How to Invest in Land in Indonesia and What are the Benefits
How to Invest in Land in Indonesia - When you hear the words property investment or real estate investment, perhaps the first thing that comes to mind is commercial property investment or rental property.
Not surprisingly, this type of investment is common in today's era and closely related to the term real estate investment itself.
However, besides these two types of property investments, you can also consider land investment.
The term 'landowner' as an investor with extensive land ownership is familiar in the minds of Indonesian people. This title has long been seen as a marker of prosperity.
The question remains: Is land investment still relevant today? Is it truly a sound investment choice?
To answer these questions, we will discuss the reasons for investing in land, its advantages and disadvantages, and address common queries related to this investment.
Before delving further, let's first define what land investment entails.
What is Land Investment?
The meaning is simple: land investment involves investing in land or vacant land.
This type of investment is often viewed as a long-term strategy, leveraging the appreciation of land prices to yield substantial profits.
Land investment is known for its potential high return on investment, often outperforming investments in gold, deposits, and even stocks.
Types of Land Investment
Land investment is crucial due to the increasing scarcity of land as populations grow and urban development expands.
As an investor, understanding the practical aspects of land ownership and leveraging it as an investment foundation is essential.
One fundamental aspect to grasp about land investment is the various types of land investments commonly encountered. These include:
- Land for residential development
- Land for commercial development
- Farmland
- Forest land
- Mining land
- Plantation land
- Recreational land
Each type of investment varies significantly in capital requirements. For instance, those seeking land investment with modest capital may find starting with residential plots or farm development more suitable.
You can also consider garden land investment, which involves using land for farming and other agricultural activities.
This type of investment is ideal for beginners looking to start small and own land for fields, fruit plantations, and similar ventures.
Apart from investing based on land use, you can also pursue land investments with minimal capital by purchasing vacant land.
This form of investment has shown promising prospects, with its value continuing to appreciate.
Also read the article which discusses 3 Types of Land Buying and Selling Taxes in Indonesia.
How to Invest in Land
Applying the right approach to land investment is crucial for those interested in entering this property market.
Before proceeding, here are several factors to consider when purchasing good land:
- Inspect the location of the land firsthand and assess its accessibility.
- Evaluate the type of soil and the quality of water available.
- Check the strategic location of the land, including the availability of facilities and infrastructure.
- Understand the land's status and designation by local authorities (such as Building Floor Coefficient and Building Base Coefficient).
- Once you have identified the ideal piece of land, you can start planning your purchase.
There are several methods to invest in land, with the two most common being direct cash purchase from the landowner or applying for Land Ownership Credit (KPT).
If you choose the cash purchase method, you simply buy the desired land outright. Subsequently, you hold onto it until its value appreciates. Once that happens, you can sell the land at a higher price.
The second method involves using KPT, where you borrow money from a bank to purchase land. This approach is more accessible for investors with limited funds.
Investing in land through KPT involves specific steps and conditions that must be followed.
Requirements for Applying for KPT
To apply for a Land Ownership Credit (KPT), the applicant can directly visit a bank that offers the program.
Below are the requirements for applying for KPT that must be met by the applicant:
- Provide a down payment of 30% of the total land price you wish to purchase.
- The applicant must be at least 21 years old or married.
- The applicant's age must not exceed 50 years old.
- Have a permanent employee status for at least 2 years.
Documents to Prepare for KPT
After meeting the requirements for KPT, you need to prepare the following documents:
- Photocopy of ID card
- Copy of Taxpayer Identification Number (NPWP)
- Marriage or divorce certificate (if applicable)
- Family card
- Passbook showing financial transactions for the last 3 months
- For self-employed individuals, proof of business financial transactions, Business License (SIUP), and Company Registration Certificate (TDP) are required
- Ownership documents of collateral (such as Land Certificate (SHM), Building Permit (IMB), Land and Building Tax (PBB) receipt)
Advantages and Disadvantages of Land Investment
Property investment, including land investment, is widely regarded as one of the premier investment options.
In fact, many financial advisors recommend allocating a portion of one's funds to property and real estate investments, whenever feasible.
Over the past few decades, land prices have consistently appreciated, offering promising returns on investment.
Before investing in this asset class, however, there are several considerations to bear in mind.
Below, you'll find the advantages and disadvantages of land investment that are crucial to understand.
