Property taxes are a hurdle that have dampened some of the property market.
Property taxes in Indonesia are considered to be relatively high. This is especially the case when compared to other countries in the region. A luxury tax of 20 percent is levied on any landed house or townhouse property purchase that costs in excess of IDR 20 billion. Condominiums costing more than IDR 10 billion are subject to additional taxes too. As a result there has been a decline in transactions at this end of the property market. According to figures only eight units from high-end apartments from January to June of this year were sold. For the same period in 2016 the figure was 226 illustrating the effect of taxes.
The government have taken steps in an attempt to boast the property market. But taxes still remain a challenge. The government helped by reducing the loan to value ratio. Now first time buyers require a minimum deposit of 15 percent. A figure that was previously 20 percent. Whilst this incentive did not immediately create an increase in transaction numbers, it was hoped the interest in Indonesian property would be spurred by low interest rates.
In fact it has enticed more foreign investors. Coupled with a stable economy, foreign direct investment has steadily increased. Indonesia’s Investment Coordinating Board reveal that USD 1.48 billion of FDI was injected into property in 2015. A figure that rose to USD1.67 billion the following year. At the same time foreign investment companies became more prevalent on the property scene. Working alongside local developers, foreign investors have increased by 34 percent. Companies from Japan, China and Singapore have become active players.
The property market could be considered to be split. On one hand individual investors are deterred with high taxes whilst institutional investors are drawn in by the country’s attractive economic environment. Plus there is a dire need for property in Jakarta. Meaning that 2018 is going to be a big year for the capital thanks to an increased supply of approximately 30,000 units. With only 8,400 units in the pipe for 2019, prices are expected to head in an upwards direction after a softer previous year thanks to increased stock. Values are forecast to increase between four and eight percent.
Either way the market is shifting. The growing middle class will no doubt become a dominate force in the future. Driving sales of the upper to middle sector of the market as property is classed as a valuable investment asset. This should alter developer’s attention to future supply avenues. But government interventions through taxes need to be watched so as not to negatively impact the property market.
