Indonesia: Overview

RENTAL YIELDS

Excellent yields on Jakarta apartments

Yields on apartments in Jakarta have decreased but are still excellent at 9.9%. This is because apartment prices increased slightly faster than rent. A 120-sq. m apartment now sells for around US$1,354 per sq. m from only US$993 per sq. m last year. Apartment prices in Jakarta average US$1,552 per sq. m.

On the other hand, villas in the popular tourist destination, Bali, have much lower gross rental returns at around 4.57%.

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TAXES AND COSTS

Rental income tax is high in Indonesia

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	20%	20%	20%
Click here to see a worked example
Source: Disclaimer

Rental Income: Non-resident 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%, levied on the gross value of the property.

Inheritance: There is no inheritance tax.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Buying costs are very high in Indonesia

The total roundtrip cost of buying and selling a property is between 25.5% and 47.5%. The 20% Sales Tax on Luxury Goods and VAT of 10% make up most of the total expenses. The seller only pays for the 5% agent’s fee, while the buyer shoulders all other transaction costs, including the Transfer Tax of 5% and a 5% Tax on Acquisition of Land and Building.

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LANDLORD AND TENANT

Tenancy laws in Indonesia are generally neutral

Indonesian 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.

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ECONOMIC GROWTH

Recovery after terrorism and tsunami

With more than 13,000 islands spread along Southeast Asia, Indonesia is the world’s biggest archipelago. It has a population of 221 million, the fourth biggest in the world after China, India and US. GDP per capita is around US$1,420 in 2006.

Recovering from the effects of the 1997 Asian Crisis and the subsequent political crisis, Indonesia is slowly getting back on track. The average GDP growth rate from 2000 to 2005 was 4.8%. Then the election of President Susilo Bambang Yudhoyono in 2004 led to a revival of confidence, steady recovery of the economy, and declining interest rates.

Economic growth was 6.3% in 2007, the fastest this century, following 5.5% GDP growth in 2006. And with mortgage interest rates falling to an unprecedented 8.8%, due to more moderate inflation, down from 12-14% a few years ago, there is still potential for more growth. The government recently announced excellent fiscal surplus numbers, the trade account is in surplus. Except for the very high spending on construction and the too-low spending on real productive investment, this looks like a healthy economy.