Foreign investment opportunities in the Indonesian property sector continue to grow

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To make the most of foreign investment opportunities BKPM and REI call for less red tape, greater clarity, better cooperation and professionalism from all government and private stakeholders.

recent discussion on Indonesia’s Property Industry Growth supported the idea that foreign investors in the property sector should be welcomed and not be perceived as a threat to local developers.

Forwapera, the Forum of People’s Housing Journalists supported the discussion held at the Crown Group’s office in Jakarta where Real Estate Indonesia’s (REI) Hari Ganie said investment activity always has a positive impact on national and local economies.

Read more on the Economic expansion that the country is experiencing

REI is a nationwide group with more than 5,000 members across the archipelago, including large, medium-sized and small developers specializing in low-income community homes.

No need to fear foreign property developers

National property developers need to work together with foreign investors to help build a stronger industry, said Ganie. There is no need for local players to worry that foreigners will come and take everything away because there are already rules and regulations in place to prevent that, he said, and “what is clear is foreigners are not able to take property away.”

Encouraging greater cooperation with foreign entities has benefits, including sharing capital risks and knowledge as well as improving quality, products and business strategies.

Indonesia’s Investment Coordinating Board (BKPM) said they had recorded strong growth in direct investment in the property sector in 2017 and anticipated this was likely to continue through 2018.

Growth likely to continue

Noor Fuad Fitrianto, Head of BKPM’s Sub-Directorate of Economic Areas told local news wires recently that investments in housing, industrial estates and office building projects had risen by 36 per cent, of which 70 per cent came from foreign investments (PMAs) and by 41 per cent in the sub-sector of hotels and restaurants, of which 77 per cent were PMA generated.

Fitrianto said BKPM is looking to create partnership programmes with regional administrations to increase investments across the board, especially when it “relates to licensing facilities for investors to implement their projects,” he said.

Bureaucratic bottlenecks

This is an area where many investors, particularly foreign investors, feel the frustration and bottleneck of Indonesia’s red tape and bureaucracy.

To illustrate this point, Fitrianto explained there were cumulative investment commitments valued at over IDR 8 trillion from both foreign and domestic investors from 2015 through to Q1 2018 but only 22 per cent of these were actually realised, leaving a great deal of untapped potential.

Ganie added the number of foreign investors shrank from over 1,100 to around 300 in 2017 suggesting that overly complicated, lengthy and unclear procedures in licensing, banking, infrastructure and taxation all undermine potential foreign investment.

“Legal certainty in Indonesia is one of the obstacles,” said Ganie. “Our land collection system is very bad. Legal certainty regarding licensing is still considered gray, uncertain and unclear,” he said.

Developing a ‘user friendly’ system

Crown International CEO, Doddy Tjahjadi agrees. According to Kompas, Tjahjadi used Japanese investors as an example, explaining something as fundamental as having an IMB (a building permit) is critical. Japanese businesses will not invest if licenses are not in place, (even IMBs), but if they are, projects successfully happen and this, in turn, brings in more partners.

For the situation to become more ‘user-friendly’ and to close the gap on Indonesia’s biggest competitors, namely Malaysia, Singapore and Vietnam, there needs to be better communication and cooperation, especially from government departments and ministries. “Development of industrial estates will need policy support from the Industry Ministry,” suggested Ganie.

Property sector potential

The property sector still has great potential for both foreign and domestic investors in 2018. Ganie cited political stability, economic growth, legal clarity and security as well as infrastructural improvement, the growth of the middle class and an increase in property values as key factors supporting the industry.

According to Kompas, Fitrianto revealed the investment target in the next five years will double compared to the previous five years, which is why BKPM continues to support the government especially in promoting investment opportunities outside Java, citing the initiative of  ’10 New Bali’s’ and their Special Economic Zones (SEZs)as the way forward.

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