High Buying Costs in Indonesia

Buying costs are very high in Indonesia How high are realtors’ and lawyers’ fees in Indonesia? What about other property purchase costs? TRANSACTION COSTS Who Pays? VAT 10% buyer Transfer Tax 5% buyer Land and Building Transfer Duty 5% buyer Legal Fees 0.5% - 1.5% buyer Stamp Duty INR6,000 (US$0.65)/document buyer Sale and Purchase of Land Deed 1% buyer Registration Fee INR25,000 (US$3) buyer Real Estate Agent´s Commission 5% seller Costs paid by buyer 20.50% - 22.50% Costs paid by seller 5% ROUNDTRIP TRANSACTION COSTS 25.50% - 27.50% See Footnotes Source: Global Property Guide How difficult is the property purchase process in Indonesia? Individual foreigners can buy condominiums in Indonesia, though the formal law is slightly knotty. Foreigners can also buy control of landed property, though the legal difficulties are larger, and the degree of peace of mind attainable is correspondingly smaller. Condominiums The basis for foreign ownership of strata-title residential property, i.e. condominiums, is Government Regulation No 41 of June 1996. Regulation 41/1996 is however unclear, and no foreigner has actually received a strata title as a certificate of ownership. In practice, foreigners sign a Convertible Lease Agreement by which the title is held in the name of the developer, while a lease is held for a definite period. The Convertible Lease Agreement states that, if and when prevailing laws and regulations permit ownership of strata titles by foreigners, both the lessor and the lessee will be obligated to sign a deed of sale and purchase, transferring title to the foreign owner. Land Foreigners are not allowed to own freehold land. Nevertheless, they can acquire rights to the use of land but not ownership rights. There are three options open to foreigners for buying in Indonesia: 1. Through an Indonesian representative It is common practice to have an Indonesian representative acquire land for the foreign buyer. Ownership of land must be transferred from the previous owner to the Indonesian representative. For the foreign buyer’s security, three agreements must be entered into with the Indonesian representative. Loan Agreement – this states that the foreign buyer lent the purchase price to the Indonesian representative. Irrevocable Power of Attorney – this gives the foreign buyer full authority to sell, lease, mortgage, etc. the land. Permanent Right of Use Agreement – this gives the foreign buyer full rights to the use and occupancy of the land. 2. Through a Penanaman Model Asing (PMA) Company PMA is a “status of doing business” in Indonesia. A PMA company has 30 years to operate after formation. It can be granted additional 30 years, and another 30 years, if it expands its project through additional investment. This can be 100% controlled by a foreigner. The Right to Build (Hak Guna Bangunan – HGB) is available to PMA companies. The right to build or construct on land is valid for 30 years. This can be extended for an additional 20 years, and even for another 30 years after that. To set up a PMA company you will be required to: Submit a detailed business plan. Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit. Make an appropriate cash deposit in an Indonesian based bank. (The amount varies and is calculated from the capital employed in the business). Show the property investment as an asset of the company. The process takes approximately 3 to 4 months and once completed the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up is around US$5,000. 3. Through a Leasehold Title This can be granted to qualified foreigners who are domiciled in Indonesia with a KITAS working visa. The lease runs for 25 years, and can be renewed for another 25 years. It is important to hire the services of an Indonesian lawyer to assist with the transaction, especially with the monetary exchange. All land transactions must take place at the Indonesian Notary’s local office, Pejabat Pembuat Akta Tanah (PPAT), where the land is located. While it may be natural to give a deposit, it is not advisable. There is no code of conduct for real estate firms in Indonesia; they do not have any legal obligation to protect the buyer’s interests and guarantee the title. Stamp Duty of INR6,000(US$0.64) is required for each document copy of the Land Deed. Two copies are needed. There are registered and unregistered lands in Indonesia. The Basic Agrarian Law of 1960 governs certified land, which is registered at the local land office. Unregistered land, Adat land, is community-owned. An examination of the land certificate being bought is important. The whole process of registering property involves seven procedures and takes around 42 days to complete. Footnotes to Transaction Costs Table The round trip transaction costs include all costs of buying and then re-selling a property – lawyers’ fees, notaries’ fees, registration fees, taxes, agents’ fees, etc. Currency: Indonesia uses Indonesian Rupiah. Exchange rate is at US$1=INR9,337 as of 21st June 2006. Sales Tax on Luxury Goods: A one-time tax applied at the manufacturing level. 20% Sales Tax on Luxury goods is applicable to luxury house. "Luxury Houses" include condominiums with a unit size of more than 150 sq. m. and landed houses with a building size of above 400 sq. m. or electricity of above 6,600 watt. Value Added Tax: VAT is 10% imposed on most goods and services. The following are exempted: low-cost housing, modest flats and student accomodationsservices rendered for the construction of low-cost housing, modest flats and places of worship leasing services for low cost housing Transfer Tax: Transfer Tax of 5% is payable by an individual or corporate entity obtaining rights to land or buildings. The 5% duty is imposed on the transaction value or the assessed value (NJOP), whichever is higher. A notary can not sign a transfer of title deed until tax payemnt has been made. Legal Fees: Legal fees are negotiable. Processing fees for legal documents are at around 0.5%-1.5% of the property value. Stamp Duty: IDR6,000 per document for notarial deeds and copy (1 original and 1 copy required). Sale and Purchase of Land Deed: The execution of the Sale and Purchase of Land Deed is made before Land Officials, namely a notary public appointed by the Head of the National Land Office or a local Head of a District (Camat PPAT). The cost is 1% of the property value. Registration Fee: IDR250,000 maximum fee for registration of the Land Deed at the local Land Office. Real Estate Agent´s Commission: 5%, paid by either buyer or seller, but not both. Land and Building Transfer Duty In Jakarta, the first IDR60 million is not subject to the Land and Building Transfer Duty (BPHTB) of 5%. It is payable by an individual or corporate entity obtaining rights to land or buildings. The 5% duty is imposed on the transaction value or the assessed value (NJOP), whichever is higher. The tax exempt amount is determined regionally but cannnot exceed IDR60 million. This is different from the Transfer Tax above. TRANSFER DUTY Property Value 2,300,000,000 Tax exempt amount 60,000,000 Taxable value 2,240,000,000 Land and Building Transfer Duty 5% Final tax 112,000,000 

