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Bali beckons as Indonesia makes it cheaper for overseas investors to buy expensive houses by raising luxury tax threshold

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Bali, Indonesia's top tourist destination, is poised to attract overseas buyers after the government recently raised the threshold on luxury tax, according to analysts.

In June, the administration of President Joko Widodo announced that the limit for luxury tax of 20 per cent for houses and flats would be increased to 30 billion rupiah (US$1.4 million) from 20 billion rupiah, effectively excluding many transactions in the high-end property market.

Jakarta already allows foreigners to own landed property on a 30+20+30-year scheme. Foreigners are initially allowed to own the property for 30 years, with a subsequent extension of 20, followed by another 30 years.

Indonesian developers, however, are pushing for an upfront 80-year permit for foreign homebuyers. Previously only Indonesian citizens could own land titles.


President Joko Widodo, who was re-elected for a second term in May, is looking to stimulate the economy through a range of measures. Photo: EPA-EFE

"This is a big change," said Georg Chmiel, executive chairman at Juwai.com, a Chinese website for buyers overseas property. "Foreigners have the right to possess property for up to 80 years and are much less likely to pay 20 per cent sales tax when selling. We expect demand to increase."

The relaxed rules reflect Widodo's goal, who was re-elected for a second term in May, to attract more foreign investment into the country to fulfil his election promise to boost Indonesia's economic growth to 7 per cent annually from about 5 per cent currently.

"Policies from the Indonesian government are becoming more investor friendly, forward looking and market driven. The government is now opening up to foreign investors and providing a level-playing field to all stakeholders. That gives a signal for global investors who are looking at the region from a strategic perspective," said Shan Saeed, chief economist at property and investment company IQI Global.

Property consultancy Savills reckons that the government's initiative to support the high-end segment will benefit the property market in Bali.

Under Indonesian rules, only foreigners who have a special permit to work or stay in Indonesia are allowed to buy property in the country, but those who use a nominee or register a company in the country can also buy real estate, and Bali is high on their list.

"We understand places like Bali, Batam and Lombok have a lot of foreign property owners," said Anton Sitorus, director and head of research and consultancy at Savills Indonesia. [Bali is attractive because of its] low price, natural beauty and quality of developments that are comparable to other popular places like Phuket and Koh Samui [in Thailand]."

A villa in Bali is priced at around US$1,100 to US$2,300 per square metre, according to Global Property Guide, which tracks real estate markets worldwide.

Juwai's Chmiel said that with Widodo's re-election, Indonesia's steady economic growth, and the government's plan to invest in infrastructure, the Southeast Asian country's appeal for second homebuyers has improved considerably.

"We believe the growth prospects are excellent," said Chmiel.

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