Indonesia is Southeast Asia’s largest, most populous country. But it’s stayed off the radar of most investors despite strong growth and an enormous consumer market.

 

The economy is also rising at an impressive pace. A focus on infrastructure, manufacturing, and services has helped Indonesia average over 5% growth since the turn of the decade. This is one of the highest in the region.

 

Investment in Indonesia has skyrocketed both as a result and a cause of its resurgent growth. But it still hasn’t gotten the same attention as other large countries in the region like China and India. Much smaller nations like Thailand and Singapore are even seeing more foreign investment.

 

This makes investing in Indonesia property ideal for those wanting to profit from the rise of one of the world’s future economic powerhouses.

 

China is becoming too expensive and its economy is slowing down. Businesses, manufacturers, and investors alike are now looking at India because of this. Eyes will turn to Indonesia once India becomes oversaturated and suffers the same fate.

 

Indonesia’s rise will truly begin once this happens. Those who act before will have access to a population of more than 250 million people – the fourth biggest in the world. They’ll also have an early start over the competition.

 

It’s a long term play and a fairly safe one. Multinational companies love setting up shop in dense, heavily-populated countries. This gives them access to large consumer markets and makes their logistics easier too.

 

International trade is a main driver of Indonesia’s growth. The massive Port of Tanjung Priok is going through an expansion.

 

However, things aren’t fully positive for the archipelago. It’s fairly simple for foreigners to start a business or buy stocks, but harder to invest in Indonesia property. This hasn’t stopped people from doing so and there’s a few workarounds, some more risky than others.

 

Corruption and bureaucracy is also still a problem for Indonesia. The World Bank’s latest Ease of Doing Business Index ranked the country at 91st out of 190, putting it about midway among its peers in ASEAN.

 

With that said, the nation is gradually opening up and becoming more transparent. Recent changes in the law make it clear the government is on the right path. One of making it easier for foreigners to start a business and buy property in Indonesia.

 

Can Foreigners Invest in Indonesia Real Estate?

It’s not possible for foreigners to own freehold property in their own name right now. This guide will be updated in the future once these laws inevitably change.

 

There’s several different land titles in Indonesia. Freehold titles, more commonly called “SHM”, can only be held by citizens. Right-to-use titles, usually called “SHP”, are essentially leaseholds and are open to foreigners.

 

Leasehold titles are granted for 25 years. They can be extended for another 50 years for a total of 70 years. Up until 2016, the extension period was only for 25 years for an effective 45 year total. It’s clear that Indonesia is slowly moving in the right direction.

 

Also, the law technically allows for foreign ownership of strata condominium titles. But this is not commonly (if at all) granted in practice. InvestAsian is not yet aware of any foreigners who have been given strata titles.

 

How Much Are Property Taxes in Indonesia?

Taxes are exceptionally high in Indonesia. In fact, they’re enough of a factor to dissuade many people from investing in Indonesia altogether.

 

Fees for selling property are particularly high. Sellers are subject to a 2.5% transfer tax on the sale value of their property. Buyers must pay a 1% land acquisition duty on the purchase price of the property.

 

In case that’s not enough, buyers of luxury houses and condominiums are subject to a massive 20% sales tax.

 

Landlords collecting rent but not living in Indonesia are subject to a flat 20% tax on the income. Depending on your residency, double taxation agreements might help lower this rate to 10%. Residents of Indonesia pay a tax of 10% on rental income either way.

 

There’s a small annual property tax too. Rates vary based on the government appraised value. These are 0.1% for properties worth between IDR200 million and IDR2 billion, 0.2% for those between IDR2 billion and IDR10 billion, and 0.3% for over IDR10 billion.

 

 

Places to Invest in Indonesia

Indonesia is the 4th most populous nation in the world, so there are many areas to conceivably buy real estate. However, most of these places are closed to foreigners because of current investment laws.

