Indonesia announces plans to loosen foreign property ownership regulations

foreign property ownership regulations Indonesia Bali
Buying a property in Bali could be more attractive if new ownership regulations are approved

In an attempt to provide a boost to the country’s waning property market, the Indonesian government informed local property developers that it will ease foreign property ownership regulations. According to the Straits Times, Agrarian and Spatial Planning Minister Sofyan Djalil told industry leaders the new rules could be in place by the end of August.

“On this foreign ownership matter, God willing… we will have (the Bill that covers the matter) ratified into law by end-August,” Sofyan was quoted as saying by the newspaper. “That is the commitment from Parliament and President Joko Widodo had requested for such a timeline to be the deadline.”

The COVID-19 pandemic has wreaked havoc on the Indonesian property market with Cushman & Wakefield finding high-rise apartment sales dropped by 30 percent in the first quarter of this year. Housing sales also fell during the same period, but only by three percent.

“The overall residential market is expected to soften in the first half of 2020,” David Cheadle, Cushman & Wakefield Indonesia Managing Director, told the South China Morning Post. “Several developers are already facing cash flow difficulties, with the COVID-19 outbreak disrupting developer revenues due to declining sales, with far fewer prospective-buyer inspections to housing projects caused by social distancing restrictions and work-from-home policies adding to the constant burden of construction loan interest rates.”

That caused Fitch Rating to downgrade its outlook on the Indonesia homebuilding sector from stable to negative. The agency cited an unprecedented weakening in domestic demand due to the COVID-19 pandemic as the main reason for the change.

Can relaxed foreign property ownership regulations stimulate the market?

The Indonesian government is hoping an increase in overseas demand will offset the lack of domestic buyers, at least in the short-term. In order to attract foreign buyers, the country is set to relax its fairly strict foreign property ownership regulations which have turned off many potential buyers in the past.

Currently, international buyers can only own property in Indonesia via leasehold agreements. No details on what the government may do have been released, but local property professionals are excited by the potential changes.

“The potential of a foreigner being allowed to hold a (right-to-build) title in line with Indonesian citizens is a game changer. If it also allows for foreigners to mortgage in Indonesia it will open up a much larger market than in the past when it was all cash driven,” Terje Nilsen, CEO of Seven Stones Indonesia, wrote in an article. “This will encourage foreigners to choose Indonesia as a first or second home option. Especially now when more and more people work from home. And they can call Bali, and other places in Indonesia home.”