Indonesia amnesty inflows fuel positivityOctober 11, 2016 / By
Sales have been relatively weak in the Jakarta condominium market since mid-2015. While the economic outlook is brighter in 2016 and the rupiah has stabilised against the US dollar – two key drivers of sentiment – buyers have not yet returned en-masse. Our clients regularly ask us what will fuel an improvement in the market and, whilst many factors are at play, we feel two regulatory issues are of key importance.
The Tax Amnesty
The much-anticipated tax amnesty was enacted in June in order to boost tax revenues. It is essentially a waiver of penalties by paying low tax rates on undeclared assets; the sooner you declare, the less you pay based on the timeline below:
Source: Ministry of Finance of Indonesia
It was recently reported that around IDR 3,600 trillion (USD 277 million) in assets were declared by the 30th September cut-off date for the lowest tax bracket. This reflects around 90% of the target and this could be considered a significant win given the slow start to the programme in June. While real estate is clearly not going to be the sole beneficiary of the tax amnesty, we are confident that property will receive significant attention from amnesty participants over the next six to twelve months.
Luxury and Super Luxury Taxes
Changes to taxes in 2015 are such that we now remain in the peculiar position of the super luxury tax threshold (IDR 5 billion) being lower than its luxury counterpart (IDR 10 billion). While the 5% tax burden associated with the super luxury tax is relatively low, anecdotal evidence suggests that many super luxury buyers are subjected to an audit and this has had the effect of bringing the market to a standstill.
JLL believes that unless these taxes are adjusted or completely overhauled, the luxury market is unlikely to achieve its potential. A good start would be increasing the super luxury price threshold to at least IDR 10 billion. Alternatively, a sliding scale whereby more tax is paid, the higher the price of the asset may resonate with buyers as more reasonable.
An Imminent Recovery?
The luxury and super luxury tax issue aside, the government has been proactive in attempting to stimulate the market. Interest rates have come down, LTV ratios increased and mortgage disbursement rules loosened. In parallel, buyer sentiment is likely to continue to improve on the back of an improved macro environment and we believe a recovery is a matter of when rather than if.
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