Stunning House in Jakarta, Indonesia

The stunning Static House in Jakarta, Indonesia is designed by architecture firm TWS & Partners. The incredible 800 square meter (8,600+ sq. ft), 4-bedroom house house features two magnificent courtyards that help maximize the outdoor space from within. There’s even a gorgeous pool which helps reflect the natural light during the day. A truly magnificent property, enjoy!

All photographs by Fernando Gomulya

Interior Design

The material used in this building has a light and bright, earthy color scheme to achieve a natural, contemplative and serene living environment.

Using a modern, simple and minimalistic style of furniture, TWS & Partners created a warm palette, combining ethnic and classic piece of decorative furniture and artwork. The marble floor in the public living and dining room act as a background for the white leather sofa, and combines with the Ligne Rosset standing lamp and modern glass and stainless steel coffee table.

The custom made, main entrance wooden door was made by Kayun (wooden artist from Bali), and was designed with specific floral pattern to reflect the courtyard inside.

The dining table is also made from one piece of natural finished wood and is juxtaposed with antique, decorative Chinese cabinets set in front of the khaki, wall paper finish.

All photographs by Fernando Gomulya

All photographs by Fernando Gomulya

All photographs by Fernando Gomulya

- Architects: TWS & Partners
- Photography: Fernando Gomulya

Analysis: Indonesia: Property makes progress

With the economy likely to post another year of strong growth in 2011, and a positive and stable outlook beyond, the Indonesian property sector, according to analysts, looks set to continue its steady advance.

