Analysts say it's time to open up property sector

Analysts say it's time to open up property sector
Tuesday, February 28, 2006

Anissa S. Febrina, The Jakarta Post, Jakarta

Giving foreign nationals greater property rights in Indonesia could absorb up to US$10 billion in potential investment and make the sector more resilient in times of crisis, a property analyst says.

"The time is just right to give more access to foreigners. We can expect a significant amount of investment that will absorb more capital into the real sector," Indonesian Property Studies (CIPS) chief analyst Panangian Simanungkalit said Monday.

A CIPS study found that opening only 30 percent of property units -- ranging from apartments, office space to malls -- to foreign ownership could contribute $10 billion of investment in the next five years.

Property analysts and developers have called for the government to revise the existing regulation barring outright foreign ownership of property and to extend the leasehold period to up to 99 years to attract more investment. The government is currently in the process of revising a 1960 law on the use of land, water and space.

Currently, foreign nationals are only entitled to leasehold titles for a maximum period of 25 years.

The CIPS study showed that, in Jakarta alone, the sector could gather at least $2 billion investment if 30 percent of the available 65,000 high-end apartment units were sold to foreign investors.

According to property research firm Jones Lang LaSalle, about 70 percent of serviced apartments in Jakarta were rented to foreigners.

"That does not include those who rent houses in Kemang, Pondok Indah, Kebayoran and Menteng," LaSalle national director Lucy Rumantir said.

The study also showed that if a similar percentage was provided for the office and commercial subsector, there would be potential investment of $2.1 billion and $4.2 billion respectively.

The Indonesian Real Estate Association also identified Batam, Medan, Pekanbaru, Bali, Lombok, Makassar and Manado as areas with potential for foreign investment in property.

Panangian said Singapore, Thailand and Malaysia, which have opened their property sectors to foreigners, have benefited from the policy.

"When the (economic) crisis happened, foreign investors also shared the bursting of the bubble, so they also put in an effort to make the situation better instead of running away when the property sector collapsed," he said.

The local property sector was hard-hit by the economic crisis that struck in 1997, with numerous developers crippled by soaring debt when the rupiah sunk to an all-time low against the greenback.

The sector did not start to rebound until 2003 when its market capitalization reached almost Rp 50 trillion, a tenfold improvement on its value in 1999.

Development of the sector continued to improve until soaring interest rates curtailed developers' aggressive expansion plans.

Panangian said foreigners currently had to rely on informal gentlemen's agreements with locals to buy property because they could not own the units themselves.

"It is not legally binding and if the locals aren't trustworthy, it could give Indonesia a bad name," he added.

Land reform expert Gunawan Wiradi said the government still needed to apply restrictions in opening up the sector to foreigners.

"It should be opened but controlled," he added.