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Building materials suppliers to benefit from Indonesia's foreign property ownership plans

Indonesia currently forbids any kind of property being owned by overseas nationals. But in a move that could dramatically transform the country's housing market, the Indonesian government is considering granting foreigners the right to own certain types of property. But what exactly do the proposals entail, and what will be the net result if - as expected - the plans come into effect?

Foreign property ownership proposals explained

Bambang Brodjonegoro, Indonesia's finance minister, is working on a study that considers the implications of opening up sections of the property market to foreign investors. He hopes that any such move would ultimately generate additional revenue for the government through taxation, while also breathing new life into the domestic property industry.

Opening the door to overseas buyers would represent a new revenue stream for developers, which in turn could encourage more housebuilding activity and create new opportunities for building materials suppliers.

Brodjonegoro's plans - which involve a revision of government regulation number 41/1996 on housing for foreigners residing in Indonesia - would give overseas citizens the ability to buy, own, inherit and sell luxury apartments with a value of at least five billion Indonesian rupiahs ($374,000); all other property types would be excluded. The benchmark price - which is out of reach for the vast majority of Indonesians - has been set deliberately high to stave off the threat of a property bubble ensuing as a result of the revision.

The government is expected to issue a decree on the matter before the end of the year.

What will it mean for Indonesia's residential property market?

Obviously, this move would be welcomed by foreigners living in - or thinking of moving to - Indonesia, as they will finally be allowed to get on the property ladder, albeit at a comparatively high price point. Likewise, the government can expect to earn more in tax revenue as a result.


However, arguably the biggest winners would be those involved in the development of these new luxury apartments, from developers to the building materials industry.

One of the biggest hopes is that the foreign buyers would help to speed up the rate of growth in the property market by creating new opportunities. Iwan Sunito, chief executive of developer Crown Group, noted that international buyers could provide a welcome shot in the arm for the sector at a time of economic slowdown.

Speaking to the Jakarta Globe, he said: "The developers had only been focused on the domestic market. When the economy is weakening, the property market is impacted and shows a decline.

"With the new market for foreigners, it will encourage developers to have more developments with international standards."

The increased adoption of international building standards is likely to benefit overseas suppliers, simply because they are already used to meeting or exceeding the required quality.

Indonesia is already well-accustomed to looking overseas when it comes to meeting demand for essential high-quality building materials. One popular import is ceramic tiles: locally made tiles tend to be used for low to medium-cost projects, while higher quality tiles - such as those made of polished porcelain - are often shipped in from abroad.

Another industry insider who is extremely positive about the proposals is Rudy Margono, president director of private developer Gapura Prima Group, who believes the revision could boost growth in the property market by as much as 20 per cent. That would mean significantly more opportunities for the building materials trade.

According to Margono, the plan should go further than merely setting a minimum price on foreign-owned property. He argues it should also specify that the apartments be more than 100 sqm in size, and located above the second floor of an apartment block.

Amran Nukman, head of Real Estate Indonesia's Jakarta branch, said the move is particularly important given the country's impending entry into the ASEAN Economic Community. Without an allowance for foreign property ownership, Nukman believes that Indonesia's wealthiest citizens would be driven to buy real estate overseas due to the greater return on investment - ultimately creating no extra income for the state, and having no positive effect on the country's real estate sector.

An affirmative ruling on foreign ownership could represent a green light for developers to plan a wave of new luxury apartments in desirable locations across Indonesia. Building materials suppliers will be watching on, waiting to capitalise on this potentially huge new opportunity.

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