Government’s Property Incentives Face Hurdles as Buyers Adopt Cautious Approach

property sector
property sector

Despite the government’s efforts to stimulate property sales through the issuance of VAT exemption incentives, the real estate market in Indonesia still faces challenges. The introduced incentive, known as the Government-Borne Value Added Tax (DTP), came into effect on November 21, 2023, as outlined in Regulation of the Minister of Finance (PMK) No. 120/202.

This incentive specifically applies to the official purchase of houses. However, industry insiders, including brokers, have noted that many potential buyers are adopting a cautious approach, delaying their property acquisitions.

As quoted by CNBC Indonesia, Lukas Bong, Chairman of the Indonesian Real Estate Brokers Association (Arebi), on Tuesday (23/1/2024) emphasized the hesitation among potential consumers, stating, “Because the implementing guidelines are not yet out, we are also waiting. So many potential consumers are adopting a wait-and-see approach to buying a house.”

Brokers have been anticipating the release of these guidelines for some time. Even as the government has provided preliminary outlines for the continuation of property incentives, there has been a noticeable absence of significant movement in the real estate market.

The government’s initiative to boost economic growth in Indonesia, faced with global uncertainties, the impact of El Nino, and weakened public purchasing power, is commendable. However, the chosen sector for incentive implementation, the property market, is still grappling with challenges.

In addition to commercial homes, the government has also put together incentive packages for Low-Income Community homes, including the exemption of administrative fees. This broad-reaching approach aims to revive the property sector, which is currently experiencing a lull.

For the commercial housing sector, the government provides a DTP VAT discount applicable to houses priced up to Rp 5 billion. However, it’s essential to note that the VAT discount only extends to the Taxable Transaction Value (DPP) of up to Rp 2 billion. The remaining VAT for payments exceeding Rp 2 billion still rests with the buyer.

This tax discount is applicable to one Civil Service Identification Number (NIK) or one Taxpayer Identification Number (NPWP) and is exclusively for new houses. The incentive spans two periods: the first, from November to June 30, 2024, during which the government covers 100% of the VAT. The second period, from July 1, 2024, to December 31, 2024, sees the government covering 50% of the VAT.

Finance Minister Sri Mulyani, in a press conference discussing the results of the KSSK IV 2023 Periodic Meeting, clarified, “100% DTP VAT for houses priced at Rp 2 billion, as well as Rp 2-5 billion, is applied until June 2024. In this case, from November 2023 to June 2024, the DTP VAT is 100%. Starting from July 2024, the DTP VAT is only 50%.” These efforts reflect the government’s commitment to supporting businesses and ensuring a conducive business climate.