The Indonesian Chamber of Commerce and Industry is forecasting 7 percent growth this year, just up on the 6 percent estimate for 2010 made by the International Monetary Fund (IMF), the government and various other analysts. The IMF and Wold Bank forecast a slightly more modest 6.2 percent for 2011, but there is little doubt that, give or take a percentage point, the economy will perform well.

The robust growth is likely to have positive consequences for the real estate market, as rising incomes increase purchasing power for middle- and upper-income groups in particular, allowing them to invest in new residential properties. Growth is also feeding into demand for commercial real estate as Indonesians’ disposable incomes rise, supporting the retail sector and the country’s growing mall segment. Furthermore, domestic and foreign companies are again looking to expand after slowing corporate growth during the global downturn, pushing up demand for office space, particularly for Grade A property, which has historically been in short supply.

High and stable growth is also helping to boost banks’ balance sheets and making them more confident of the security of lending. For some time after the global economy returned to growth, many businesses and analysts suggested that liquidity still remained tight internationally as banks wound down from pre-crisis positions. It now seems likely that liquidity and confidence are returning, and Indonesia is in a fortunate position to benefit. Its financial sector, much-reinforced since the 1997-1998 Asian financial crisis, was relatively underexposed to the global crisis of 2008-2009 and is well-capitalized. Rising lending should feed through positively to the real estate sector on both the demand and supply side, by making capital more readily available for construction projects and corporate investment, and by supporting the growth of Indonesia’s mortgage market.

In February, Artadinata Djangkar, a director at Ciputra Property, part of property conglomerate Ciputra Development, told the local press that the housing market was still seeing decent demand, despite high rates for housing loans — at around 9 percent to 9.5 percent, considerably above the base rate at the central bank, Bank Indonesia (BI).

It is a view shared by Lauren Sulistiawati, director of retail banking at Bank Permata, an Indonesian bank owned by Astra International and Standard Chartered Bank, who told the local press that recent moves by the BI to raise its base rate to head off inflation had not had an adverse impact on the market. Indeed, Permata expects its mortgage loan book to grow by 20 percent this year, thanks to burgeoning domestic demand. The bank forecasts that it will issue Rp 5 trillion (US$563.69 million) in housing loans this year, with this likely to boost its earnings from real estate lending.

Meanwhile, big-ticket real estate projects continue to rise as developers and their clients capitalise on the economy’s growth. On February 8, the local press reported that Indonesia’s largest listed integrated property developer and mall operator, Lippo, had secured a deal for space at two of its malls with Mitra Adiperkasa (MAP). Lippo agreed to lease 44,500 square-meters of retail space to MAP, one of the country’s leading retailers, for its Kemang Village Mall and St. Moritz Shopping Mall, which are due for delivery in 2012 and 2013 respectively.

“It makes a lot of strategic and commercial sense when two of the largest firms in the industry — landlord and retailer — are in partnership. The synergies are enormous and we need to leverage on each other,” said Michael Riady, CEO for Lippo Karawaci’s mall division.

MAP will take more than 20 percent of the malls’ leasable area. Both firms, like their competitors, are looking to position themselves to tap into the long-term prospects of Indonesia’s market of more than 240 million people.

Another development, and one that has the potential to reshape the sector, is the government’s proposed land acquisition reform bill, which was submitted to parliament for approval in late 2010. The bill is designed to address several issues currently hampering government projects, particularly those relating to infrastructure. The Trans-Java toll road, for instance, has been delayed significantly due to problems with land acquisition, with only 24 percent of the land required for the 650-kilometer highway purchased as of August 2010.

The proposed bill will expedite land acquisition for public purposes while ensuring that these procedures conform to international best practices, put in place a comprehensive system for compensating landowners [with prices based on independent appraisal] and limit opportunities for speculation — at present speculators often buy land targeted for public projects, only to flip it to the government at a healthy mark-up.

