KEPI and SPI has important role for the valuers, users, government, and other bodies.  KEPI is the moral ground, while SPI is the practice guide of valuation in Indonesia, while from the user it is as a guide to understand and using the valuation reports.

KEPI and SPI 2013 is made following the systematics of International Valuation Standards where KEPI is a separate part from SPI, but printed as one.

SPI 2013 is principle base, with platform of property and business valuation.  Di this edition, the term “property” is replace by “asset or liability”, where in this edition, the terms have the same definition in Real Property, Personal Property, Business, or Financial Rights.

With the application of the new standard, it is hoped that Indonesian Valuers will have more profesionalism and at the same level of other valuers in other countries, and can compete internationally.

Jakarta Hotel Newcomers and Prospects

During the year 2010 four new hotels began to operate Jakarta: a 3-star hotel, two 4-star hotel and one 5-star hotel. Kawanua Aerotel, a 3-star the hotel has 79 rooms and was developed by North Sulawesi provincial government and managed by Aerowisata. From this hotel 11 floor, 10 operated as a hotel and one as their Jakarta Representative Office. Meanwhile, 5-star hotels Merlynn Park KH Hasyim Ashari also operates under the Sunlake Hotel Group. Hotel Merlynn Park, from 26 floors, consisting of 301 rooms and ballroom. Other hotels, Harris 4-star hotel in Kelapa Gading, which Under Tauzia Hotel management, operates with 226 rooms. In the last quarter of 2010, Best Western Mangga Dua launched. This is the first Best Western hotel chain in Jakarta, operates the first 118 of the planned total of 168 room.

In short, during the year 2010 four new hotels giving a total 724 rooms. Conversely, hotel market also saw the closing down one 3-star hotel, Sofyan Cikini (111 rooms), has been operating for about 27 years.  The hotel is owned by PT Hotel Sofyan Language. and sold to PT Cempaka Jaya Wenang Rp44.47 billion. PT Cempaka Jaya is Wenang developers to Villa Del Sol and Villa Earth Ciherang, both located in Cipanas, West Java. developer has also developed Pearl Kemang Townhouse and Pearl UB Residence in Jakarta. All in all, with the introduction of of four hotels, minus Sofyan Cikini Hotel, number of hotel rooms in Jakarta 23 638, of a total of 98 hotels.

Based on the classification, the percentage of space both 4-star hotel and 5-star hotel is 39%, which 4-star hotel has 9154 rooms in 35 hotels. In the short term, the remaining 50 rooms of Best Western Mangga Dua will be launched in 2011. Furthermore, in the same year, Jakarta will receive another 370 from the operation of a hotel room in Pullman Hotel Central Park commercial complex in West Jakarta.

Source:  Colliers International Indonesia

Over the next three years, it is estimated that the supply of hotel rooms will grow at 6.3% per year, with hotels 5-stars as the largest contributor, with 2407 rooms. During the same period, Jakarta should see an additional 804 rooms of a 3-star hotels and 1575 rooms of 4-star hotel. It is interesting to note that some future development of hotels will be built in the compound mixture of commercial uses such as Pullman in Central Park, County Aryaduta in Kemang Village, Aryaduta Hotel & Convention in St. Moritz, hotels in Gandaria City and hotels in Kota Kasablanka.

Source:  Colliers International Indonesia

Jakarta Hotel Customers

Local Customers to supporting business hotels in Jakarta, dominates the profile guests throughout the year 2010. Foreign guests in 3-star hotel is only represented 11%, whereas in 4-star hotel 27% of hotel guests are foreigners. Five-star hotel has a high complement of foreign visitors, in 46%. However, this amount is lower than in 2009, when foreign visitors dominated profile of 5-star guest, at 57%.

Source:  Colliers International Indonesia

Seeing the length of stay (LOS), foreign visitors to stay longer than local guests. Foreign visitors stay longer at the 3-star hotel than in the 5-star hotel, while local guest to stay longer in the 5-star hotel than a 3-star hotel, especially during school holidays (June-August period). Foreign visitors to stay longer in the months and then years.>

Source:  Colliers International Indonesia

Jakarta Hotel Demand

The number of foreign visitors coming to Jakarta in January – November 2010 through Soekarno Hatta airport was recorded at 1,684,394, representing 26.5% of all foreign visitors throughout Indonesia.

The government has targeted an increase of 10% in 2011 to the number of foreign tourists to Indonesia, from 7 to 7.7 million in 2011. This target is expected to contribute US$8.3 billion to the country (assuming that each tourist will spend around US$1,100. MICE (meeting, incentive, conference and event) will contribute most in the tourism business.

