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Indonesia luxe home builders get boost from new tax limit

The luxury tax threshold goes up with 20% levy payable only for properties valued at 30 billion rupiah or more

Jakarta

INDONESIA just made it cheaper for buyers to own an expensive house by raising the luxury tax threshold limit.

The luxury levy of 20 per cent on bungalows or high-rise condos will now apply only to properties valued at 30 billion rupiah (S$2.87 million) or more, according to a Finance Ministry notification.

The levy previously applied to town houses with land title valued at 20 billion rupiah or more, as well as apartments, townhouses and condos without land title and priced at 10 billion rupiah and above, the government said in a statement. President Joko Widodo is seeking to fire up South-east Asia's largest economy by extending tax breaks to the property sector as weakening global growth and a prolonged US-China trade war cloud the outlook.

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Bank Indonesia, which hiked interest rates six times last year, has already eased housing-loan rules in a bid to spark demand.

"The new rule will help make housing prices more attractive, reduce the burden on home buyers and trigger growth in the property sector," said Paulus Totok Lusida, the secretary-general of the Indonesia Real Estate Association. "In the last five years, growth in terms of value of homes built has been stagnant at below 5 per cent. We expect growth to rise to 10 per cent this year, supported by the new policy and previous loan-to-value policy easing by Bank Indonesia."

Luxury properties above 30 billion rupiah only accounted for about 10 per cent of the domestic market, Mr Lusida, whose association represents 6,300 developers, said by phone on Wednesday.

Shares of developers including PT Ciputra Development and PT Pakuwon Jati rallied on speculation the tax change may spur sales. Pakuwon climbed 4.6 per cent to a record; Ciputra jumped 4.1 per cent and PT Bumi Serpong Damai gained 5.3 per cent to the highest since Jan 15.

Other market watchers were more sanguine. The impact on developers' sales won't be significant because the luxury segment is small, said Timothy Handerson, a Jakarta-based analyst at PT CGS-CIMB Sekuritas Indonesia.

The government should instead consider easing rules related to property purchases by foreigners. BLOOMBERG