According to Wijaya Seta, chief of the land acquisitions sub-directorate at the Public Works Ministry, the bill, if passed, would cut the time needed to start infrastructure projects in half. “Currently land price negotiations can last for more than a year,” he told the local press in September 2010.

If it is enacted soon, as is widely expected, the bill should help to spur investor interest in public-private partnerships for infrastructure development. With the National Development Planning Board estimating that the government needs to spend some $216 billion on infrastructure between 2010 and 2014, private sector involvement will be crucial going forward.

With its strong economy, expanding middle class, growing housing loan market and increasing demand for high-end real estate in the residential, commercial and retail segments, the fundamentals for the local property market are solid. If the government can put an enabling legal framework in place to support investment and resolve issues related to land acquisition, this will give the sector a welcome fillip and should help to maintain sustained growth over the long term.

Indonesia BTN sees property prices, profits up in 2011

Update:-

* Net profit growth seen up 50 pct in 2011

* Loan growth seen rising 25-30 pct

* Bank to raise 3 trln rph via bonds, assets securitisation

JAKARTA, Dec 23 (Reuters) - Indonesia's top mortgage lender, PT Bank Tabungan Negara , sees a government commitment to allow foreigners to own local property next year as an opportunity for aggressive expansion, the company's CEO said on Thursday.

Indonesia's property sector could attract between $3 billion to $6 billion in new investment if parliament completes the passage of a law lifting restrictions on foreign property ownership in Southeast Asia's biggest economy, industry players say.

"I can see property prices jumping, especially in the cities, said said Iqbal Latanro, BTN's chief executive officer, in an interview at his 22nd floor Jakarta office, overlooking the presidential palace.

"The only problem for most Indonesians is low buying-power, but as the economy is growing and the central bank's rate still at its lowest level, then that problem is slowly lifting."

BTN, the smallest of four Indonesian state banks but the country's biggest mortgage lender, plans to open new 200 branches across the archipelago next year in a bid to attract more deposits, Latanro said.

BTN would seek to raise about 2 trillion rupiah via bonds and 1 trillion rupiah through asset-securitisation to fuel the expansion.

RAISE ASSETS, PROFIT FORECAST

"As the economy grows, consumption-type loans also flourish -- especially for housing," said Latanro. "Therefore we have increased our loan growth target to between 20 to 30 percent next year, with asset growth about 15-20 percent."

Latanro said BTN expects profits to jump about 50 percent next year.

The bank's 2009 net profit was 490.45 billion rupiah and is expected to hit about 790 billion rupiah in 2010 -- up 60 percent this year and in line with forecasts by StarMine's SmartEstimate, a consensus that gives more weight to recent forecasts by top-rated analysts.

Latanro's 2011 profit forecast of 1.2 trillion rupiah, however, 50 percent up, is higher than StarMine's estimate of 1.1 trillion rupiah.

"We aim to maintain our net interest margin at around 5 to 6 percent next year amid tightening competition in the mortgage segment," he said.

Indonesia Property Outlook 2011

February 18, 2011

The Indonesia property market is set for a consecutive bullish year in 2011. Two important factors that will play a major role in real estate double digits growth this year are Indonesia’s promotion to investment grade status and real estate foreign ownership reform. These two drivers will ensure a strong and stable growth in Indonesia’s property market for years to come.

Achieving investment grade status means that Indonesia is recognized as a reliable and stable borrower of funds. Currently set at BB by S&P, Indonesia is just one step away to achieving investment grade status. Higher Foreign Direct Investment (FDI) and optimism from local corporates will boost economic activity and growth, which in turn will positively affect the local property market.

Relaxation of foreign ownership restriction on real estate in Indonesia has been intensely advocated by both local and foreign interest parties, such as REI and FIABCI. Comparing to other major cities in Asia, Jakarta property market is still undervalued, but with higher rental yields. A more relaxed foreign ownership lay will certainly boost the overall property market in Indonesia.

