To Agents' Disappointment, Indonesia Keeps Ban on Foreigners Buying Property

The New York Times, by JON GORVETT, June 3, 2010

JAKARTA — Hopes for a change in Indonesia’s restrictive rules on foreign ownership of property were dashed when a major conference of real estate agents on Bali ended last week without an expected government announcement.

“We all thought they were ready to go for it,” said Bagus Adikusumo, director of Colliers International Indonesia. “But then it didn’t happen.”

Only Indonesian citizens are allowed to hold freehold titles in this archipelago republic. And its Constitution limits ownership of land as well.

Foreigners wishing to buy property have had to make purchases through Indonesian proxies, or one of two types of limited lease.

The first is a 30-year renewable lease available to entirely foreign-owned companies; the second is a 25-year renewable “right of use” lease available to individual foreigners.

“The problem is that the second of these leases is not bankable — no bank will lend on a title that is so limited and difficult to change,” said Alwi Bagir Mulachela, secretary general of the Indonesian real estate association. “It’s also not clear what happens if the foreign owner dies — inheritance is not clear in these circumstances.”

The Indonesian government has been eager to increase foreign investment and not be left behind by countries like Cambodia and Vietnam, which have recently eased their foreign ownership laws.

At the conference held last week by the International Real Estate Federation, known as the F.I.A.B.C., agents had expected the government to announce that foreigners would be allowed to buy property with a minimum value of $150,000; to introduce a simplified, 70-year lease that could qualify for bank financing; and to clarify the right of foreigners to inherit.

“I think they backed off first for nationalistic reasons,” Mr. Adikusumo said, “then secondly, because of fears that opening up the market to foreigners would favor luxury house construction at the expense of low-cost mass housing. They will also have to make major changes in the law, even perhaps the Constitution, which would take quite a while to push through Parliament.”

There are some indications that changes may still occur.

“Limiting foreign ownership is no longer the right approach,” the country’s public housing minister, Suharso Monoarfa, said in his speech at the conference.

Mr. Mulachela, of the real estate association, said: “I’m confident we’ll get something by the end of the year. The government says it’s working on it and the Land Office says it is too, so we’re still hoping.”