Jakarta Hotel Performance

Average Occupancy Rate (AOR)

In general, the occupancy rate for starred hotels in Jakarta experienced a decline during 3Q2010, mainly due to the Muslim festive holiday, but bounced back in 4Q2010 with an upward trend of between 4% and 9%. During the quarter, 4-star hotels still recorded the highest occupancy, with an average of 74%, followed by 3-star hotels at 65% and 5-star hotels at 59%. In the 3-star category, three hotels achieved high occupancy, of above 80%: Ibis Mangga Dua, Harris Hotel and Bumi Karsa. Meanwhile, quite a few 4-star hotels reached occupancy levels above 80%; among the highest were Menara Peninsula, Santika Nusajaya and Nikko Jakarta. As for the 5-star category, only 3 starred hotels showed occupancy of 70%: Hotel Mulia, Parklane and Aston Sudirman.

Source:  Colliers International Indonesia

Average Room Rate (ARR)

The overall average room rate for this quarter rose by 5.5% QoQ, to Rp556,504, for 3- to 5-star hotels. ARR for 3-star rose to Rp335,554, from Rp320,054, in the previous quarter, with three hotels recorded the highest ARR: iBumi Karsa, Harris Hotel and Grand Kemang. In the 4-star category, ARR was registered at Rp478,431 this quarter, up from Rp455,745 last quarter. Three hotels in this category had high ARR: Sari Pan Pacific, Ambhara and Ciputra. Seven hotels in the 5-star category reached ARR of above Rp1 million, the top three for this quarter being Kempinski Hotel Indonesia, The Ritz Carlton at SCBD and Grand Hyatt. Meanwhile, the overall ARR for 5-star hotels was Rp855,526, up from Rp806,613 in the previous quarter.

Source:  Colliers International Indonesia

Jakarta Hotel Outlook 2011

By 2011 the government will introduce a new branding – “Wonderful Indonesia” – as part of a tourism campaign to lure up to 7.7 million foreign tourists. The new tagline is expected to have stronger appeal, as it reflects Indonesia’s beautiful nature, unique culture, varied food, hospitable people and price competitiveness in various kinds of service. In 2010, around 7 million tourists visited Indonesia, up from 6.4 million in 2009. Nevertheless, hotels in Jakarta are not too dependent on the foreign market. Guest profiles in Jakarta are predominantly local Indonesians.

In general, the Jakarta hotel market will grow in 2011, particularly benefiting from the number of MICE events scheduled to take place in Jakarta, including ASEAN sport events (Sea Games) and the General Assembly of UNESCO Intergovernmental Committee for Intangible Cultural Heritage, which will take place in Jakarta around November 2011.

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.

As a comparison, Malaysia has had the law on appraiser profession since 1981, in the Laws of Malaysia, Act 242, “Valuers, Appraisers, and Estate Agents Act 1981″. Indonesia is targeting to have the law (“Undang-undang” or “UU”) about the appraisal profession in the year 2011. The talk in the Legislative (“Dewan Perwakilan Rakyat” or “DPR”) has been started since this year and it has been one of the priority.

Two decades ago, the appraisal profession is only known to a few of potential users. But now, with the advent of market-based economy, the importance of appraisers become very evident. So, in order for the profession to function and to protect all the stakeholders, including the public, a law is needed.

MAPPI or Indonesian Society of Appraisers has been a self-regulating professional society and the “gatekeeper” for this profession for a long time. MAPPI has issued the Indonesian Appraisal Standards 2007 (“Standar Penilaian Indonesia 2007″ or “SPI 2007″), and Appraisal Code of Ethics (“Kode Etik Penilai Indonesia” or “KEPI) that all appraisers must obey if they want to be the member of MAPPI.

MAPPI is the only government-approved appraiser profession in Indonesia, making it the only organization overlooking the education of appraisers in Indonesia, and although not giving the license, is the prequisite for getting the appraisal license from the Ministry of Finance.

The land tenure legal system in Indonesia is administered under the Basic Agrarian Law No. 5 Year 1960. Land tenures and titles are the jurisdiction of The National Land Agency (“Badan Pertanahan Nasional” or “BPN”), a government body that manages all grants, extensions, renewals of certified titles as well as running the land registration system.

Land ownership titles in Indonesia are divided into two broad categories, which is customary traditional land title (“Adat” land rights), and certified titles. The traditional land title is not registered in the BPN and is considered as having a lower degree of ownership power. Land plots containing such title are usually owned by inheritance. Other typical terminology for such land title is “girik” or “petok” or “pipil”. Girik was not actually an ownership title per se, but only the old version of the land tax bill, as compared to the modern bill called SPPT-PBB now. However, girik is considered a land title and can be the basis of a transaction. Land plots containing such “adat” title can be converted into certified titles as registered in the BPN. Buying the land with traditional land title is always riskier than with the certified titles.