Advantages of Land Investment
1. More affordable investment prices
The price of land investment is typically lower compared to investing in built properties in the same location and market, especially if you are considering land plots for residential development.
Vacant land tends to be more affordable than land with existing buildings that require additional construction costs.
This comparison is particularly relevant for investments in areas with competitive property market prices.
2. High resale price
For those still deliberating between investing in a house or land, the second point may provide the answer.
Investing in vacant land typically offers higher resale value compared to investing in a house.
Why? Because over time, a house will naturally deteriorate and require maintenance and renovations.
In contrast, bare land is not subject to deterioration from weather or erosion factors.
3. Multifunction
The next advantage is the versatility of vacant land! Vacant land is flexible and can be tailored to meet future needs.
Whether you plan to build a house, start a farm, or engage with developers, the land offers various possibilities.
This flexibility is another compelling reason to consider investing in land rather than a house, especially for those still deliberating between the two options.
4. Easy maintenance
The cost of maintaining vacant land is significantly more economical compared to maintaining built properties.
You don't need to worry about repairs or renovations! The management costs mainly involve expenses for a guard to oversee the land and fencing.
5. Direct ownership
When considering land investment, one must consider the dynamics of supply and demand.
The demand for land continues to rise while its supply becomes increasingly limited.
As areas develop their infrastructure and population grows, land availability diminishes, especially in urban areas.
Given this trend, suburban land often presents more accessible investment opportunities.
Disadvantages of Land Investment
1. Dwindling supply
When considering land investment, one must consider the dynamics of supply and demand.
The demand for land continues to rise while its supply becomes increasingly limited.
As areas develop their infrastructure and population grows, land availability diminishes, especially in urban areas.
Given this trend, suburban land presents easier investment opportunities.
2. Infringement of property rights
Violations of property rights or illegal land grabbing are not common occurrences, but they remain potential risks that investors in land must be vigilant about.
To mitigate such risks and ensure the security of land purchases, it is advisable to thoroughly review the land data or ownership certificates (such as Land Certificates or SHMs) dating back at least 30 years, especially for agricultural land.
3. No direct income
The next point pertains to whether it is more profitable to invest in houses or land.
Investing in a house allows for rental income, which is a common and relatively straightforward source of revenue compared to renting out land.
Vacant land, especially in suburban areas, may not generate any income initially, which can be seen as a disadvantage.
However, land in developed areas offers the opportunity to generate income by renting it out for commercial purposes or other uses.
Tips for Successful Land Investment
fter familiarizing yourself with the methods, advantages, and disadvantages of investing in land, here are some tips for those who are genuinely interested in investing in this field, whether it's in land plots, garden land, or other types of land investments.
1. Ensure Ownership
A practical way to verify the authenticity of ownership proof is by checking online, either through the Touch My Land application or directly on the BPN website.
Both platforms provide features to verify certificate authenticity, track certificate renaming processes, and obtain information on associated costs.
2. Check the Soil Details
According to the Decree of the State Minister of Public Housing No. 09/KPTS/M/1995 of 1995 regarding Guidelines for Binding Sale and Purchase Agreements of Houses, the subject of the agreement must be clearly described in a binding contract.
This includes details such as the building area, land area, land location, and the price of the house and land.
Therefore, it's crucial to ensure that all these components protect the interests of both parties. It is important to thoroughly verify details such as the size, boundaries, shape, and area of the land as stated in the certificate, in accordance with on-site conditions.
3. Preparation of Sale and Purchase Deed
The sale and purchase deed (AJB) serves as proof of land transactions and must be executed in the presence of a notary or an authorized land deed official to be legally binding.
There are specific documents and obligations that both the seller and buyer must prepare:
Seller's Requirements:
- Original land certificate
- Building Permit (IMB)
- ID card and spouse's consent letter (if married)
- Death certificate (if applicable)
- Proof of property tax (PBB) payment for the last 10 years
- Family card
- Statement declaring the land is free of disputes
Seller's Obligation:
- Payment of income tax based on the Selling Value of the Tax Object (selling price x 5%)
4. Buyer
Here are the steps for investing in land and understanding the potential gains and losses from land investments:
- ID card
- Family card Obligation: Pay BPHTB calculated as NJOP / (purchase price - non-taxable value) x 5%.
Investment opportunities extend beyond land to include houses or apartments. Recommended properties for investment include Roseville BSD, Southgate, and others.
I hope this information proves useful. Happy investing!
