President Jokowi finally signed the federal decree on
foreign property ownership on 22 Dec 2015. Key changes are: i) the duration of
foreigners’ “right to use” titles has increased to 30 years (from 25 years).
The titles, extendable to another 20 years, can be renewed for another 30
years, and ii) foreigners can bequeath the property to descendants. While we
are positive on the new policy, the potential IDR10bn price floor for foreigners
may cap the upside for the sector.
Extended holding period. On 22 Dec 2015, President Joko
Widodo (Jokowi) finally signed the government decree (PP) No 103/2015. As a
result, foreigners are still only allowed to hold properties (landed houses or
apartments) under right-to-use land titles. Nonetheless, the holding period has
now been extended to 30 years (from 25 years). The period of extension has been
maintained at 20 years, and foreigners can also still renew the land rights for
another 30 years. Foreigners whose domicile is no longer in Indonesia are
mandated to release or transfer their properties to other qualified parties
within a year. If this is not done, the Government can auction off the property
(if the property is built on government land) or returned it to the previous
holder of the land rights.
Greater equality. With the new regulations, foreigners
are now able to pass on their properties to descendants upon their demise. This
should enable foreigners to pledge their properties as collateral when applying
for loans or purchasing properties via a bank mortgage. Still, we think the
verification process might take longer than the norm, with the colateral valued
less than if the property comes with land titles that give its bearer the right
to own or right to build. Regulations also state that foreigners are allowed to
buy landed residential properties under the “right to own” clause – as long as
there is permission granting the “right to use” over the “right to own” from
the land deed officer.
Our take. We are quite positive on the new regulations,
although several points still need to be clarified. We also still await
regulations on the procedure to grant, release or transfer property ownership
to foreigners – which will be released by Ministry of Agrarian and National
Land Agency. The Ministry of Finance may also play a part in finalising the
foreign property ownership rules, specifically in deciding the price floor for
foreigners. The media has continuously speculated that the price floor is
IDR10bn. We opine that the price cap may limit potential catalysts as it may
not attract much foreigners to purchase properties. As such, the common
practice of appointing a nominee, marrying a local partner or using an
Indonesian-based company to purchase property would remain in place.
¨ Who may benefit the most? Assuming a potential price
floor of IDR10bn, this policy should benefit luxury property developers such as
Intiland Development (DILD IJ, NEUTRAL, TP: IDR630), Pakuwon Jati (PWON IJ, NR)
and Ciputra Property (CTRP IJ, NR). (Lydia Suwandi)
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