Certified land titles are governed by The Basic Agrarian Law No. 5 Year 1960. They are registered at the local BPN office. The types of certified titles are as follow:

Freehold (“Sertifikat Hak Milik” or “SHM”)

This title grants absolute ownership of a plot of land. It is similar to a freehold title. This title is hereditary and may be held only by individuals (Indonesian citizens). Foreigners cannot be granted SHM.

Rights to Build (“Sertifikat Hak Guna Bangunan” or “SHGB”)

HGB title gives the right to construct and own buildings on a plot of land. The right is transferable and may be encumbered. HGB is the form of ‘freehold title’ that may be owned by Indonesian citizens and legal entities established under the Indonesian Law and domiciled in Indonesia, including foreign-owned companies and joint-venture companies. HGB title is the most common title that foreign companies use to hold real estate in Indonesia.

Banks and financial institutions will accept HGB land for mortgage and securitization purposes because it can be bought, sold and bequeathed and it is covered by the same planning and land use provisions as would apply with freehold land plots.

HGB title is granted by the National Land Agency for an initial period of up to 30 years and is extendable for a subsequent 20-year period. Upon the expiration of such extensions, new HGB title may be granted on the same land with the same terms.

This land title is actually a quasi-leasehold because it is can be renewed for infinity after it is expired. Thus, it can be sold as well as freehold and can be used for loan collateral as well as freehold. If you are a foreigner looking to own a piece of property in Indonesia, I recommend you sought this land title. You have to create a company in Indonesia, but it is better than obtaining only the SHP title.

Rights to Use (“Sertifikat Hak Pakai” or “SHP”)

This title gives right to use state-owned land or land owned by others for a specific purpose as agreed by both parties such as for social activities, religious worship, embassies and international organizations. The title can be held by Indonesian citizens, individual foreigners residing in Indonesia, foreign embassies or representative offices of foreign institutions.

The title can be granted for a maximum validity period of 25 years and is extendable for another 20 years, or in certain cases, such as land for the premise of a foreign embassy, the title can be granted for an indefinite period for as long as the embassy resides on the land.

Generally, foreign individuals or foreign companies that are not registered under current Indonesian laws enjoy only the Right of Use (‘Hak Pakai’). Since it is only given for a limited time, the value in the land is actually depreciating according to its expiry date.

Right-to-Manage (“Sertifikat Hak Pengelolaan” or “SHPL”)

This title gives right to operate state-owned land for a specific purpose as approved by the authorities. It is given exclusively to government institutions or state-owned companies for an unspecified period.

Developers can usually cooperate with the authority to obtain a SHGB over SHPL for a certain set of period. Some example of area under this arrangement is the Kemayoran Area in Jakarta.

Rights to Exploit (“Sertifikat Hak Guna Usaha” or “SHGU”)

This title gives right to cultivate or exploit state-owned land for agricultural, fishery or other purposes. Examples of the title include Hak Memungut Hasil Hutan (‘Right to Crop Forestry Products’), Hak Guna Air (‘Right of Use of Water’), Hak Pemeliharaan dan Penangkapan Ikan (‘Right to Farm and Catch Fish’).

The validity of such title is for a maximum period of 35 years and is extendable for another 25 years with an option for renewal.

This land title is usually used for plantation, including palm plantation.

Right of Strata Title Ownership on Multi-storey Building Units (“Sertifikat Hak Milik atas Satuan Rumah Susun” or “SHMASRS”)

This title is issued to the owners of residential, commercial or retail units in multi-storey buildings such as condominiums, strata-title offices and trade centers. The title’s validity period depends on the expiry date of the land right of the plot on which the building is located.

Other certified titles in variation to the above are also available depending on the purposes and arrangements between the land occupier and the land authority. Examples of other certified titles are ‘Rights to Build and Operate’, ‘Rights to Build over Rights to Manage, ‘Rights to Build over Freehold Title’, etc.

What Foreigners can Use?

Under Government Regulation No. 41/1996 issued on June 1996, individual foreigners are allowed to own residential properties. Foreigners, who provide benefits to national development, reside permanently or temporarily in Indonesia, and have immigration documents or a work visa, may purchase:

1. Non-subsidized houses on land with Right of Use title;
2. Strata-title apartment units on land with Right of Use title; or
3. Vacant land with Right of Use title.

Some Other Arrangements

In some areas such as Bali, foreigners may team up with a local to create an arrangement called “nominee” in which the name recorded in the SHM is the local’s but it is held by the foreigner by means of a notary agreement.

Need Help?

If you need profesional help regarding your real estate needs in Indonesia, you can always contact us at contact@appraisalindonesia.com.