REIT or Real Estate Investment Trust is an investment vehicle (trust) that pool investor funds to purchase a portfolio of properties. A REIT may be sponsored by a property company that has already had a portfolio of properties and wanted to get more cash to purchase more properties. Normally, it has two unique characteristics: investment in income-producing properties, and almost all of its profits distributed to investors as dividends.
By the time I write this article (January 2011), there are two REITs originating in Indonesia, but not listed in Indonesia. It is the First REIT, and LMIR REIT, both were listed by Lippo Group. First REIT is a hospital and hospitality REIT with portfolio of several Siloam Hospitals in Indonesia (now add several more in Singapore), and a hotel, Imperial Aryaduta. LMIR, or Lippo-Mapletree Indonesia Retail Trust is a REIT consisting of several shopping centres in big cities in Indonesia. They were listed in Singapore (SGX), thus not giving any capital-appreciation value to Indonesians.
So, why Lippo didn’t list its REITs in Indonesia? And why there is no REIT in Indonesia?
In my opinion, it is Tax.
Bapepam (Financial Authority in Indonesia) has acknowledged a financial product very similar to REIT, named KIK-DIRE, short of Kontrak Investasi Kolektif – Dana Investasi Real Estat (literally translated as Collective Investment Contract – Real Estate Investment Fund). However, this financial instrument, unlike in America, where REIT is often used for tax shelter, KIK-DIRE is very heavy in taxation. KIK-DIRE can invest its fund with or without a special purpose company, but both are subject to the same tax.
In Indonesia, a formation of KIK-DIRE (Indonesia’s REIT) is regarded as a real estate transaction, plus PPN. In the sale of a real estate, the buyer has to pay 5% stamp duty of purchase value (BPHTB). On top of that, they must also pay a 10% Value-Added Tax (PPN). Plus another 5% of income tax (PPh). So, in total, you spend a whopping 20% tax to turn your assets into a REIT. The same is true for transfer of a property to KIK-DIRE.
Until the tax regulation for REIT or KIK-DIRE is given a special tax consideration (like in Singapore) and somehow modified to be more issuer-friendly, you won’t see any REIT issued in the IDX.
Too bad.. because we still have many potential income-producing properties that is suitable for REIT in Indonesia.