recently opened up the real estate sector to full foreign ownership, which enables foreign property developers to enter the country by setting up a 100% foreign-funded company, without the prerequisite of finding a local partner. In addition, Indonesia is the largest economy in Southeast Asia, and has become a powerful player in many commercial, and industrial sectors, and even in the rapidly changing, innovative tech and e-commerce industries. Due to the heightened activity in these sectors and the government improving taxation regulations for foreign investors, investors anticipate increased real estate yields as the economy in Jakarta gains speed. This, combined with the 200,000 people that move to Jakarta each year, provides an ideal market to acquire tenants and make profits for foreign real estate investors.
Many analysts see this as a sign of things to come, and anticipate a more open real estate market for foreign investment in the coming years.
Lots of foreign builders and potential buyers outside the country, however, are still reticent due to a lack of understanding about the market and its regulations. Additionally, many view a freehold asset as intrinsically more valuable than one with a time limit.
In the long run, investors should remain cautiously optimistic, but aware about the uncertainties stemming from a cabinet reshuffle, policy changes, revised laws, and the outcome of the general election in 2019.
Attractive Rental Yields
Jakarta has very attractive rental yields for investors. Luxury apartments in Jakarta are now currently priced at approximately $2,500 USD to $2,900 per square meter (sq.m.). Rental yields are hovering between 7.4% to 8.5% and are continuously rising in recent years. This being said, income tax on rental properties is on the higher side. In terms of taxation, individuals that are not residents of Indonesia are subject to withholding tax at 20%, which is applied to the gross income. In terms of selling property, capital gains are taxed at 5% on the total value of the transaction. Investors are looking forward to anticipated deregulations of the real estate market to improve this.
Low Cost of Living
It is important to note that Indonesia is not a typical market for foreign investors. For example, the term “Hak Milik” is defined under Indonesian law as “freehold of title.” Typically, foreign individuals and companies are not legally allowed a freehold title, but are relegated to “Hak Pakai” or right of use. For example, the initial Hak Pakai deed available for foreigners for a condo is 25 years, and can be renewed for another 25 years, and then a final 20 years, making a total 70-year lease. While there are ways for foreigners to acquire land, “Hak Pakai” is far more common. Investors should be well aware and carefully research these legal terminologies in order to avoid common pitfalls. It is for this reason that it is advisable to hire on a lawyer in Indonesia when making property transactions rather than a real estate agent alone.
Investment Outlook for Foreign Investment in the Coming Years
Keeping the above in mind, many speculators, analysts, and investors are anxiously awaiting the anticipated deregulation of real estate restrictions in Indonesia.
The Joko Widodo government has in an unprecedented move recently opened up the real estate sector to full foreign ownership, which enables foreign property developers to enter the country by setting up a 100% foreign-funded company, without the prerequisite of finding a local partner. In addition, Indonesia is the largest economy in Southeast Asia, and has become a powerful player in many commercial, and industrial sectors, and even in the rapidly changing, innovative tech and e-commerce industries. Due to the heightened activity in these sectors and the government improving taxation regulations for foreign investors, investors anticipate increased real estate yields as the economy in Jakarta gains speed. This, combined with the 200,000 people that move to Jakarta each year, provides an ideal market to acquire tenants and make profits for foreign real estate investors.
Many analysts see this as a sign of things to come, and anticipate a more open real estate market for foreign investment in the coming years.
Lots of foreign builders and potential buyers outside the country, however, are still reticent due to a lack of understanding about the market and its regulations. Additionally, many view a freehold asset as intrinsically more valuable than one with a time limit.
In the long run, investors should remain cautiously optimistic, but aware about the uncertainties stemming from a cabinet reshuffle, policy changes, revised laws, and the outcome of the general election in 2019.
Attractive Rental Yields
Jakarta has very attractive rental yields for investors. Luxury apartments in Jakarta are now currently priced at approximately $2,500 USD to $2,900 per square meter (sq.m.). Rental yields are hovering between 7.4% to 8.5% and are continuously rising in recent years. This being said, income tax on rental properties is on the higher side. In terms of taxation, individuals that are not residents of Indonesia are subject to withholding tax at 20%, which is applied to the gross income. In terms of selling property, capital gains are taxed at 5% on the total value of the transaction. Investors are looking forward to anticipated deregulations of the real estate market to improve this.
Low Cost of Living
Indonesia, even compared to other parts of Southeast Asia, has a low cost of living. The national dish of Nasi Goreng can be found in incredible local shops for less than $2 per plate in front of a luxury mall that has Gucci and Louis Vuitton. In terms of quality of life, the rent, food, and other staples are affordable for both locals and investors alike. The ability to enjoy fine dining, luxury, and high-end shopping is also comparatively affordable, particularly for those that are earning in USD, GBP or EUR and residing in Jakarta.
Great Travel Opportunities/Cultural Diversity
Indonesia truly has one of the most fascinating cultural mixtures in the world. Due to the separation of the islands for a substantial period of time, there are many preserved tribes in Indonesia that cannot be replicated elsewhere. Some of these descendants relocated to urban cities such as Jakarta, which increases the city’s uniqueness. This, combined with global influences from the Muslim world, India, The Netherlands, and China creates fantastic cuisine and architecture to admire. Jakarta embodies all of these perks as it retains its traditional character alongside its reputation as the most developed city in Indonesia.