 

We’ll cover Indonesia’s top cities despite this fact. Investment prospects will be looked at from the perspective of local buyers. The assumption is that foreign investment will be allowed in the medium to long term, and this guide will be updated when it is.

 

Jakarta is ASEAN’s biggest city by some measures and will see its influence rise even further with time. Second-tier cities such as Surabaya and Medan are growing even quicker than the capital. Meanwhile, Bali will continue to be the Indonesia’s most popular resort destination.

 

While not yet as famous as Bangkok or Singapore, Jakarta is one of Southeast Asia’s top centres for business and finance.

 

Jakarta

Located on Java’s north coast, Jakarta has a metro area of over 30 million people. As such, it wouldn’t be practical to cover every single neighborhood in this guide. Especially when foreigners can’t even buy Indonesia property yet.

 

Jakarta is comprised of five smaller “cities”: Central, North, West, South, and East Jakarta. These districts make up the larger area which most people simply call Jakarta. However, most investors buy real estate in either Central or South Jakarta.

 

A subway or monorail system hasn’t yet been built in the city. Because of this, living close to work, schools, supermarkets, and similar places is important for most people. They’ll otherwise risk being stuck in Jakarta’s infamous traffic jams.

 

Central Jakarta

Central Jakarta is the city’s downtown and prices here are among Indonesia’s most expensive. Menteng and the Golden Triangle are two neighborhoods in Central popular among expats and upper class locals alike.

 

The Golden Triangle is where three major roads (namely Jl. Sudirman, Jl. Rasuna Said, and Jl. Gatot Subroto) all meet.

 

Large office buildings and luxury apartments line each of these streets, making the Golden Triangle convenient for expats. Those working for a multinational firm can live within walking distance of their job.

 

Menteng is both centrally-located and leafy. It’s an “old money” neighborhood and the site of countless embassies, villas, and colonial-era buildings. The fact that it’s also in the middle of Jakarta further adds to its appeal, making it one of city’s most prestigious addresses.

 

But houses in Menteng are often historical landmarks. Approval from the government is sometimes needed before renovation and construction work can be done on properties here.

 

North Jakarta

A lot of people tend to avoid North Jakarta because of the district’s flooding, pollution, and distance from business centers/international facilities.

 

There’s simply no reason to live out here for most. Central and South Jakarta are more convenient, West Jakarta offers a better suburban lifestyle, and East Jakarta is closer to the city’s industrial core.

 

Despite these issues, a community called Pantai Indah Kapuk has made a name for itself. Often called “PIK”, the complex is an integrated community with residential and commercial zones. Housing estates can be found alongside schools, hospitals, restaurants, and even a golf course.

 

Real estate prices are also lower in North Jakarta. This is worth considering for investors – especially those willing and able to buy land in Indonesia.

 

West Jakarta

Much of West Jakarta is made up of a vast area called Tangerang. It encompasses the international airport and dozens of residential neighborhoods south of it.

 

Townships such as Alam Sutera and Bintaro dot the landscape of this district. Between them are numerous malls, dining options, and stores. Tangerang’s suburban life and easy access to the airport have especially drawn digital nomads, retirees, and those with families who don’t commute every day.

 

However, floods are a problem in West Jakarta and more travel time is needed to get downtown. Commutes to the CBD can reach two hours during peak times. This is often a deal-breaker for anyone working in Central.

 

Living in Tangerang can be inconvenient – but real estate here is less expensive too. Jakarta’s urbanization means this probably won’t be the case for long. Investors should take note.

 

South Jakarta

Generally, South Jakarta is one the city’s two most desirable districts to live in along with Central. Residents have easy access to downtown along with a bit less traffic, more space, and a wide choice of restaurants and stores.

 

Kebayoran Baru is South Jakarta’s biggest neighborhood and one of its most convenient. It straddles Central Jakarta, putting it close to major office buildings and malls. Kebayoran Baru is more commonly known for large houses, but apartment buildings are also starting to pop up.

