Policy and legal framework affecting real estate in indonesia
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Policy and legal framework affecting real estate in indonesia

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Policy and legal framework affecting real estate in indonesia Policy and legal framework affecting real estate in indonesia Presentation Transcript

  • COMPANY PROFILECOMPANY PROFILECOMPANY PROFILECOMPANY PROFILE Policy and Legal Framework Affecting Real Estate in Indonesia
  • "In investing, what is comfortable is rarely profitable." Robert Arnott, American Entrepreneur
  • Outlines • Legal framework of land in Indonesia • Foreign investment on real estate • Increase of bank rate • Authority delegation from central government to local government on land and building taxes (PBB) and acquisition levy of rights of land and building (BPHTB) • Balanced occupancy rules • Expectation on land law and acknowledgment and protection of customary community rights 3
  • Overview of Right of Land in Indonesia • Right of Ownership (Hak Milik) • Right to Cultivate (Hak Guna Usaha) • Right of Use (Hak Pakai) • Right to Build (Hak Guna Bangunan) • Right of Ownership over Condominium Unit (Hak Milik Atas Satuan Rumah Susun) 4
  • RIGHT OF OWNERSHIP Right of Ownership is the most powerful and the fullest hereditary right which can be owned by a person over a land. 5
  • Owned by Indonesian only Cannot be owned by foreigner and legal entity. Except the legal entity that was appointed by government, as follows: a. State Bank b. Agricultural Cooperatives c. Religious Institutions d. Social Institutions Period of Time: Indefinite 6
  • RIGHT TO CULTIVATE DEFINITION A right to operate the land directly controlled by States, with certain period of time, for plantation, fishery or animal husbandry purpose 7
  • RIGHT TO CULTIVATE Subjects who are able to hold Right to Cultivate • Indonesian citizen; • Legal entity established based on Indonesian law and domiciled in Indonesia. 8
  • RIGHT TO CULTIVATE Time period of Right to Cultivate Maximum 35 (thirty five) years. May be extended for maximum 25 (twenty five) years. After the period and the maximum length of time is expired, right holder may be given renewal for another 35 years (maximum). 9
  • RIGHT TO BUILD DEFINITION is the right to build and own buildings over other party’s land 10
  • RIGHT TO BUILD Subjects who are able to possess Right to Build • Indonesian citizen; • Legal entity established based on Indonesian law and domiciled in Indonesia. 11
  • RIGHT TO BUILD Time period of Right to Build Maximum 30 (thirty) years. May be extended for maximum 20 (twenty) years. After the period and the maximum length of time is expired, right holder may be given renewal for another 30 years (maximum). 12
  • RIGHT OF USE DEFINITION A right to use and/or to take the production of a land which directly controlled by state or a land which belong to other person, who grants authority and obligation that is stipulated by authorized officer or in the agreement with the landlord. 13
  • RIGHT OF USE Subjects who are able to possess Right of Use • Indonesian citizen; • Foreigner domiciled in Indonesia; • Legal entity established in Indonesia based on Indonesian law and domiciled in Indonesia; • Foreign legal entity that has a representative office in Indonesia; • A religious and social entity; • Representative from foreign country and International Organizations bodies; • Department, Government bodies Non-Department and Regional Government. 14
  • RIGHT OF USE Time period of Right of Use Maximum 25 (twenty five) years. Extended for maximum 20 (twenty) years. After extended, can be renewed for another 20 years (maximum) 15
  • RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT DEFINITION a multilevel building which is built in an area that is divided into sections which are structured functionally whether horizontally or vertically that constitutes as units in which each can be owned and used separately, mainly for housing complemented with common equipment, common facilities and common land. 16
  • RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT Time period of Right of Ownership over Condominium Unit The time period of the Right of Ownership over Condominium Unit follows its underlying right of land where the condominium is built. 17
  • Condominium can be built over Right of Ownership Right to Build or Right of Use over the State Land Right to Build or Right of Use over the Right of Management RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT 18
  • Foreign Investment on Real Estate To conduct real estate business in Indonesia under the current law, a foreigner or foreign legal entity must establish a limited liability company (PMA). Currently, there is no restriction on a foreigner or foreign legal entity establishing a wholly foreign-owned PMA company in the real estate sector. 19
