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Last Updated: Aug 03, 2015




Prices of Indonesian properties continue to rise, or at least so it seems, judging by asking prices.  But in inflation-adjusted terms, prices have stopped rising.  The Indonesian residential property price index (14 major cities) rose by 6.27% during the year to Q1 2015, according to Bank Indonesia - less than the 7.92% growth y-o-y to Q1 2014, and a significant decline from the 13.51% growth recorded y-o-y to Q3 2013.

And when adjusted for inflation, property prices in the country actually fell by 0.26% during this past year.

Nominal property price figures can be particularly misleading in Indonesia, because inflation has been high, and remains high. Residential property has been attractive to rich Indonesians and others partly as a protection against inflation.

All Indonesia’s major cities saw nominal property price rises. Manado led the price hikes with house prices rising by 21.90% (14.42% inflation-adjusted) during the year to Q1 2015. It was followed by Makassar (17.21%), Balikpapan (12.58%), Bandung (10.61%), Surabaya (8.80%), Batam (8.37%), Banjarmasin (8.35%), Semarang (8.30%), and Palembang (6.99%).

Some cities registered nominal price rises so small that in fact they were actually declines in value, in real terms.

Jakarta had an after-inflation price drop of around 1.78% y-o-y. Jakarta is classified by Bank Indonesia under Jabodebek-Banten, which includes Jakarta´s component cities (acronym: Jakarta, Bogor, Depok and Bekasi).

Other cities with real price declines included Medan (3.86%), Denpasar (3.13%), Pontianak (2.65%), Padang (2.52%), Yogyakarta (2.06%), and Bandar Lampung (0.67%).

Bank Indonesia’s survey also revealed that the recent surge in residential property sales somewhat decelerated in Q1 2015. After robust growth of 40.07% q-o-q in Q4 2014, property sales growth slowed to 26.62% q-o-q for all property types, with medium-sized houses being the most affected.

This is mostly due to stricter Loan-to-Value regulations, imposed to curb the rise of property prices.  This has been effective - apartment price rises slowed in 2014, compared to the strong surge from 2012 to 2013.

Demand is likely to continue slowing in coming quarters, predicts Colliers International.

What motivates people in Indonesia to buy property?  "Rich [local] investors care mostly for capital appreciation although they also buy apartments to get rental income," says Hasan Pamudji, head of research at Knight Frank, Indonesia. "Yield for high-end apartments can command between 8% and 11%."

But there are more mundane motives, adds Pamudji.  "Typical investors in high-end residential in Jakarta comprise of rich Indonesians with some foreigners married to Indonesians. Because of traffic jams, those rich Indonesians have second homes or apartments near their workplaces and they go back to primary houses or apartments in the suburbs.

"There are a growing number of rich Indonesians who are young couples with overseas education who live in high-end apartments, as they are accustomed to living in vertical housing.

"Expatriates tend to rent houses in Kemang, Pondok Indah, Menteng, Kuningan etc where the area has more greenery, international schools, hospitals and entertainment. They also like to rent in high-end apartments or serviced apartments in the CBD and in the south such as Kemang, Pondok Indah, Pejaten."

Indonesia house pricesPrices of strata title apartments in Jakarta range from US$ 3,283 per square metre (sq. m.) in Jakarta CBD, US$ 2,433 in South Jakarta, and US$ 1,583 in the capital’s non-prime areas, according to Colliers International.

About 3,255 units were completed in Jakarta in Q1 2014, including Belmont Residence (350 units), The Royal Springhill (192 units), Titanium Square (725 units), Northern Ancol Residence (800 units), La Venue - South Tower (341 units), Botanica Apartment (626 units), and Woodland Park (221 units).

Around 29,451 units are expected in total this year.

Analysis of Indonesia Residential Property Market »


RENTAL YIELDS
Last Updated: Apr 07, 2015



Indonesia house price indexHigher end apartments in Jakarta continue to enjoy a boom, with demand high. Prices have been rising significantly over the past three years, and they are now priced at around US$ 2,700 to US$3,400 per square metre (sq. m.). Rental yields have therefore fallen significantly to around 7% to 8.4%, down from around 10% to 13% three years ago.

The disadvantage of buying in Jakarta, for foreigners, is complex legalities and high transaction costs.

