Indonesian presidential candidate Joko Widodo, more popularly known as Jokowi, intends to increase the government’s tax revenue by allowing foreigners to buy luxury apartments, worth at least IDR 2.5 billion (approximately USD $211,864), in the larger cities of Indonesia and on the island of Bali (a popular tourist destination). Currently, foreigners cannot buy property in Indonesia. However, indirect structures, such as the use of their Indonesian wife’s name or an agent are common, meaning that the state loses out on luxury tax income.
This opening up of Indonesia for foreign investment in the luxury property market is a surprizing move in a presidential campaign that was - to a certain degree - characterized by protectionism and nationalistic sentiments (particularly rival candidate Prabowo Subianto uses this strategy to gain votes). With Indonesian property prices still relatively low compared to Singapore and Hong Kong, this market is expected to be attractive for foreign investment if opened up.
Setyo Maharso, member of Jokowi’s campaign team, said over the weekend that foreigners will be able to buy property of at least 200 m2 in the larger cities (such as Jakarta, Surabaya and Makassar) and on the islands Bali and Batam where many foreigners reside.
Amid growing per capita income, an expanding middle class, and a conducive monetary policy, the Indonesian property sector had been able to grow rapidly in recent years. However, this growth slowed as Bank Indonesia imposed stricter loan-to-value ratios for mortgages in mid-2013 as it detected speculative buying which might have led to a property bubble. Moreover, high inflation and a sharply depreciated rupiah exchange rate, made the central bank decide to raise its benchmark interest rate (BI rate) gradually to 7.50 percent in late-2013. Therefore, Jones Lang LaSalle forecasts further slowing this year, particularly amid uncertainty amid the tight presidential election.
On Wednesday 9 July 2014, the Indonesia people will elect their next leader.