  • Industry Business Field Classification (KBLI) KBLI Code: 68110 (Real Estate that are Owned or Leased) Description: This group includes the business of buying, selling, leasing, and operating the real estate that are owned or leased, such as apartment building, residential building and non residential building. Including the activity of the selling of land and the operating of residential area. 20
  • Indonesia Investment Coordinating Board (BKPM) Latest Policy on PMA Head of the Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of 2013 on Direct Investment License and Non-License Guidelines and Procedure as amended by Regulation No.12 of 2013 21
  • Minimum Capital Investment The BKPM Regulation now clarifies the minimum investment as well as capitalisation requirements for PMA Companies. PMA Companies must have at least: •minimum investment (i.e., capital, loans and retained profits) more than 10 billion rupiahs (or its equivalent in US Dollars); •issued and paid-up capital of at least 2.5 billion rupiahs (or its equivalent in US Dollars). 22 Capital
  • Investment Procedures In the new regulation, there is a removal of Registration Procedure 23 Investors Principle License Business License
  • Project Completion 24 Under Article 24 Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of 2013 • A three-year time frame for completion of projects set out in foreign investors’ business plans. Longer timescales may apply for certain specific business sectors. • In the event of failure to complete a project within the applicable time frame, the BKPM will grant an audit, following which the licence will either be extended for another single term of three years or revoked.
  • Bank of Indonesia Rates Average 25
  • Bank of Indonesia Latest Policy Circular Letter of Bank of Indonesia No.15/40/DKMP (enacted on September 24, 2013) Implementation of Risk Management for Banks Providing Loans or Financing for Property, Loans or Property-backed Consumer Financing, and Loans or Vehicle Financing The background of the publication is to increase the prudential aspects of banks related credit distribution of property Effective as of September 30, 2013 26
  • Background • The growth of home ownership loan (KPR)/condominium ownership loan (KPRS) with building area more than 70m2 has reached 25.5% and 63.3% respectively in July 2013, which is more than the aggregate loan growth. • According to Debtor Information System of April 2013, 35,298 debtors owning over 1 KPR with loan value of Rp 31.8 trillion. • Therefore, BI considers it important to have a policy that can strengthen financial sector to minimize risks that may arise, including the excessive loan growth or property financing, and property-backed consumer financing. 27
  • Loan to Value (LTV) or Financing to Value (FTV) Ratio 28 Ratio between credit value or financing given by bank against real estate value as security at the time of credit or financing is granted according to last appraisal value
  • Loan/Financing and Type of Collateral Maximum Facility I LTV/FTV Facility II Facility III Home Ownership Loan (KPR) Type>70m2 70% 60% 50% Condominium Ownership Loan (KPRS) Type>70m2 70% 60% 50% Home Ownership Loan (KPR) Type 22-70m2 - 70% 60% Condominium Ownership Loan (KPRS) Type 22-70m2 80% 70% 60% Condominium Ownership Loan (KPRS) Type - 21m2 - 70% 60% Ownership Loan (KP) Home Office/Home Store - 70% 60% 29
  • Sample Case 1 In June 2013, A intends to purchase a condominium with a building area of 80 sqm of Rp 1 billion. A has signed a conditional sale and purchase agreement with the developer and has paid the down payment. A applies for condominium ownership loan (KPRS) for Rp 700 million (70% x Rp 1 billion). The bank obtains information that A has already obtained home ownership loan (KPR) for Rp 500 million from other bank (therefore,the application is A’s second facility), the property construction will be commenced in December 2013, and delivery date will be in July 2016. According to that information, the bank may not provide facility to A until the physical condominium is ready or the first facility has been fully paid. 30
  • Sample Case 2 A has obtained the home ownership loan (“KPR”) to purchase the house in site X, with the building area of 100m2 (one hundred square meter) in January 2012. During the term of KPR, A has applied for another KPR facility to purchase the house in site Y, with the building area of 150m2 (one hundred and fifty square meter) in June 2013. In this case, the calculation of LTV will be as follows: 31
  • Property Loan Facility LTV House X First 70% House Y Second 60% 32
