Monday, May 31, 2010

Will Indonesia allow expats to own houses? Maybe after uphill battle, says VP

At an international property industry gathering in Bali last week, Indonesia was presented as an emerging market with great potential and growing demand for development in the real, residential and commercial property sectors.

Indonesia is doing what it can to open its real estate market to foreign ownership, Vice President Boediono said to delegates from more than 60 countries at the opening of the 61 world congress of the International Real Estate Federation (Fiabci).

However, it will be an uphill battle, he added.

Foreign ownership of property is impossible under Indonesian law. Non-nationals can now rent real estate for 25 years and may extend leases two subsequent times, for 20-and 25- year periods respectively.

Investors may lose the value of their investment over long-period leases, and many foreigners complain about corrupt offi cials and Indonesian bureaucracy when processing lease extensions.

Public Housing Minister Suharso Monoarfa said the bureaucratic issue stemmed from the regional governments’ narrow perspective on ways to generate government revenue from the property market.

A permit goes through layers of approvals, which makes the process subject to abuse by corrupt offi cials, he said.

Suharso said the central government was attempting to raise awareness among governors and regents of generating real estate revenues and regional economic growth through more creative ways, such as simplifying procedures and providing clear city planning.

Regional governments should also be open to foreign ownership, which will result from Indonesia’sagrarian reform program, he added.

“This is the era of globalization. People move freely across the globe. Limiting foreign ownership is no longer the right approach,” Suharso said.

He said that opening Indonesia to foreign ownership would generate investment between US$3 billionand $6 billion per year.

The government is drafting a regulation that will partially open the market to foreign investment incertain types of real estate, such as luxury apartments and high-value properties.

The proposed regulations will permit foreigners to initially lease real estate for up to 70 years, insteadof extending the lease two additional times.

However other countries in the region allow foreigners to lease land for up to 90 years.

The government’s draft regulation will face a huge stumbling block because it must adhere to the agrarian and foreign investment laws, legislator Ganjar Pranowo of the Indonesian Democratic Party of Struggle (PDI-P) told The Jakarta Post in a telephone interview.

“The government tried a similar approach to manage investment by foreign corporations in 2008. They tried to simplify the land-use extension, but [the effort] was rejected by the Constitutional Court,” he said.

Ganjar said that the House of Representatives did not oppose foreign investment in the property market, but investment must be in-line with the national interest, which is defined by multiple parties. Andi Haswidi, The Jakarta Post, Nusa Dua

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