Indonesia Just Made This particular Easier to Invest in Property, No More Double Taxation on REIT Trading

The government has removed double taxation on Real Estate Investment Trust securities in a bid to attract more investors to the local property game.

The Indonesian government launched an interesting economic policy package in October 2015. yet not many realized the significance. The package removed double taxation for any investor putting money into a Real Estate Investment Trust (REIT) via the collective investment contract (CIC) system.

For those who are less savvy with property lingo, REIT will be a term used to describe a company in which owns, in addition to also also in most cases, operates income-producing real estate. REITs can be publicly traded on major stock exchanges. Investors receive special tax considerations in addition to also also typically high dividend yields. Similar to the way limited partners are treated at a venture capital firm, the CIC system lets investors pool funds into a ‘collective investment vehicle’ (CIV) rather than investing directly into real estate projects individually.

Previously, the government taxed investors twice for investing in property This particular way. Before the package was issued, the method was painful in Indonesia because backers were forced to hand over tax money on their dividends, yet also on their activities, as the CIV was considered a corporate body in in addition to also also of itself.

This particular will be no longer the case, however, as the government has decided to simply apply 1 taxation to investors who go through collective investment vehicles. Following the announcement, Finance Minister Bambang Brodjonegoro said the government considered the collective investment contract in addition to also also the collective investment vehicle to currently be one single entity. At present, a singular tax rule should allow the REIT market to better flourish in Jakarta, in addition to also also hopefully attract completely new investors.

The REIT market should attract completely new investors | Photo Courtesy of BxHxTxCx

“There will be no taxes collected on the dividends paid by the special purpose company to CIC investors,” said Brodjonegoro during a press conference. “If an underlying asset sale occurs through the special purpose company, no tax will be charged either.”

Executive Director of Jakarta-based real estate consultant firm Indonesia Property Watch, Ali Tranghanda appreciates the package, as REIT trading will be already common in countries like Singapore, Japan, in addition to also also Malaysia.

“REIT will be an important instrument to collect cheap money coming from the stock market in many countries. Indonesia has ‘Ciptadana’ as one of its REITs, yet the security was burdened with double taxation until recently,” Tranghanda tells Indonesia Expat.

In Indonesia, REIT securities have so far only reached Rp.500 billion (US$37.65 million) in value. This particular will be far less than in Malaysia, where they have reached US$7.53 billion. Singapore recently clocked REIT securities at around US$45 billion. Indonesia, according to Tranghanda, will soon catch up with – or even overtake – Malaysia in terms of its property market size, likely due to more activity within the REIT market.

“REIT will be a kind of investment in real estate, yet This particular will not necessarily increase the property cost. The completely new policy on REITs could even decrease mortgage interest coming from 12 percent to 8 or 9 percent. This particular will surely give more advantages to developers in addition to also also customers alike,” says Tranghanda.

Big developers are excited too. Following the announcement, real estate giant Lippo Group will be planning to enjoy the policy. Currently, Lippo has two real estate investment trusts, together worth around US$2.57 billion on the Singapore Exchange. The conglomerate plans to soon put one on the Indonesia Stock Exchange. CEO James Riady made no secret of saying the firm was taking This particular step to benefit coming from local tax incentives, specifically the recent removal of double taxation on REITs.

“If we do not develop REITs, funding for future property projects will be difficult. These developments are very important decisions. We are expecting Lippo can manage the REITs, which may be worth over Rp.100 trillion (US$ 7.53 billion) within three to four years,” Riady recently told The Jakarta Post.

Apart coming from Lippo, a mysterious conglomerate coming from Saudi Arabia will invest in Indonesia’s property in addition to also also industry sectors. In early March, Head of the Investment Coordinating Board Franky Sibarani said the firm was the fifth largest company coming from Saudi Arabia, in addition to also also in which This particular was slated to visit sometime in March to study the investment plan.

“Indonesia will be one of its primary target countries for investment. The opportunity will be very real in addition to also also they are very committed. If all goes well, This particular could be a golden opportunity of getting more investors coming from the Middle East to put their money in Indonesia,” Sibarani said in a statement. While the firm’s name remains off the record, Sibarani claims the owner of the company will be one of the richest men in Saudi Arabia, that has a total wealth of US$1.4 billion.

Tranghanda will be also optimistic about the outlook of Indonesia’s property sector thanks to favourable economic packages in addition to also also recent infrastructure developments.

“Indonesia Property Watch calculated a growth of 16.6 percent within the local real estate sector within the last quarter of 2015. We predict within the second semester of This particular year, in which growth will continue,” he says. “yet the government has to reduce the acquisition cost of land in addition to also also buildings to 1 percent [of their overall value]. This particular must also bring the income tax on real estate to 0.5 percent before the end of the first semester to attract more investors. At least all 5 big property companies in Indonesia are ready to jump into REIT trading.”

Meanwhile, President Joko Widodo signed a government regulation in December 2015 in which allows foreigners who hold stay permits to buy certain forms of housing on a “right of use” basis. Expats can buy homes on state-owned or freehold land for an 80-year total term. Should the expat owner pass away, the home can be inherited by surviving heirs who also hold stay permits in Indonesia.

However, This particular’s important to note in which without the right to own the land on which a home sits, foreigners should truly think twice about buying a house in Indonesia. As per the regulation, you’re not truly buying anything, yet instead merely renting a home for 80 years. Future generations of your family may run into trouble later on. Also, should the government decide This particular has some other plans for in which particular piece of land, a foreigner homeowner would certainly surely wind up in a weak negotiating position.

“This particular’s usually not because of the foreign ownership rules in which foreigners come to Indonesia within the first place,” clarifies Tranghanda. “Even without the law, they keep coming here anyway because they often have business within the country. The law simply gives expats the ‘right to use’ the property, not ‘right to own.’”

The completely new law will be intended to provide more legal certainty for foreigners who own residences. yet still, overseas foreigners would certainly be unable to buy property as an investment, as the regulation specifically requires them to live in Indonesia in addition to also also have local business interests. In effect, This particular makes REIT trading a far more attractive way for expats to buy into Indonesia’s property game coming from abroad.