The CBD Jakarta market has also enjoying strong consecutive growth.

Growth in Indonesia's Property Industry

Indonesia's property industry should grow about 20 to 30 per cent this year according to to Hiramsyah Thaib, president director of large developer Bakrieland Development.

"Housing demand is still quite high, and on the other hand the economy keeps improving and the rate of housing credit is reaching its lowest point.

The property business will be booming in 2011," Hiramsyah Thaib was quoted as saying by state news agency Antara.

Indonesia's Public Housing Ministry has estimated property sales at around IDR90 trillion (US$10 billion) in 2010, an increase of 15 percent from 2009.

"Clearly some sectors have grown, indicated by motorbike and car purchases, in the past five years. We believe in 2011 the turn will be for the property industry," Hiramsyah said.

Housing demand reached eight million units in 2010, he added, while public purchasing power continued to increase while aggressive lending in the property sector brought mortgage rates down to between 9 and 11 percent.

Part of the growth, he said, was because the economy had largely escaped the worst of the 2008 economic crisis.

The property sector was lifted by developers using their own funds, he said, unlike during the 1998 crisis, when the industry relied on funds from banks.

Bakrieland, the nation's second-largest property firm by assets, has already budgeted IDR2 trillion (US$222 million) to IDR2.5 trillion (US$277 million) for expansion this year, Hiramsyah said.

The company's projects include Sentra Timur in East Jakarta, which includes three towers each housing 300 condos.

Panangian Simanungkalit, a property analyst and consultant with Panangian Simanungkalit & Associates, said that despite a possible rise in Bank Indonesia's benchmark interest rate, lenders would likely keep their mortgage rates at reasonable levels.

"Banks are now very competitive in mortgage lending, so I don't see why they would raise it too much this year," Panangian said.

The central bank said last week that it would keep its benchmark rate at a record-low 6.5 percent despite growing inflationary pressure, according to the Jakarta Globe.

Bali: Nusa Dua – Benoa highway to be finished by 2013

25 Feb 2011

The planned Nusa Dua – Tanjung Benoa highway will most likely replace the proposed Serangan – Tanjung Benoa Bridge that was planned to function as a toll road.

The Nusa Dua – Tanjung Benoa highway was presented on 4 February 2011 at the premises of the Badung’s Head of Regional Office. The presentation was mae by a consortium of four developers: PT. Jasa Marga, PT. BTDC, PT. Angkasa Pura I and PT. Pelindo III. The presentation was attended by members of the Regional Parliament, Head of the Badung Region, representatives of Badung District Parliament< Head of th District Government, village represenatives and community leaders from the areas that will be affected by the project development.

During the presentation it was revealed that 95% of the construction and project development are going to be over the water area. The only three land areas that will used by the project are the Nusa Dua Junction, Ngurah Rai Airport and Tanjung Benoa. In order to ensure a smooth flow of traffic, there is a proposal to develop a roundabout at Ngurah Rai staute.

An interesting proposal came from the Head of the District Parliament, supported by representative from the Bali's District Traffic Police, who suggested that motorcycles are allowed on the planned highway, thereby reducing the traffic jams common at Ngurah Rai Bypass area caused by a large number of motorcycles. It was proposed that a special traffic line for motorcycles may be developed.

Business Developmet Director Director of PT. Jasa Marga, Mr. Abdul Hadi, was quoted saying that the feasibility study will be completed by end of February 2011.

The project is expected to be completed by 2013 to support the APEC Conference that is scheduled to take place in Bali that same year. In this context, the Head of the 3rd Commission of the District Parliament was quoted as saying that since there is a sense of urgency to start the project, and as recommended by Regional Parliament members, the Governor will be asked to give a direct approval for the project in order to shorten the the formal administrative process for all documents related to urban planing and zoning.

Data taken from article “Tol NDB Tuntas 2013″ published in Radar Bali on 5 February 2011