Investment in Property and Land discusses various types of investment property and land rights under Indonesian law. It defines investment property as property held to earn rentals or for capital appreciation rather than for use in production. The document outlines five types of land rights under Indonesian agrarian law: rights of ownership, rights of exploitation, rights to build, rights of use, and rights to operate. It also discusses factors that affect the selling price of property, including demand, supply, property restrictions/location/quality, and provides examples of relevant documents like IMB and PBB certificates.

1. Investment in Property and Land
Eunike Yuliana
Febrina Dialusi H S
Maria Felicia
Micha Paramitha
Petty Tunjung Sari

2. Introduction

3. Definition
– Investment property is property (land or a building—or
part of a building—or both) held (by the owner or by the
lessee under a finance lease) to earn rentals or for capital
appreciation or both, rather than for:
• use in the production or supply of goods or services or
for administrative purposes; or
• sale in the ordinary course of business.
– Owner-occupied property is property held (by the owner
or by the lessee under a finance lease) for use in the
production or supply of goods or services or for
administrative purposes.

4. Definition (cont.)
• A property interest that is held by a lessee under an operating
lease may be classified and accounted for as investment
property if, and only if, the property would otherwise meet the
definition of an investment property and the lessee uses the
fair value model for the asset recognised.
– This classification alternative is available on a propertyby-property basis. However, once this classification
alternative is selected for one such property interest held
under an operating lease, all property classified as
investment property shall be accounted for using the fair
value model and all required disclosures should be made.

5. An entity may make the foregoing
classification on a property-byproperty basis
1. Recognition
•Investment property shall be recognised as an asset
when, and only when:
a) it is probable that the future economic benefits
that are associated with the investment property
will flow to the entity; and
b) the cost of the investment property can be
measured reliably.

6. 2. Measurement
Initial measurement
• An investment property shall be measured initially at
its cost. Transaction costs shall be included in the
initial measurement.
• The initial cost of a property interest held under a lease
and classified as an investment property shall be as
prescribed for a finance lease, i.e. the asset shall be
recognised at the lower of the fair value of the property
and the present value of the minimum lease payments.
An equivalent amount shall be recognised as a liability.

7. Subsequent measurement
• An entity can choose as its accounting policy either the fair
value model or the cost model and shall apply that policy to
all of its investment property.
• After initial recognition, an entity that chooses the fair value
model shall measure all of its investment property at fair
value, except for when the fair value of the investment
property is not reliably determinable on a continuing basis.
This arises when, and only when, comparable market
transactions are infrequent and alternative reliable estimates
of fair value are not available. Then, an entity shall measure
that investment property using the cost model in IAS 16.
The residual value shall be assumed to be zero. The entity
shall apply IAS 16 until disposal of the asset.
• When a property interest held by a lessee under an operating
lease is classified as an investment property, treatment is not
elective. The fair value model is to be applied.

8. • A gain or loss arising from a change in the fair value of
investment property shall be recognised in profit or
loss for the period in which it arises.
• The fair value of investment property shall reflect
market conditions at the balance sheet date.
• If an entity has previously measured an investment
property at fair value, it shall continue to measure the
property at fair value until disposal (or until the
property becomes owner-occupied property or the
entity begins to develop the property for subsequent
sale in the ordinary course of business) even if
comparable market transactions become less frequent
or market prices become less readily available.
• If an entity chooses the cost model, it shall measure all
of its investment property in accordance with IAS 16’s
requirements.

9. 3. Transfers
• Transfers to, or from, investment property shall
be made when, and only when, there is a change
in use, evidenced by:
a) commencement of owner-occupation, for a transfer
from investment property to owner-occupied
property;
b) commencement of development with a view to sale,
for a transfer from investment property to inventories;
c) end of owner-occupation, for a transfer from owneroccupied property to investment property;

10. d) commencement of an operating lease to another
party, for a transfer from inventories to investment
property; or
e) end of construction or development, for a transfer
from property in the course of construction or
development (covered by IAS 16) to investment
property.

11. 4. Disposals
• An investment property shall be derecognised (eliminated
from the balance sheet) on disposal or when the investment
property is permanently withdrawn from use and no future
economic benefits are expected from its disposal.
• Gains or losses arising from the retirement or disposal of
investment property shall be determined as the difference
between the net disposal proceeds and the carrying amount
of the asset and shall be recognised in profit or loss in the
period of the retirement or disposal.
• Compensation from third parties for investment property
that was impaired, lost or given up shall be recognised in
profit or loss when the compensation becomes receivable.

