This document discusses proposals to relax restrictions on foreign ownership of property in Indonesia in order to boost the struggling residential real estate market. The Indonesian government had shelved a previous proposal but industry groups are lobbying for a revised proposal that would allow foreigners to purchase long-term leases of up to 70 years. Real estate analysts believe high mortgage rates, foreign ownership restrictions, high construction costs, taxes, and lack of infrastructure have hampered the market. The government hopes new infrastructure investment plans will help the economy and real estate sector grow. Allowing more foreign investment could boost the market but the government will need to curb inflation and reduce barriers for real estate prices to increase substantially.

1. Industry A fillip to boost Indonesian residential market A fillip to boost Indonesian residential market Industry
80 homefinder | Vol 37 Review Edition 2011 81Vol 37 Review Edition 2011 | homefinder
RUSMIN LAWIN, born and raised in
Medan, North Sumatra, holds various
roles in business, political and social
organizations. He is recognized as one of
the well-respected young leaders within
Indonesia and the ASEAN region. Rusmin
was recently elected as the Secretary
General of FIABCI International Asia
Pacific Committee for the term 2012
to 2014. An apt choice, in view of his
entrepreneur background, motivation,
organization and leadership skills.
THE Indonesian government may have
shelved a recent proposal to relax restric-
tions allowing foreigners to buy properties
in the country but all is not lost yet.
Real Estate Indonesia (REI)/FIABCI Indo-
nesia together with stakeholders are lob-
bying to push for a revised proposal. The
revised proposal seeks to allow foreigners
to buy long-term leases of up to 70 years
and to have the lease on the properties
granted extensions. Perhaps the current
weak property market in Indonesia may
see a change of fortune with this latest
collective action for change.
This revised proposal is currently being de-
bated with government officials who have
expressed concerns insisting on safeguards
to prevent speculative purchases to avert
price spiral that may undermine the real
estate industry. One way of checking this is
to limit ownership to permanent residents.
Removing foreign ownership limits is seen
as the panacea to help revive the real
estate sector at a time when the global
economy is showing signs of recovery,
save for the latest temporary snag caused
by S&P’s downgrade of the credit rating of
the United States.
In spite of this, many quarters still think
the sheer scale of demand for ‘shelter’ by
the world’s fourth most populous country,
comprising 17,508 islands, with over 238
million people, will fuel and sustain the
property sector in the years to come.
There is tremendous pent-up housing de-
mand. Meeting a basic need – shelter – in
the low-mid residential market is huge
with a shortfall reaching eight million units
this year. In general, the relatively poor
performance of residential real estate
prices in Indonesia has puzzled many. De-
spite strong economic growth and high
levels of investment, the demand for lux-
ury residential property – both purchases
and rentals – has continued to weaken
since the end of 2009, and remained stag-
nant throughout 2010.
of this nation and, of course, it becomes
crucial in its implementation stage. There-
fore, a number of challenges and obstacles
must be addressed with wisdom. This ex-
traordinary program is expected to boost
the country’s economic growth.
According to the latest Central Bank of
Indonesia Residential Property Survey,
residential property prices rose by 4.48%
during the year until the end of Q1 2011.
But prices dropped by 2.2% over the same
period when house prices were adjusted
for inflation.
Indonesia enjoys good economic growth
but it is never translated to strong house
price increases. The economy is expected
to grow by 6.6% in 2011 with high do-
mestic consumption and investment, and
healthy export revenues. One possible
reason for the slide is Indonesia’s highly
unpredictable inflation rate, typically out-
pacing economic growth.
Small-type houses, measuring 36 sq me-
ters and below, experienced the most no-
table price increases of 5.2% (-1.5% in real
terms) year-on-year to Q1 2011. On the
other hand, medium-type houses, mea-
suring between 36 sq meters and 70 sq
meters, had the smallest increase of 3.9%
(-2.8% in real terms) over the same period.
Large-type houses, measuring more than
70 sq meters, saw average price increas-
es of 4.4% (-2.3% in real terms) over the
same period. Property sales rose by 4.5%
year-on-year to 17,714 units in Q1 2011. In
2010, there were about 67,707 units sold,
up 13.8% from 59,498 units in 2009.
Jabodebek-Banten in Greater Jakarta led
among regions, with property prices up
5.74% over the year to Q1 2011. How-
ever, in inflation-adjusted terms, prices
were down by 1% over the same period.
It was followed by Manado, the capital of
Real estate analysts have attempted to ex-
plain what hampered the growth of Indo-
nesia’s property market. Most agreed that
the major contributing factors are: high
mortgage interest rates, foreign owner-
ship, high costs of building materials, high
tax rates, red-tape in government and in-
sufficient infrastructure developments.
President Susilo Bambang Yudhoyono has
officially launched the Master Plan for the
Acceleration and Expansion of Economic
Development of Indonesia (MP3EI) some
time ago. It was marked by the com-
mencement of a number of infrastructure
development projects in six Indonesian
corridors – Papua – Maluku, West Nusa
Tenggara – Bali, Sulawesi – North Maluku,
Kalimantan, Java, and Sumatera.
The giant project is projected to swallow
a budget of Rp 3000 trillion until 2014,
through planned investments of state-
owned enterprises (BUMNs) and national
private companies. An economic Master
Plan represents a lighthouse for the future
North Sulawesi and Makassar, the capi-
tal of South Sulawesi and home to sev-
eral prominent landmarks including Fort
Rotterdam with price increases of 5.47%
(-1% in real terms) and 5.32% (-1.4% in
real terms), respectively.
On the other hand, Pontianak, the capital
of West Kalimantan, which is also known
as the Equator City, has the smallest nomi-
nal price increase of 1.6% in the year to Q1
2011. When adjusted for inflation, prop-
erty prices also dropped by 5% over the
same period.
Residential property prices are expected
to continue rising (in nominal terms) al-
beit at a slower pace, according to Bank
Indonesia. In the year to end-Q2 2011,
residential property prices were project-
ed to have risen by 4.8%, with Greater
Jakarta expected to have experienced the
highest price increase of 6.6% over the
same period.
From 58% in 1998 and 20% in 1999, infla-
tion was wrestled down to 3.8% in 2000.
In 2001 and 2002, inflation soared to more
than 11%. Then it eased to 6% in 2004.
Then the consumer price index jumped
again to 10.5% in 2005, and 13% in 2006.
Inflation dipped back to 6.2% in 2007 be-
fore rising to 9.8% in 2008. Then, it eased
again to 4.8% in 2009 and 5.1% in 2010.
High inflation with its subsequent effect
on economic growth, wages and inter-
ests increase the level of uncertainty over
the economy. This tends to discourage
people from borrowing to finance house
purchase. Another possible reason for In-
donesia’s lackluster residential prices has
been the massive amount of real estate
construction when the economy grows.
The overhang of apartment is expected to
reach 120,000 by 2011, according to Col-
liers International. This massive rise in the
number of apartment units has impacted
prices – and some say the downward pres-
sure is likely to continue.
At best, relaxing foreign ownership will
promote inflow of investment in the prop-
erty sector, the government has still to
intervene to curb high inflation, reduce
red tape, introduce fiscal policies to keep
prices of building materials down and hold
interest rate at a sustainable level.
A fillip to boost
Indonesian
residential market
81Vol 37 Review Edition 2011 | homefinder
Text Rusmin Lawin
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