 

Kuningan is the closest you can get to Central Jakarta without actually being there. This is another “old money” area with tree lined streets and large villas. However, property in Kuningan can sometimes be in disrepair while retaining a stately appearance on the outside. Make sure you do a proper inspection.

 

Further south is Kemang. It’s not as convenient as other parts of South Jakarta and flooding can be an issue. But Kemang remains popular among expats because of its unique restaurants, international facilities, and lower prices compared to the rest of South Jakarta.

 

East Jakarta

Filled with factories, East Jakarta is where the bulk of the city’s industry takes place. People who either work for a large manufacturer or companies supporting them (logistics firms, heavy equipment suppliers, etc.) often choose to live in the district.

 

The problem is that East Jakarta holds little appeal for anyone else. Kelapa Gading, or “KG”, is one of the few townships in the area which are up to global standards. It’s an integrated community and offers schools, shops, hospitals, and more for its residents.

 

Surabaya

Surabaya is Indonesia’s second largest city and shares the island of Java with the nation’s capital. But growth in the city is now even higher than Jakarta’s. More than 140 million people live on Java and they’re starting to urbanize. Many of them are heading to Surabaya.

 

The city was historically a trading hub. Because of this, companies such as banks, insurance companies, shipbuilders and other players needed to facilitate global trade are a major part of Surabaya’s economy.

 

Indonesia’s first high speed rail system will also connect Surabaya and Jakarta. The Japanese won a bid to build the link, and hopes are for the line to finish construction at the end of 2019. This will greatly help Surabaya’s economy once it’s complete.

 

Station names and locations are not yet known. But once they’re announced, buying property near them could be a strategy for investors in the future.

 

Medan

Medan, on the island of Sumatra, is one of Indonesia’s fastest growing cities. Its economy was almost entirely based on agriculture up until recently, relying on the export of rubber, tobacco, tea, and coffee.

 

Sumatra’s population of over 50 million is now starting to urbanize along with neighboring Java’s. As the largest city on the island, Medan is getting most of their attention. It’s easier than moving to Jakarta or Surabaya which are both on a different island.

 

Manufacturing is becoming an important part of Medan’s economy. Pieces of land on the city’s outskirts which used to host farms are making room for factories and industrial estates. Meanwhile, condominiums and office buildings are popping up in the city center.

 

The fact that Medan sits on the Strait of Malacca, one of the busiest shipping lanes in the world, also means the city has strong potential to become an international trade hub.

 

Bali

Bali is Indonesia’s top tourist destination. Rapid development has taken its toll over the past several years. However, international arrivals still beat out Phuket, Boracay, and every similar place in the region by a mile. Its economy is booming as a result.

 

The island typically has better infrastructure than elsewhere. Streets and public services are kept to higher standards much in the same way Mexico keeps Cancun’s hotel zone clean. Indonesia knows digital nomads and tourists won’t keep coming if quality of life isn’t superior.

 

Villas in Bali are common and developers can give you a 70-year leasehold on the land when buying one. They’ll often pledge to transfer the land to you if foreigners are ever allowed ownership. It’s worth noting these promises aren’t legally binding.

 

Foreigners can’t yet own land in Indonesia. Nonetheless, there are a few ways around this restriction. Some are riskier than others.

 

Is Indonesia Property a Good Investment?

Indonesia would be a great investment if foreigners could own property. Population growth combined with lack of space means demand will continue to rise. Cities like Surabaya and Medan will benefit from this trend the most.

 

Of course, foreigners can’t yet buy property in Indonesia. So the strong potential isn’t relevant for most of us.

 

My thoughts are that this will change within the next decade. Just in the past 3 years, foreigners were given the right to own 100% of almost any type of business and the maximum duration of leaseholds was almost doubled. Things are clearly moving in the right direction.

 

But for right now, it’s best to invest in places like Cambodia rather than messing with leasehold titles and bureaucracy. There are many other countries in the region which are open to foreigners. Some are growing even faster than Indonesia.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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