12. 5. Disclosure
Fair Value Model and Cost model
• An entity shall disclose:
a) whether it applies the fair value model or the cost
model.
b) if it applies the fair value model, whether, and in what
circumstances, property interests held under operating
leases are classified and accounted for as investment
property.
c) when classification is difficult, the criteria it uses to
distinguish investment property from owner-occupied
property and from property held for sale in the
ordinary course of business.

13. Fair Value Model and Cost model
d) the methods and significant assumptions applied
in determining the fair value of investment
property.
e) the extent to which the fair value of investment
property is based on a valuation by an independent
value. If there has been no such valuation, that
fact shall be disclosed.
f) the amounts recognised in profit or loss for:
i. rental income from investment property;
ii. direct operating expenses (including repairs and maintenance)
arising from investment property that generated rental income
during the period; and
iii. direct operating expenses (including repairs and maintenance)
arising from investment property that did not generate rental
income
iv. the cumulative change in fair value recognised in profit or loss
on a sale of investment property

14. g) the existence and amounts of restrictions on the
reliability of investment property or the remittance
of income and proceeds of disposal.
h) contractual obligations to purchase, construct or
develop investment property or for repairs,
maintenance or enhancements.

15. Fair Value Model
• In addition to the common disclosures, an entity that applies
the fair value model shall disclose a reconciliation between the
carrying amounts of investment property at the beginning and
end of the period, showing :
a) additions, disclosing separately those additions resulting from
acquisitions and those resulting from subsequent expenditure
recognised in the carrying amount;
b) additions resulting from acquisitions through business combinations;
c) assets classified or included in a disposal group classified as held for
sale;
d) net gains or losses from fair value adjustments;
e) the net exchange differences arising on translation of financial
statements into a different presentation currency, and on translation of a
foreign operation into the presentation currency of the reporting entity;
f) transfers to and from inventories and owner-occupied property; and
g) other changes.

16. Fair Value Model
• When a valuation obtained for investment property is adjusted
significantly for the purpose of the financial statements, the entity shall
disclose a reconciliation between the valuation obtained and the adjusted
valuation included in the financial statements, showing separately and any
significant adjustments.
• In exceptional cases, when an entity can only measure investment property
using the cost model in IAS 16, the reconciliation shall disclose amounts
relating to that investment property separately from amounts relating to
other investment property. Plus, an entity shall disclose:
a) a description of the investment property;
b) an explanation of why fair value cannot be determined reliably;
c) if possible, the range of estimates within which fair value is highly likely to lie;
and
d)
on disposal of investment property not carried at fair value:
i.
the fact that the entity has disposed of investment property not carried at fair value;
ii.
the carrying amount of that investment property at the time of sale; and
iii. the amount of gain or loss recognised.

17. Cost Model
•
In addition to the common disclosures, an entity shall disclose:
a)
b)
c)
d)
the depreciation methods used;
the useful lives or the depreciation rates used;
the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at beginning and end of the period;
a reconciliation of the carrying amount of investment property at the beginning and
end of the period, showing the following:
i.
additions, disclosing separately those additions resulting from acquisitions and
those resulting from subsequent expenditure recognised as an asset;
ii.
additions resulting from acquisitions through business combinations;
iii.
assets classified as held for sale or included in a disposal group classified as held
for sale in accordance with IFRS 5 and other disposals;
iv.
depreciation;
v.
the amount of impairment losses recognised, and the amount of impairment
losses reversed, during the period in accordance with IAS 36;
vi.
the net exchange differences arising on the translation of the financial
statements into a different presentation currency, and on translation of a
foreign operation into the presentation currency of the reporting entity;
vii.
transfers to and from inventories and owner-occupied property; and
viii. other changes; and

18. Cost Model
e) the fair value of investment property. In the
exceptional cases, when an entity can only use the
cost model because it cannot determine the fair
value of the investment property reliably, it shall
disclose:
i. a description of the investment property;
ii. an explanation of why fair value cannot be determined reliably; and
iii. if possible, the range of estimates within which fair value is highly
likely to lie.

