RACING UP THE INVESTMENT, THROUGH PROPERTY OWNERSHIP BY FOREIGNERS 

Dr. Iman Sjahputra, SH, SpN, LL.M) *

                The massive number of foreign workers in Indonesia has brought an impact, particularly with regard to long term residence.  The positive impact is that the huge number of foreign workers of course can be the income contribution to the country.  But there is a frequently asked question, whether or not the foreigners may own a home or property in Indonesia?

                This matter is getting more intense since the Ministry for Public Housing is planning to revise the Government Regulation No. 41 Year 1996 concerning the Ownership of Residential or Occupancy Houses by Foreigners Domiciled in Indonesia (“PP”), especially related to the plan to change the clause with regard to the granting of Right to Use Land to foreigners from 25 years to 70 years.  Inevitably it invites clash of opinion which is spreading to various parties including the House of Representatives who requested that the plan to revise the PP to be transparently disclosed since we need to be cautious with the property ownership by foreigners in Indonesia.

                Moreover after the decision of the Constitutional Court (“MK”) dated March 25, 2008 that nullified Article 22 of Law No. 25 Year 2004 on the Investment that allowed the right to use land through the renewal of the right to use the land to the entrepreneurs or investors, both local or foreign.  Before the nullification by MK, the clause grant the extension of the Right of Cultivation (HGU) up to 95 years, the Building Concession Right (HGB) up to 80 years old, and Right to Manage (HPL) up to 70 years.

                For the sake of national sovereignty, cautious is a must, but not to be narrowly blinded since its impact could be bad for investment in Indonesia.  The massive number of foreign workers should be certainly and clearly regulated, especially when it is related with the ownership, but it should not narrow down other aspects that potentially can give additional value to the state’s incomes from tax revenue which will trigger the growth of investment.

                Certainly foreign or foreigners employed companies usually will facilitate the employees to get a place to stay, for example, by renting apartments or houses, and even buying them.  The problem is whether our regulation of the foreigners housing is sufficient enough?  The presence of foreign investors is clearly needed by Indonesia, since they are not only bringing the know-how technology and capitals to Indonesia, but they are also contributing to in the development of Indonesia.  That is why the government always tries to find precise facilities and incentives to be given to the foreign investors to lure them to invest in Indonesia.  For foreign investors, indeed they need legal guarantee and certainty.

                The plan to revise the PP is certainly related to the legal certainty.  It means if foreigners do the investment in the long term then consequently they will request to have the residential ownership in long term also.  The PP regulates that the foreigners can own the property with the Right of Use status for 25 years and can be renewed only for the next 20 years.

                As a comparison, it is better to look at our neighbor countries such as Singapore.  Singapore gives priority to the foreigners to own houses/apartments as the foreigners’ wishes.  The period of ownership can be given under two alternatives i.e. allowed to buy an apartment or house with the right within a period of 99 years or eternally owned (free hold).  However the it does not mean that under such arrangement there will be no bumper so that the foreigners can be easily purchase a house or apartment in this Lion country because the Singapore Government implements the rules for foreigners with The Additional Buyer‘s Stamp Duty (ABSD) whereas the foreign buyers/investors shall become the subject to Stamp Duty and required to pay 30 (thirty percent) for the down payment.  So it is impossible for the property speculators to grow in Singapore.  This rule also becomes a “filter” for the property buyers in Singapore, so that the property buyers in Singapore are the end users, and not speculators who can damage the Singapore’s property market.

                Not much different from Singapore, Malaysia also has the similar program whereas the foreigner is allowed to have the right of a house or apartment for a period of 99 years or for life (free hold) under the Second Home Scheme program i.e. giving the right to the foreigner to own a property only for the house or apartment with the value of at least a million Ringgit or equivalent with three billion Indonesian Rupiah.  Its purpose is to limit the foreigners to become the property speculators that can the property’s price, as well as to protect the Malaysian to own property that is cheaper compared to the foreigner.

                The above circumstances are very interesting and to compare whether we already have the proper housing regulations for the foreigners?  The areas for the foreigners’ property destinations are such as Batam, Jakarta, Bali, Surabaya and Kalimantan.

                It is very likely that the major cities in Indonesia will be hunted by foreign consumers.  That is the reason the Minister of Public Housing keeps on trying so that the foreigners can own the properties for a direct period up to 70 years by revising the PP by adding an extension up to 25 years from the existing PP.  This proposed new PP shall give a clear interpretation to the public whether the foreign ownership is intended to ownership right of a building or the unit only and not to the right of land ownership? Or whether such foreign ownership is only referring to right to use or right to lease only?  

                The definition of the property also very important to be wisely decided.  Whether the property only refers to the residential or a place like a house or it kind shall be clearly defined, for example unit like apartment or flat.  It cannot be bargained that the government also needs to give a strict rules from its size whereas it shall be limited between the sizes of 250 to 400 m2.  Besides that the government also needs to anticipate the housing need for the underprivileged and low-income citizens that shall be set out also in this PP revision.  The government needs to require the developers to build 20% of the residential apartments for the low-income citizens, so that the people still can own a cheap price property.  In the revision of PP, or in case there is a new regulation, it shall be accommodated with not biased rules and it also needs to provide a legal certainty to the foreigners and citizens, and its implementation shall be strictly supervised so that they can jointly support the effort of the globalization of properties in Indonesia.

                With this new rule, it probably will encourage the properties’ market in Indonesia.  This certainly will affect the country’s revenues.  Finally Indonesia will be the target of investment by foreign entrepreneurs, thus it can open the jobs for the citizen and consequently the local economy will be better, don’t you agree?

* Writer is an Advocate having practice in Jakarta.


Back