Villas on Bali are attractively priced at around US$1,400 to US$2,300 per sq. m.. On Bali, lower rental yields can be earned, at from 2.3% to 6.3%.

Indonesia’s laws on foreign ownership were expected to be relaxed this year, but that now appears unlikely.

Round trip transaction costs are high in Indonesia. See our Property transaction costs analysis in Indonesia and Property transaction costs in Indonesia, compared to the rest of Asia.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Feb 16, 2015



Rental Income: Nonresident individuals' rental income is subject to withholding tax at 20%, which is applied to the gross income. Rents are also subject to Value Added Tax (VAT) at 10%.

Capital Gains: Gains derived by nonresident individuals from selling real property are taxed at a flat rate of 20%.

Inheritance: There is no inheritance tax.

Residents: Residents are taxed on their worldwide income at progressive rates, from 5% to 30%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Feb 17, 2015



The total roundtrip cost of buying and selling a property is between 11.75% and 17.75%.
The buyer pays for the 5% transfer tax, legal fees, and registration fees. The seller pays for the 5% land and building transfer duty (which is different from the transfer tax) and 5% agent’s fee.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 21, 2006



Indonesia traditonal housesIndonesian legal institutions are neutral between landlord and tenants.

Rent: Rents are freely negotiable. They are typically paid in advance for the duration of the lease agreement. However tenants are often able to negotiate smaller advance payments, or monthly payments.

Tenant Security: Lease periods typically vary from 1 to 3 years. The terms depend upon the bargaining skills of the tenant and the landlord. Tenants typically have an option to renew.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Aug 03, 2015


Economic deceleration in 2015

Indonesia townhousesIndonesia’s economy is very domestically-driven. It tends to be insulated from global economic trends. GDP growth is now slowing.  In the first quarter of 2015 GDP grew at its slowest rate since 2009, up 4.71% from last year.

A lot of sectors decelerated during the first quarter, according to Statistics Indonesia. The most notable was the mining and quarrying sector, whose output actually shrank by 2.32% during the year to Q1 2015.

Disappointing growth in Q1 2015 has made investors concerned about the rest of the year. Also, the weakening economies of Indonesia’s two key trading partners, China and Japan, will negatively impact Indonesia’s economy, according to IMF Deputy Director for the Asia and Pacific Region Kalpana Kochhar.

Indonesia GDP inflationIn recent years, Indonesia enjoyed robust growth. It was almost wholly unaffected by the global economic crisis, and the economy grew by 5.6% in 2013, after real GDP growth rates of 6% in 2012, 6.2% in 2011, 6.4% in 2010 and 4.7% in 2009, despite the global economic slowdown.

In February 2015, unemployment rose slightly to 5.81%. One of the reasons why it is hard to cut Indonesia’s unemployment rate, aside from the slowing economic growth, is the tendency of investment in the country to be more capital-intensive than labour-intensive, according to Economic Minister Sofyan Djalil. The rapid rise of minimum wages is also a reason why investors are reluctant to engage in labour-intensive investments.

Inflation was 7.26% in June 2015, having surged to 8.36% in December 2014.  While this seems high, inflation is actually now less high than in the recent past, suggesting that the recent stepping-up in the key interest rate has worked, and that Indonesia’s growing economy is becoming more flexible and productive as it grows. Since recent inflationary pressures are not as intense as expected, the central bank decided to maintain the benchmark rate at 7.5% in July 2015. The annual inflation rate is projected to be 6.8% in 2015, according to IMF, a little higher than the 5.4% average that prevailed from 2009 to 2014.







  • Very high yields in Jakarta
  • Tenant neutral rental market
  • Serious ownership limits
  • High rental income tax
  • High transaction costs
  • Perhaps overbuilt
RESIDENTIAL PROPERTY FACTS
Price (sq.m): $2,692 For a 120 sq. m. property, usually an apartment.
Rental Yield: 8.90% For a 120 sq. m. property, usually an apartment.
Rent/month: $2,395 For a 120 sq. m. property.
Income Tax: 20.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 14.75% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 20.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Neutral Rating is based on a detailed study of each country’s law and practice.

Metro Manila Property Outlook 2015 - Savills, KMC MAG
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