Nataconnexindo.com, Tangerang – There is a lot of investments you can choose from, but almost everybody agrees that investing in real estate is one of the smartest money-moves you can make. But there will be a certain learning curve involved in navigating the real estate market as a beginner. This article will show you how to start investing in real estate in Indonesia.
However, it is always a smart move to plan for retirement using a mix of different investments, including real estate. Real estate is the property, land, building, air rights above the land and underground right below the land. The term real estate means real, or physical, property. So unlike investment in stocks or bonds, investing in real estate means you always have physical or real assets. Buying and owning real estate is an investment strategy that can be both satisfying and lucrative.
You should keep in mind, to start investing in real estate you can always use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time. In some country like Indonesia, a traditional mortgage generally requires a 5% to 10% down payment. So, it is not too expensive to start investing in real estate.
After all, real estate in Indonesia would be much more affordable than in most other countries, the mortgage 5 % or 10% would not be much problem for you to start investing in Indonesia. In fact, you can still find real estate for USD 40.000. So, this is your opportunity to find your investment abroad. But, the real question here is how to start investing real estate in Indonesia?
Indonesia is Southeast Asia’s largest and most populous country. Nonetheless, it has stayed off the radar of investors despite strong economic growth combined with an enormous consumer market.
Can Foreigner Invest in Indonesian Real Estate?
Recently, foreigners are not able to own Indonesian freehold property using their own name. But, for recent policy the Indonesian government has renewed the current law so that the foreigner can have right-to-use property using their name.
What are freehold and right-to-use property? Well, freehold property is a property that you owned whereas right-to-use property is a property the government grants you the right to use. The right-to-use property essentially a leasehold that foreigner can invest into it. However, the leasehold titles are only granted for 25 years and can be extended for another 45 year for a total of 70 years.
But, up until 2016, the Government allows any citizen who wants to have freehold property of strata condominium titles. So basically, the Indonesian Government is more open to investment option of foreigner. You can own any condominium below USD 60.000 as your property in Indonesia.
So how can you as a foreigner invests in Indonesia’s real estate? That is the reason you read this article, isn’t that? There are commonly two options you can go through if you are interested to invest in real estate in Indonesia. First, investing through an Indonesian Nominee and investing through PMA or foreign investment company.
Investing Through an Indonesia Nominee
As a foreigner, you would face a lot of paperwork to start investing in real estate in Indonesia. But through an Indonesian nominee, you can have your investment more easily although it would be rather hard to find an Indonesian Nominee on behalf of your interest. But if you have any friends or colleagues in Indonesia, it is a must for you to reconsider choosing this method.
An Indonesian citizen can hold the land title as a nominee on behalf of a foreigner. To do this a number of documents are signed in front of a notary including:
- The contract (rental or purchase) transferring the rights for the property to the nominee.
- A Loan Agreement for the rental or purchase price between the nominee and the investor. This acknowledges that the nominee has been loaned the purchase price by the investor.
- A "Right of Use" agreement which enables the foreign investor to use the land.
- A statement letter in which the nominee acknowledges the loan from the investor and their intention to own and use the land.
- A power of attorney. This allows the investor the authority to sell, transfer or dispose of the property as well as to represent the nominee in any dispute regarding it.
The notary will request that the nominee gives all the original land titles to the investor. Investing in property using this method, although not against the law, is weighed to be not in accordance with the spirit of it. In fact, the law encourages foreigners to invest directly via leases.
This "Right to Rent", however, cannot be mortgaged or registered at an Indonesian land office and therefore does not exist in certificate form. The transfer of the property depends on the terms of the original agreement sign up between the nominee and the investor.
Investing Through PMA (Foreigner Investment) Company
The second method you can choose is to invest directly through Foreigner Investment Company (PMA). Although, using this method you cannot own freehold property. The property which is chosen by Foreigner as an investment should be owned by a Penanaman Modal Asing (PMA) or foreign investment company which is under their control.
However, the issue with this approach is that the property can only be utilized for the purpose specified in the original application to form the PMA company. PMA companies cannot hold freehold properties. When freehold land or property is sold to a corporate entity the title is changed to a Hak Guna Bangunan, or HGB. This "Right to Build" status allows the owner to construct a building on the land for a period of 20 or 30 years. The lease can be extended for a further 20 years.
As the reenactment of the law of 2016, the regulation only applied if you want to invest in a property with certain price and size. So, you can still have an investment in property which is not against the law. So, where can you make a real estate investment in Indonesia?
Where Can You Start Investing?
Under those laws in Indonesia, you can still find an investment below USD 80.000. The properties are easily everywhere herein Indonesia. For example, Rolling Hills Residence Karawang is one of the newest real estate developed by Lippo Group, the biggest developer which has many years of expertise. This developer also owns many properties abroad Indonesia so basically it is a PMA Company that can give you opportunities to start investing. Furthermore, Karawang is a district in Indonesia where foreigner companies reside. So, basically Karawang is the best place for you to start investing in real estate in Indonesia. (ADR)