Bali Villa Dream Closer to Reality With Baby Steps to Ease Curbs

Balinese Style Architecture At A Home Stay, Ubud, Bali

Balinese home in Ubud, Bali. Indonesian President Joko Widodo has signed a long-awaited rule allowing resident foreigners to purchase so-called “right-to-use” property titles for 30 years, five years longer than a previous 1996 regulation, with a possible extension of up to 50 more years.

Photographer: Education Images/UIG via Getty Images
  • Property law doesn't go far enough to lure flood of buying
  • Some ministers had been pushing for greater liberalization

Buying that Bali villa may have gotten a little easier, though not easy enough.

Indonesian President Joko Widodo has signed a long-awaited rule allowing resident foreigners to purchase so-called “right-to-use” property titles for 30 years, five years longer than a previous 1996 regulation, with a possible extension of up to 50 more years. It also loosens the definition of residency, and clarifies that property may be bequeathed to relatives as long as they too have residency.

While the new rule will provide more legal certainty for foreigners, the property market remains more restricted to overseas buyers than in neighboring Singapore and Malaysia. Property firms aren’t expecting an immediate boost in demand on the resort-filled islands of Bali, Batam and Bintan.

“This won’t have a big impact on the property market, especially in the short term,” said Aleviery Akbar, Jakarta-based associate director of residential sales and leasing at Colliers International Group Inc. “It is still aimed at foreigners living here for a long time or those with a family connection.”

Opening up the property market to greater foreign investment was a campaign pledge of Widodo, better known as Jokowi, part of a reform agenda to boost Southeast Asia’s largest economy. That has proved difficult because the constitution forbids foreigners from owning land outright, a legacy of Indonesia’s long colonization by the Dutch. Critics have also expressed fears of locals being priced out of the market with greater liberalization.

Compromise Result

In an interview in August, Land Minister Ferry Mursyidan Baldan said non-resident foreigners shouldn’t be able to buy for investment purposes. In a separate interview last September, Finance Minister Bambang Brodjonegoro struck a different tone, saying he was pushing for the law to allow non-resident investors to purchase apartments as a way of boosting the construction industry and tax revenues.

The final regulation, signed by Jokowi in late December and released publicly on Monday, appears to be a compromise. There will be further regulations explaining purchasing procedures in more detail, including a possible price floor for foreigners wishing to purchase apartments, said Lydia Suwandi, an analyst at PT RHB OSK Securities Indonesia in a report dated Jan. 13.

The main body of the regulation states that only foreigners with “permission to reside” in Indonesia may purchase land, a status normally reserved for people working in the country or those with family connections.

An explanatory note attached to the regulation states foreigners with a visitor’s permit are included, leaving open the interpretation that tourists and occasional visitors can also buy, said Handa Sulaiman, executive director of investment at Cushman & Wakefield Inc. in Jakarta.

Insecure Ownership

The main barrier to greater foreign ownership is that right-to-use is seen in Indonesia as an insecure form of land ownership when compared to freehold, meaning banks don’t generally lend for it, Sulaiman said.

“The real question is whether Bank Indonesia will allow the Indonesian banks under its charter to lend on the new title,” said Matthew Georgeson, a partner at Bali property company Elite Havens. “If they do, demand will be very, very strong.”

Surging Prices

Prime residential prices on the island of Bali, known for its surf and rice-paddy landscapes, surged 15 percent in 2014, the most among comparable destinations tracked by broker Knight Frank LLP.

Foreigners who have purchased property in Indonesia, especially on Bali where thousands own villas, have mostly used local citizens as proxies to purchase freehold land, which is legally questionable, or have structured purchases as long-term leases.

The Indonesian Real Estate Developers Association was pushing the government for no residency requirements for foreigners wishing to purchase and for clarity on banks lending to them, said Eddy Hussy, the association’s chairman. Still, he said the new law was broadly positive and further regulations were expected.

“It is better than it was before,” he said. “It is a more relaxed regime now.”

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