  • Circular Letter of Bank of Indonesia No.15/40/DKMP •Banks are not allowed to provide loan for down payment •Banks are allowed to provide loan if the property is physically existed and ready to be delivered However, there are some exceptions to this rule: •if the facility is the first facility to the debtor; •a cooperation agreement between bank and developer stipulating commitment by the developer to complete the property; •a corporate guarantee by the developer; •the gradual disbursement of facility according to the construction progress; •the devaluation of credit quality of the developer if it cannot complete the property construction within a specified delivery date. 33
  • Land and Building Tax & Acquisition Levy of Right of Land and Building Legal Basis: Law No.28 of 2009 on Local Taxes New changes to local tax law as a follow-up to the regional autonomy policy and fiscal decentralisation. 34
  • Effective as of January 1, 2014 35 0.5% Maximum of 0.3% Land and Building Tax Rate
  • 36 Acquisition Levy of Right of Land and Building Rate 5% Maximum of 5% Effective as of January 1, 2011
  • Balanced Occupancy Legal Basis: Regulation of the Minister of Housing No.10 of 2012 on Implementation of Housing and Settlement Area With Balanced Occupancy Balanced Occupancy is a housing and residential areas built in balanced with a certain composition in the form of a single house and row house between the modest house, middle house and luxurious house, or in the form of public and commercial condominium. Balanced Occupancy on Condominium is housing and residential areas built in balanced between commercial and public condominium. 37
  • No. Location of Balanced Occupancy Scale 1. Housing at least 15 (fifteen) houses to 1,000 (one thousand) houses 2. Settlement at least 1,000 (one thousand) houses to 3,000 (three thousand) houses 3. Occupancy Area at least 3,000 (three thousand) houses to 10,000 (ten thousand) houses 4. Settlement Area more than 10,000 (ten thousand) houses LOCATION REQUIREMENTS FOR BALANCED OCCUPANCY 38
  • COMPOSITION OF BALANCED OCCUPANCY ON HOUSING The comparison based on the number of houses It means the comparison of modest house, middle house and luxurious house. The comparison is in the scale of 3:2:1. The comparison is 3 (three) or more modest houses against 2 (two) middle houses against 1 (one) luxurious house. 39
  • COMPOSITION OF BALANCED OCCUPANCY ON HOUSING The comparison based on the area of the land. It means the comparison of area for modest house against total land area. The area of land for a modest house is at least 25% (twenty five percent) from the total land area with the amount of modest houses at least equal to amount of luxury houses plus amount of middle houses. 40CONT’D
  • Developed proportionally between commercial condominium and public condominium. It means at least 20% (twenty percent) from the total floor area of commercial condominium. The public condominium may be developed in a separate building from the commercial condominium; or Built within the area of commercial condominium. COMPOSITION OF BALANCED OCCUPANCY ON CONDOMINIUM 41
  • COMPOSITION OF BALANCED OCCUPANCY ON HOUSING Developers who only develop medium houses. Develop modest houses at least 1 ½ times of the number of medium houses to be built. 42CONT’D
  • Expected Laws 43 Land Law Acknowledgment and Protection of Customary Community Right
  • Land Law This regulation will complement and enhance operational of Law No.5 of 1960 on Principle Provisions on Agrarian This regulation will stipulate: •the formation of a court for the resolution of disputes related to land; •agrarian reform; •acquisition of the land ownership based on customary; •the use of space above and beneath the land. 44
  • Acknowledgment and Protection of Customary Community Right 45 National Legislation Program (Prolegnas) 2012 to provide certainty for customary community in order to be recognized as a legal subject of land rights.
  • Acknowledgment and Protection of Customary Community Right 46 This regulation will stipulate: 1.The scope of recognition and protection: identification, verification, and determination of customary community; 2.Rights and obligations of customary community; 3.The presence of customary institution and committee to support the conservation, development and empowerment; 4.Dispute settlement mechanism through mutual consent, customary institution and customary court.
  • Concluding Pointers 47 • Understand the legal framework of land and building law in Indonesia; • Foreign investment on real estate is 100% opened; • Increase of bank rate offers challenges to developers; • Authority delegation from central government to local government on land and building taxes (PBB) and acquisition levy of rights of land and building (BPHTB); • Balanced occupancy is a must; • Expecting land law and acknowledgment and protection of customary community rights.
  • THANK YOU 48