1. With Bank Indonesia (BI) finalising the Down Payment to 0% and the updated VAT exemption regulations, will it affect buyers and investors in finalising acquiring a property?
In addition to the 0% DP programme, the VAT exemption, which was implemented this year, is intended to penetrate a larger market segment – the middle to low classes. Currently the middle to low classes tend to save and reduce spending during this pandemic; however, they still have high interest in property at low prices. In an attempt to increase purchasing power in the residential sector and to encourage national economic growth, such programmes are expected to be a catalyst to promote more sales. Because, after all, the property and construction sectors have been contracted since 2020, even though these two sectors had high multiplier outputs.
With that being said, these two programmes are designed to lift positive sentiment towards property purchase this year and to be able to help the sustainability of the residential sector, which has been affected by the pandemic.
2. As both of the regulations apply to all types of property, including landed houses, apartments and shop houses / office houses, which type of property will have the most impact and will experience a surge and what is the reason?
The residential sector is definitely the main focus for these policies to be effectively implemented. The need for housing accommodation is still resilient, particularly for middle to low classes. So far, transactions are still seen for these classes rather than the upper class with most interest in housing and apartment with prices up to around IDR2 billion.
The VAT exemption policy itself is only applied for ready-stock residential properties. Based on the latest VAT incentive regulation set out by Ministry of Finance number 21 / PMK.010.2021, several criteria to be granted for VAT incentive are as follows:
• Has a maximum selling price of IDR5 billion
• Property is physically ready to be handed over during the incentive period
• It is a new property and ready to be occupied
• Maximum one unit of landed house / apartment for one person and cannot be transferred within one year
• Government will subsidise 100% VAT for residential property with maximum price of IDR2 billion; while for residential unit with price between IDR2 billion and IDR5 billion, the VAT discount is 50%
3. Is this considered as the right momentum to make purchases or investments in the property sector, especially since both programmes have a time limit only for 2021?
These two programmes seem to be quite holistic in promoting residential property sales. If this is for a long-term investment and investors do not expect immediate or imminent returns, this is actually the right time. For end-users who have the buying power, this is also a good time to decide a purchase.
However, there are many procedures that must be considered carefully, especially because this purchase is made through a house ownership mortgage. The risk for the bank increases and they must take prudent measures in disbursing mortgage with 0% down payment, so it is going to be an easy practice.
Buyers might benefit from having to provide a big amount of money at the initial stage; however, their burden is getting bigger in their monthly obligation. Another challenge is that the bank should adjust their loan interest rate to be more competitive and not far from the BI benchmark rate in order to make this market more vibrant.
We are in the view that the 0% Down Payment and VAT exemption for certain property products are good, nevertheless, this should be followed by providing a more attractive loan interest rate in order to make a holistic policy that is expected to accelerate more transaction in the property product. We believe 2021 should be a better year particularly for the property sector. We also have a more positive outlook when vaccinations are successfully implemented and bring impact to push more business activities.
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