Developing Economy
Across the board, Indonesia’s economy has been growing substantially. In terms of the parts that are particularly attractive to invest in, both Jakarta and the two cities immediately on the outskirts of Jakarta such as Bekasi and Tangerang due to rapid construction of luxury malls and housing complexes to support the increase of wealth in Jakarta. It is projected that Jakarta will continue to grow due to the Indonesian economy’s growing technical know-how, rich natural resources and agricultural lands.
High Speed Internet
Jakarta has a developing internet infrastructure with good connectivity that will likely see further improvements in the near future. This will be a major benefit to doing business there. In terms of real estate investors, this allows potential tenants to retain much coveted internet access, and have the ability to complete their personal and/or business activities reliably in Jakarta. For landlords that are looking to target the market for multinational corporation employees, having reliable Internet is a major benefit to attract those high-level executives with substantial rental budgets in Jakarta.
Final Remarks on the Subject
Jakarta is a fantastic place for real estate investors to watch in the coming years due to anticipated real estate deregulations, and the strong economic growth projections in Indonesia. As many more multinational firms create a presence in Jakarta, the potential benefit for real estate investors that are looking to make rental yields from either the expat community or locals alike will increase. Since the value of real estate increases yearly, investors will be able to have a growing portfolio while they are potentially gaining from rental yields. Since the cost of living is low, yet the level of comfort and Internet stability is good, and improving, Jakarta is a very appealing place to invest in property. Furthermore, as the regulatory framework continues to respond to demand from foreign buyers, it will be fascinating to see how the market continues to profit investors from Indonesia and countries around the globe.
--
Jacquelyn Annete Garcia Vadnais is an Investment Consultant and field expert blogger for Barracuda Consulting.
Jacquelyn has a JD/MBA from Suffolk University, and LL.M in International Law from the University of Miami, and a B.A. from the George Washington University in International Affairs with a Concentration in International Politics. Jacquelyn speaks English, Spanish, French, and Portuguese and has lived in ten countries. Jacquelyn has done work for firms such as Boston Consulting Group and has worked with firms based in over ten countries in the fields of Real Estate, International Law, Expat Living, International Business, Forex Trading, and Travel. She has also volunteered her time and expertise at the Victims Rights Law Center based in Boston, MA.
Please leave your comments below. If you would like to subscribe to our newsletter, click here: https://tinyletter.com/barracuda-consulting. To purchase a full real estate report, or to access a complete suite of investment advisory services please contact us: https://www.barracuda-consulting.net/contact.
Great Travel Opportunities/Cultural Diversity
Indonesia truly has one of the most fascinating cultural mixtures in the world. Due to the separation of the islands for a substantial period of time, there are many preserved tribes in Indonesia that cannot be replicated elsewhere. Some of these descendants relocated to urban cities such as Jakarta, which increases the city’s uniqueness. This, combined with global influences from the Muslim world, India, The Netherlands, and China creates fantastic cuisine and architecture to admire. Jakarta embodies all of these perks as it retains its traditional character alongside its reputation as the most developed city in Indonesia.
Developing Economy
Across the board, Indonesia’s economy has been growing substantially. In terms of the parts that are particularly attractive to invest in, both Jakarta and the two cities immediately on the outskirts of Jakarta such as Bekasi and Tangerang due to rapid construction of luxury malls and housing complexes to support the increase of wealth in Jakarta. It is projected that Jakarta will continue to grow due to the Indonesian economy’s growing technical know-how, rich natural resources and agricultural lands.
High Speed Internet
Jakarta has a developing internet infrastructure with good connectivity that will likely see further improvements in the near future. This will be a major benefit to doing business there. In terms of real estate investors, this allows potential tenants to retain much coveted internet access, and have the ability to complete their personal and/or business activities reliably in Jakarta. For landlords that are looking to target the market for multinational corporation employees, having reliable Internet is a major benefit to attract those high-level executives with substantial rental budgets in Jakarta.
Final Remarks on the Subject
Jakarta is a fantastic place for real estate investors to watch in the coming years due to anticipated real estate deregulations, and the strong economic growth projections in Indonesia. As many more multinational firms create a presence in Jakarta, the potential benefit for real estate investors that are looking to make rental yields from either the expat community or locals alike will increase. Since the value of real estate increases yearly, investors will be able to have a growing portfolio while they are potentially gaining from rental yields. Since the cost of living is low, yet the level of comfort and Internet stability is good, and improving, Jakarta is a very appealing place to invest in property. Furthermore, as the regulatory framework continues to respond to demand from foreign buyers, it will be fascinating to see how the market continues to profit investors from Indonesia and countries around the globe.
--
Jacquelyn Annete Garcia Vadnais is an Investment Consultant and field expert blogger for Barracuda Consulting.
Jacquelyn has a JD/MBA from Suffolk University, and LL.M in International Law from the University of Miami, and a B.A. from the George Washington University in International Affairs with a Concentration in International Politics. Jacquelyn speaks English, Spanish, French, and Portuguese and has lived in ten countries. Jacquelyn has done work for firms such as Boston Consulting Group and has worked with firms based in over ten countries in the fields of Real Estate, International Law, Expat Living, International Business, Forex Trading, and Travel. She has also volunteered her time and expertise at the Victims Rights Law Center based in Boston, MA.
Please leave your comments below. If you would like to subscribe to our newsletter, click here: https://tinyletter.com/barracuda-consulting. To purchase a full real estate report, or to access a complete suite of investment advisory services please contact us: https://www.barracuda-consulting.net/contact.
Comments
Post a Comment