Indonesia’s Real Estate Investment Trusts (REITs), officially known as Dana Investasi Real Estat Berbentuk Kontrak Investasi Kolektif (DIREs), are on an exciting growth trajectory. If you’re interested in tapping into this potential, understanding the process of creating a DIRE is crucial. Here’s a breakdown of the key steps, along with further insights on the Indonesian REIT landscape:

What are REITs (DIREs) in Indonesia?

Real Estate Investment Fund (REIT) is a container used to collect funds from the public or investors to be invested in real estate assets, assets related to real estate, and/or cash and cash equivalents. Meanwhile, Infrastructure Investment Fund (DINFRA) is a container in the form of a Collective Investment Contract used to raise funds from the investor community to be invested mostly in infrastructure assets by the Investment Manager.

Conception and Planning of DIREs:

  1. Identify a Niche: Research market demand and choose a focus for your DIRE, such as retail, office, healthcare, or logistics. Analyze existing DIREs to avoid saturation in specific sectors.
  2. Assemble a Team: Gather experienced professionals in real estate development, finance, legal matters, and REIT management.
  3. Develop a Business Plan: Define your investment strategy, target properties, funding sources, and expected returns.

Regulatory Compliance DIREs:

  1. Form a Legal Entity: Establish a corporation that will become the DIRE. Consult legal advisors to ensure compliance with Indonesian regulations.
  2. Obtain OJK Approval: File an application with the Financial Services Authority (OJK) for DIRE registration. This involves submitting detailed documentation about your business plan, financial projections, and team expertise.
  3. Meet REIT Qualification Criteria: Ensure your DIRE adheres to the minimum requirements, including:
  • Investing at least 75% of assets in real estate or related assets.
  • Generating at least 75% of gross income from rents, real estate sales, or mortgage interest.
  • Distributing at least 90% of taxable income to shareholders as dividends.

Capital Raising and Investment:

  1. Initial Public Offering (IPO): List your DIRE on the Indonesia Stock Exchange (IDX) to raise capital from public investors. This requires meticulous preparation and adherence to IPO regulations.
  2. Private Placement: Secure funding from institutional investors or high-net-worth individuals through private placement deals. This can be a faster route to market but may involve higher interest rates or stricter investment terms.
  3. Acquire Target Properties: Use the raised capital to purchase income-generating real estate assets that align with your DIRE’s focus. Conduct thorough due diligence and ensure property titles are clear.

Ongoing Management and Operations:

  1. Establish a Management Team: Build a team with expertise in property management, tenant relations, financial reporting, and compliance.
  2. Maintain High Occupancy Rates: Implement effective leasing strategies and property maintenance to attract and retain tenants, ensuring steady income generation.
  3. Distribute Regular Dividends: Pay out at least 90% of taxable income to shareholders as dividends, fulfilling a key REIT requirement and attracting investors seeking regular returns.
  4. Ensure Transparency and Reporting: Maintain accurate financial records and prepare regular reports for shareholders and regulatory bodies.

Beyond the Basics: A Deeper Dive into Indonesian REITs

  1. Government Incentives: The Indonesian government actively supports DIRE growth through tax benefits like double taxation exemption and simplified regulations. This creates a favorable environment for REIT development.
  2. Market Potential: Indonesia boasts a thriving economy and a burgeoning middle class, driving demand for diverse real estate sectors. DIREs offer investors exposure to this growth potential through various property types.
  3. Challenges and Opportunities: While the market is promising, liquidity concerns and limited diversification options remain challenges. However, government efforts to encourage broader sector representation and improve market depth are underway.

Investment via an REIT Scheme Review

Double taxation hurdle cleared for Indonesian real estate investors! The government recently made a big move, eliminating double taxation for anyone investing in property through a special program called the “Collective Investment Contract” (CIC). This means you can now invest in Indonesian real estate and keep more of your hard-earned money.

Think of it like this: Imagine a group of friends wanting to buy a building together. Instead of each person buying directly, they pool their money in a joint account and appoint someone to manage it. That’s what the CIC does for real estate investments. You join forces with other investors, put your money together, and reap the benefits of owning income-producing properties.

Previously, investing this way meant paying taxes twice: once on your share of the profits and again on the activities of the group. But thanks to the new regulation, that’s no more! You keep more of your profits, making it a much more attractive option for investors.

So, if you’ve ever dreamed of owning a piece of Indonesian real estate, now’s the time to explore the CIC program. It’s a simpler, more tax-friendly way to invest and potentially enjoy a steady stream of income from your property holdings.

REITs Investment Limits

  1. Real estate assets, such as buying an office building and renting it out.
  2. Assets related to real estate, such as buying shares/bonds of property companies
  3. In form of cash or cash equivalent
  4. Overview of prospective licenses and permits required to conduct business operations

The creation of the DIRE-KIK and transfer of the land and building assets into the DIRE-KIK involves the following steps:

Establish DIRE-KIK;

  1. Appoint Investment Manager and Custodian Bank to manage DIRE-KIK and oversee and execute cash handling and payments respectively
  2. Relevant parties including Holdco to subscribe for units in the DIRE-KIK;

Dire-KIK uses the funds to acquire:

  1. The shares of existing companies owning the land
  2. Establish its own PMA company, inject the funds into the PMA and the PMA company acquires the land and building assets.

Tax Implication for a REITs in Indonesia

Good news for DIRE – KIK investors! Recent changes in Indonesian tax regulations make it even more attractive to invest in these real estate investment trusts. Here’s what you need to know:

Special Purpose Companies (SPCs) set up by DIRE – KIKs are now considered part of the DIRE – KIK itself. This means that any income received by the SPC from its real estate assets flows directly to the DIRE – KIK and is not taxed separately. This can significantly boost your returns.

Dividends paid by the SPC to the DIRE – KIK are tax-free. No more worrying about double taxation on your income!

Transferring real estate to the SPC or DIRE – KIK no longer requires a 5% final income tax withholding. This streamlines the process and saves you money.

SPCs and DIRE – KIKs are now considered “low-risk” taxpayers for VAT purposes. This means you can get faster refunds on any excess VAT payments you make, putting more money back in your pocket.

In short, these changes make DIRE – KIKs even more efficient and tax-friendly for investors. If you’re considering investing in Indonesian real estate, be sure to talk to your financial advisor about how these new regulations can benefit you.

Remember, creating a DIRE is a complex process requiring expert guidance. Contact our legal team and financial team, to navigate the regulations and optimize your chances of success.

With careful planning, execution, and a deep understanding of the Indonesian market, building a successful DIRE can be a rewarding venture. The potential for contributing to real estate development, generating stable returns for investors, and participating in Indonesia’s economic growth makes the journey worthwhile.

Additional Resources:

OJK (Financial Services Authority) website: https://www.ojk.go.id/

Indonesia Stock Exchange (IDX) website: https://www.idx.co.id/