Recently, the option to buy a condo in Indonesia for private ownership has become available to foreigners. In 2021, the government of the country approved a decree granting foreign citizens several privileges, including the ability to acquire condominiums in full ownership. It is important to note that this right only applies to properties located in special economic zones.
In addition, the purchase of apartments in Indonesia is only possible if its cost is not less than the amount approved by the government. Price thresholds vary by region. As an example, in Jakarta, the minimum purchase amount is set at $210,000, in Bali $140,000, and in Central Java $70,000.
Is it possible to buy apartment in Indonesia for less? Yes, it is possible. However, in this case you are buying real estate for long-term use, not ownership. Such housing can be rented, sold and inherited, but only during a limited period of time. Taking into account all available renewal terms, the period of use of the asset can extend up to 80 years.
The lifting of strict ownership restrictions on foreign citizens, as well as the active development of infrastructure and the construction of numerous investment projects, have significantly strengthened the local real estate market. In the first half of 2023, the number of applications for the purchase of Indonesian real estate increased by 47%.
Most investors prefer to buy condominiums and villas in Indonesia. New residential projects are actively being built on the popular island and in other regions of Indonesia. Developers offer buyers favorable conditions for purchasing a ready-made rental business.
If you are asking yourself the question: Should I buy a condo to rent out in Indonesia?, keep reading this article!
Content:
- Can I rent out my condo after purchase?
- Housing rental costs in Indonesia
- Profitability of investment in Indonesia and taxes
- Difference between residential and commercial real estate investments
- Conclusion
Can I rent out my condo after purchase?
Should I buy a condo? If you are planning to buy condos for rent in Indonesia, you should familiarize yourself with the local rules regarding rental business operations. Rent in Indonesia allowed through a registered company. A foreigner can do this independently, but the process is quite complex. The following steps are required to set up a rental business:
- Register a company with foreign capital (PT PMA);
- Obtain a tax number (NPWP);
- Obtain a license (Pondok Wisata) to allow tourists to stay in a specific residential property;
- Obtain a work permit for the foreigner managing the project;
- Officially hire employees and pay insurance contributions, social taxes and 13th month's salary at the end or beginning of each year;
- File tax returns and pay taxes.
Many foreign investors choose the easier way to generate passive income by purchasing a condominium in Indonesia. Reviews of those who have turned to specialized agencies for housing management services are usually positive. This helps to avoid many bureaucratic procedures, saves time and is often more cost effective.
The condominium owner can contact a management company and give a power of attorney to its employee who will handle all matters related to renting out the condominium: finding tenants, preparing the unit, addressing minor technical issues, paying utility bills, etc. Such services are often provided by real estate agencies.
There is also the option of buying a ready rental business outright. Many developers sell hotel rooms and condominiums in apartment hotels while they are still under construction. Firstly, the cost of such real estate is most advantageous. Secondly, the developer offers the owner a convenient passive income scheme: the condominiums are part of a residential complex managed by a hotel brand, which generates profit from which the owner receives a fixed percentage. There are also other income distribution options, depending on the type of real estate and its popularity in the rental market.
Housing rental costs in Indonesia
The prices for renting a condo in Indonesia vary significantly depending on the region. Among tourists, Bali is the most popular destination. Let's explore the price dynamics in the most popular areas of the island.
Residences in Nusa Dua, Sanur and Seminyak are the most expensive. Mid-range homes are easily found in Kuta, Ubud and Canggu. In the small village of Jimbaran and the northern regions of Bali, housing can be rented for less.
The cost of accommodation also depends on the type of accommodation. For example, a small room in a guesthouse without a kitchen will cost about $10 per day. A hotel room will average about $50 per day. Apartment rentals start at $174 per month, while a house can cost from $250 per month.
Profitability of investment in Indonesia and taxes
Can I rent out my condo considering profitability indicators and tax expenses? As the country is a popular year-round tourist destination, renting out real estate here is advantageous despite relatively high taxes.
In the third quarter of 2023, the profitability of 1-bedroom apartments in the most popular regions is as follows:
- Jakarta – 6.8% to 10.4%
- Tangerang – 6.85%
- Surabaya – 11.07%
- Badung – 9.09%
Mid-priced properties offer the highest returns. Elite properties offer lower returns due to their higher prices. Premium villas are often purchased by investors who prefer capital preservation from inflation to rental income. Such properties appreciate annually and have good liquidity.
Foreigners are subject to income tax on profits earned in the country, which is 20% of the profit. However, there are currently no mechanisms in place to monitor the payment of this tax.
Property transfers are also taxed: the buyer pays 5% and the seller pays 3% of the total value of the asset. In addition, owners must pay a tax of 0.5% of the appraised value of the dwelling.
Standard taxes such as 10% VAT and 1% federal sales tax also apply.
Difference between residential and commercial real estate investments
Is it worth renting out an apartment in Indonesia or is it better to consider commercial real estate? The answer depends on your goals and the amount you are willing to invest. The entry threshold for residential property is slightly lower than for commercial, and the purchase mechanisms are also different.
To become a commercial real estate owner in Bali or any other region of Indonesia, a foreigner must register a private company. The company then registers a restaurant, guesthouse, hotel, shop, beauty salon or other non-residential property. Ready-made business options are available on the market, such as a restaurant with equipment and an established customer base, or a mini hotel with a steady flow of guests.
Is it worthwhile to buy commercial real estate for rental purposes? Despite the additional complexities associated with purchasing such property, commercial real estate can yield higher returns than residential real estate. Successful commercial properties can yield profits of up to 20% per annum, usually linked to tourism and located in popular resort areas.
Conclusion
Today, an investor can buy property in Indonesia without being physically present. The transaction can be done remotely through a power of attorney. It is also possible to rent out the property remotely, with all organizational matters easily handled by a management company. The property owner simply receives a guaranteed income. This is a good alternative to bank deposits and buying securities, and an excellent way to diversify your portfolio.
You can choose a suitable investment property using the convenient search feature on our website. The catalog includes various housing options, from budget studios to luxurious residences with sea views. There are also ready-made investment projects in the form of apartments in modern complexes with hotel services. Our specialists will help you find the best option for your future investment.