Indonesia eyes property boost with slash in sales tax

Indonesia is aiming to boost its property market with a new slash in sales tax.

From September 2016, new laws will mean that sellers of homes will have to pay a 2.5 per cent tax on the sales price – half the current 5 per cent. For those with homes smaller than 36 square metres, that rate will be an even lower 1 per cent.

Ken Dwijugiasteadi, head of Indonesia’s tax office, told Reuters the measure is “to support the property sector and to help aid purchasing power because one of the people’s primary need is to own a house”.

With the central bank recently announcing plans to ease downpayment requirements for financing, Indonesia’s new measures are intended to boost the country’s residential property market. Sales rose by 4 per cent in Q2 2016 from Q1 2016, when they increased 1.51 per cent quarter-on-quarter, according to Bank Indonesia.

The moves follow an even bigger step taken by Indonesia last year: opening up its market to foreign investors for the first time. Under those laws, foreign investors can be a landed home or apartment under a “right of use” title (Hak Pakai – weaker than the Hak Milik “right of ownership” title), but must have a legal permit to stay in the country to do so.

Indeed, regulations have to comply with the Agrarian Law, notes Colliers, which limits the scope of ownership from being improved by a bigger margin. Recently, after the issuance of revised government Regulation number 103/2015, the government (Head of the National Land Agency) introduced the implementation of the regulation No. 13 of 2016 on Procedures for Granting, Relinquishing and Transferring Ownership of Residential Property for Foreign Citizens Domiciled in Indonesia. This new regulation makes it clearer that foreign citizens are only allowed to own high-end residential properties (either apartment or landed house) with various minimum thresholds based on the property type and location. (Previously, Indonesian authorities announced in 2Q 2015 that foreigners would be allowed to purchase apartments or houses which cost at least IDR10 billion/unit (roughly US$740,000) under a right-to-use title.)

“Nonetheless, even with these government efforts to ease regulations on foreign ownership, the main challenge facing apartment sales remains: they have to be built on Right to Use land that is unconventional in the local market,” observes Colliers.

Investors living in Indonesia can purchase “right to use” titles for 30 years, with a possible extension of up to 80 years.

Photo: Jamescheuk