19. Examples of investment property:
•
•
•
•
land held for long-term capital appreciation
land held for undetermined future use
building leased out under an operating lease
vacant building held to be leased out under an
operating lease
• property that is being constructed or
developed for future use as investment
property

20. Background
of Study

21. Investment is a term for
several closely related
meanings in finance &
economics.
What is
What is
Investment
Investment
???
???
Investment means the production
of capital goods - goods which are
not consumed but instead used in
future production.
Investment means the
investing of money.

22. Classification of
Classification of
Investment
Investment
Physical
Physical
Investments
Investments
Financial Investment
Financial Investment
Marketable Investments
•
•
•
•
Shares
Stock Exchange
Bonds of Public Sector Units
Government Securities,
Non- Marketable Investments
•
•
•
•
•
•
•
Bank Deposits
Provident and Pension Funds
Insurance Certificates
Post office Deposits
National Saving Certificates
Company Deposits
Private Companies Shares

23. The parties undertake investment activities called
investors.

25. NEED AND IMPORTANCE OF INVESTMENTS

26. •• Welfare is indicated by the sum of monetary income is currently
Welfare is indicated by the sum of monetary income is currently
owned and the current value (present value) of future income.
owned and the current value (present value) of future income.
•• People should make a decision as to how much current income
People should make a decision as to how much current income
that should be spent or consumed and how much should be
that should be spent or consumed and how much should be
invested according to his preference.
invested according to his preference.
Our income which is not consumed is saved and invested.
Our income which is not consumed is saved and invested.
Investments are also useful for present and future consumption in
Investments are also useful for present and future consumption in
the case of consumer durables, cars, gold and silver etc.
the case of consumer durables, cars, gold and silver etc.
But investment generally promote larger consumption in future as
But investment generally promote larger consumption in future as
they lead to more income and larger capital appreciation in the
they lead to more income and larger capital appreciation in the
years to come.
years to come.

27. PROPERTY
The rigths that one individual has in lands or goods to the
The rigths that one individual has in lands or goods to the
exclusion off all others, rigths gained from the ownership of
exclusion off all others, rigths gained from the ownership of
wealth
wealth

29. Land rights can be divided into two
Land rights can be divided into two
categories:
categories:
Adat Land (Customary Land)
• Not registered with the relevant land office (Badan Pertanahan
Nasional or National Land Agency).
• Usually held through a traditional joint community ownership
structure.
• Rights held under this category can be converted to certified titles.
Certified Land
Title is governed by the Basic Agrarian Law of 1960 and is registered at
the local land office.

30. There are basically five types of land rights
There are basically five types of land rights
held under the Agrarian Law:
held under the Agrarian Law:
Rights of Ownership
Rights of Exploitation
Rights to Build
Rights of use
Rights to operate

31. There are basically five types of land rights held under
There are basically five types of land rights held under
the Agrarian Law:
the Agrarian Law:
Rights of Ownership
• Absolute ownership of land - this corresponds to a fee
simple or freehold title in common law jurisdiction.
• This right is hereditary and held only by Indonesian citizens.
• Can be sold, transferred, bequeathed or hypothecated
(mortgaged).

32. There are basically five types of land rights held under
There are basically five types of land rights held under
the Agrarian Law:
the Agrarian Law:
Rights of Exploitation
• Right to cultivate or exploit state-owned land for
agricultural, fishery or husbandry purposes.
• Valid for a maximum of 35 years but extendable for
another 25-year period with the possibility for renewal.
• Can be held by Indonesian individuals or entities as well as
foreign joint-venture companies.
• This land right can be mortgaged.

33. There are basically five types of land rights held under
There are basically five types of land rights held under
the Agrarian Law:
the Agrarian Law:
Rights to build
• Right to develop buildings on land owned by others.
• Granted for a maximum initial period of 30 years and
extendable for another 20-year period with the possibility for
renewal.
• Can be held directly by Indonesian entities or foreign joint
venture companies.
• This land right can be sold, exchanged, transferred, bequeathed
or mortgaged.

34. There are basically five types of land rights held under the
There are basically five types of land rights held under the
Agrarian Law:
Agrarian Law:
Rights of use
• 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 organisations.
• Right of use granted over state-owned land is valid for a maximum of
25 years but extendable for another period of 20 years / occasionally
for an indefinite period as stated in its grant or agreement.
• Right of Use granted over an underlying Right of Ownership (Hak
Milik)title is valid for a maximum of 25 years but cannot be
extended.
• Can be held by Indonesian citizens and entities, foreign invested
entities, individual foreigners residing in Indonesia, foreign
embassies or representative offices of foreign entities.
• This land right can be sold, exchanged or transferred subject to
approval of the land owner in each case.

