Investing in Property for Mixed Couples

[El_Goretto]

Worthwhile rental markets here are in 2 categories:

1. Holiday rentals in an international tourism area (although got completely destroyed by covid-19). The main area is obviously Bali.
2. Kost and Kontrakan:
   1. Monthly payments so attracts a large, sustained demand
   2. Easy to evict the tenants if they fail to pay
   3. Building construction and maintenance is relatively cheap due to expectations of very basic facilities

Likewise, for flipping, the money is in building residential complexes for the 1st home owner market with houses below 500jt. With the right connections, it is possible to come up with a deal with the land owner and the bank to start selling the houses off the plan before starting the construction with low own capital expenditures.

 

[jukung11]

Husband loans money to wife, with details in the contract what the money is for and how the proceeds would be split afterward. There would be a tax on interest here.

I remember reading about some of these with Indonesian nominees and the investors lost their shirts. Since the legal system is based on Dutch law, it gives the judges massive leeway in interpreting codes, laws, and whether contracts are for a legal purpose. They can essentially look through the purpose of the contract as a violation of the agrarian law and/or the constitution and invalidate the contract. Like it or not, the basis of the law was to limit and remove the influence of foreigners from ownership of land.

I am sure there are plenty or regulations around foreign loaning of money or acting similar to a financial institution such as writing mortgages. There are a lot of ways in the Indonesian court system that type of contract would not be worth the paper it is written on. Indonesian judges are not going out of their way to help foreigners enforce financial disputes with a spouse.

I'm curious about what property is a good rental investment at the moment. From what I see the purchase prices are high and rental rates currently very low.

I have done the occasional research of the property market over the years. I came to this same conclusion. When you add it the cost of maintenance and the opportunity cost, NPV purchase price usually exceeds rent. There are some factors that heavily contribute to this. Indonesia had a time of hyperinflation in the early 2000s and has had a problem with inflation for most of its history. Real property tends to inflate and so it seems like safe a investment to most of the population and Indonesians are willing to pay a premium for that. Property taxes are low, so most people are not motivated to sell if the price is down. They just sit on it until the price is higher than what they paid. If they would have sold even at a loss and invested the money in something that grew exponentially faster than inflation, they would make more money (opportunity cost).

 

[dafluff]

Indonesia had a time of hyperinflation in the early 2000s and has had a problem with inflation for most of its history. Real property tends to inflate and so it seems like safe a investment to most of the population and Indonesians are willing to pay a premium for that. Property taxes are low, so most people are not motivated to sell if the price is down. They just sit on it until the price is higher than what they paid. If they would have sold even at a loss and invested the money in something that grew exponentially faster than inflation, they would make more money (opportunity cost).

This. When considering property prices in Indonesia you have to consider that Indonesia has a history of currency devaluation, inflation, and bank failure. Bank deposits were not even insured until after the LPS was established in 2004.

A property is seen as a safe haven and land banking. For those without access to other investments to hedge against currency problems, this is indeed an attractive choice. In this case, people are happily accepting less than deposit rates of returns, in the hope that the land itself will appreciate (or at least keep up with inflation).

On the other hand, some areas in Indonesia are also rapidly urbanizing, and at least prior to Covid, Indonesia's GDP was growing at a decent rate. Investing in properties in such areas could indeed be attractive.

For most mixed couples just looking for a place to live however, renting probably makes more sense, especially if the purchase price is > 30x yearly rent (reasonably easy to find). It will be much less hassle for you, your dual-nationality kids (if any), and you can invest your freed-up capital elsewhere.

 

[jukung11]

Has anyone considered putting the land in the Indonesian's name and the house in the foreigner's name with an agreement to use the land for x amount of years?

Do you mean a Hak Guna Bangunan (HGB) or Hak Pakai (HP)? I believe both require special deeds to be registered with the property office. The Hak Pakai can only be registered to the ITAP foreigner on new construction with a minimum selling price. It must be registered prior to sale. The foreigner loses the HP within 1 year of losing residency. HGB can only be for an Indonesian or PT PMA.

 

[Anfooshi]

Do you mean a Hak Guna Bangunan (HGB) or Hak Pakai (HP)? I believe both require special deeds to be registered with the property office. The Hak Pakai can only be registered to the ITAP foreigner on new construction with a minimum selling price. It must be registered prior to sale. The foreigner loses the HP within 1 year of losing residency. HGB can only be for an Indonesian or PT PMA.

Honestly, I have no clue on the specifics here. Thanks for the information.

 

[Missnaughty]

I bought a small apartment back in 2013. It cost me IDR 425jt, back then it is about $ 32K. Rate was around IDR 10K. I sold the house for IDR 425jt and I kept the money in Indonesia. I earned between 8-10% a year for few years and keep going down and earned nothing this last couple of years. If I did not buy the property, I would have had $32K in the bank, and I would have the same amount of rupiah as of today.

 

[ukcouple]

Assuming you are a WNI.. If you were living in the apartment since 2013 you would offset the price you paid IDR 423jt against the rent you would have paid if you hadn't bought it, or any rental income you would have received if you rented it out.

Looked at that way you will have recouped the money you paid for the apartment in 8 - 10 years. You can then sell or continue renting. (And that's how the rich got rich.)

 

[jukung11]

Honestly, I have no clue on the specifics here. Thanks for the information.

I wrote a long post about the hak pakai here:

Buying a villa

I was wondering if anyone could provide information on buying a property in Indonesia and owning it as a company. I understand a PMA needs to be set up. Also, how to make it legal to rent out to tourists.

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