President Joko Widodo's administration through the Ministry of Agrarian and Spatial Planning/ the National Land Agency ("BPN") plans to revise the government regulations regarding property ownership for non-resident foreigners in Indonesia ("Non-Resident Foreigners"). Non-Resident Foreigners will be permitted to own properties, whether landedproperties or apartments. The purpose of this plan is to stimulate foreign investment in Indonesia by providing opportunities for Non-Resident Foreigners to invest in the property sector.
The plan will be to change what is provided in the current government policy through Government Regulation No. 41 of 1996 regarding Residential Houses or Residences by Foreigners Resident in Indonesia ("PP 41/1996") that has been in effect for almost 20 years. Under PP 41/1996, only foreigners who are resident/domiciled in Indonesia can own residential houses or residences with certain rights over land.
According to our sources, the Minister of Agrarian and Spatial Planning/ the National Land Agency (the "Minister ATR/BPN") has stated that the regulation to be issued to replace PP 41/1996 will permit Non-Resident Foreigners to own landed houses or apartments in Indonesia. One of the requirement for the Non-Resident Foreigners to own properties is that the value of the landed house or apartment must be more than IDR 10 billion. Further, we note that the Minister ATR/BPN also explained that the properties that the Non-Resident Foreigners will be able to own are those built on land with right to use (hak pakai). Right to use can be granted over state land (tanah negara) or freehold land (tanah hak milik). Thus, the plan is to open property markets to foreigners which, in principle, are controlled by the state or by state owned companies and/or private Indonesian nationals.
If the plan is realized under the above mentioned requirements we note several issues that it would be interesting to have clarified. One is the issue of collateral. It would be difficult for a foreigner obtaining financing from local banks to purchase a landed house/apartment because "hak pakai" land cannot be made an object of a mortgage. Another issue, if financing from a local bank is being considered, is opening a bank account for the Non-Resident Foreigners, because, to date banks will only open bank accounts for foreigners who have a work permit.
Another interesting issue will be what currencies can be used to do the transaction. Referring to Regulation of Bank Indonesia No. 17/3/PBI/2015 regarding Obligation to Use Rupiah in the Territory of the Republic of Indonesia ("PBI 17/2015"):
Article 2 of PBI 17/2015:
- any party shall use Rupiah in transactions conducted in the Territory of the Unitarian State of the Republic of Indonesia.
- the transactions referred to in
paragraph (1) include:
- any transaction that has a purpose of payment;
- other settlements of obligation to be fulfilled with money; and/or
- other financial transactions.
Although the plan to allow foreigners to buy properties in Indonesia is a very fresh and bold one, it will be interesting to wait and see how the new concept regarding property ownership by foreigners as a replacement of PP 41/1996 will work; if the concept is properly formulated we have no doubt that it will boost the property market and directly and/or indirectly increase foreign investment in Indonesia.
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