35. There are basically five types of land rights held under
There are basically five types of land rights held under
the Agrarian Law:
the Agrarian Law:
Rights to operate
• Right to operate state-owned land for a specific purpose as approved
by the authorities.
• Given exclusively to government institutions or state-owned
companies for an unspecified period.
• Can be transferred to a third party in the form of ‘Hak Guna
Bangunan’ or ‘Hak Pakai’.

36. Risk and Return

37. Factors affecting the selling price of a
property:
1. Demand : willingness and ability of people to buy or
rent a particular property.
Three principal sources:
• Basic economic: In the real estate market,
purchasing power source comes from the work.
• The nature of the population: Demographics,
Psychographic
• Mortgage Financing : Interest rates and mortgage
lending
Pdf: Bab I Investasi-real-estate

38. Factors affecting the selling price of a
property:
2. Offer: Analysis of real estate deals
essentially involves competition.
Pdf: Bab I Investasi-real-estate

39. Factors affecting the selling price of a
property:
Example of IMB
3. Property:
a) Restrictions on use :
property has a social
function. There are a lot
of restriction.
Pdf: Bab I Investasi-real-estate

40. Factors affecting the selling price of a
property:
Example of
-SPPT PBB
-STTS PBB

41. Factors affecting the selling price of a
property:
b) Analysis environment: good location will
increase the investment potential of the
property.
It has little good location 2 dimensions:
• Convenience
• Environment
Pdf: Bab I Investasi-real-estate

42. Factors affecting the selling price of a
property:
c) Analysis of the field:
• The vast size of the property
• Quality of Property : ex: drainage to avoid
flooding
d) Repair : In real estate, repair mean
improvement to the property, ex: garage,
garden.
Pdf: Bab I Investasi-real-estate

43. Factors affecting the selling price of a
property:
e) Property management aims to oversee a
property for the purpose of short-term or
long-term property owners, especially in
relation to the ownership of the property, ie
execute the lease, negotiate rental rates
and rental rates reassess, etc..
Pdf: Bab I Investasi-real-estate

44. Risk investing in Real Property in
Indonesia
1. The return is not guaranteed by anyone
2. This is a medium/long term investment. It
can take considerable amounts of time to
achieve a return; think in terms of years, not
months.
3. Land is a capital illiquid asset and it is difficult
to realize cash from it in a hurry, unlike
stocks and shares.
4. Promoting land for future development is
often complicated and not cheap.

45. Risk investing in Real Property in
Indonesia
5. Money spent on planning promotion is all
completely speculative and you can't get it back.
6. Money spent on maintaining the property every
year or month. (for house, apartment, etc.)
7. Buy by credit, pay high interest rate
News: down payment (down payment / DP)
mortgages (mortgages) to 30 percent
8. High interest rate, reduce the interest of the
buyer to buy the property

46. Increase
of price
of
building
material
s

47. Advantages to invest in property
1. Great benefits when selling a property like
houses and land
2. Get money continuously when the rental
property
3. Return around 2-10% per year
4. Property prices will increase each year

48. Advantages to invest in property
5. Risk relatively low
6. Prospective investor doesn’t need to have
much money to purchase the property.
7. Investors do not necessarily have to monitor
the price of the property every day or every
month

49. Property price
• Property prices rose by
2.56% in 2008
• Property prices
increased by 2.3% in
2009
• Property prices rose
2.91% in 2010
• Property prices rose by
5.05% in 2011
Source : http://www.globalpropertyguide.com/

50. Price Graph of Property in North
Jakarta

51. Asia: Price Changes in 5 Years

52. Risk and Return

53. Future Opportunities

54. FUTURE OPPORTUNITIES
The 2007 ASX/Russell Long-Term Investing Report has found
shares have outperformed an investment property over the
past 10 years. Will property or shares be the best option for
future investment?
Resident finance Ross Greenwood gives us some hot
investment tips and LJ Hooker CEO Warren McCarthy talks
about property investing.
"Predicting whether to invest in shares or property in the next
10 years is very tricky, because who would have been able to
predict Coles Myer would have been a risky investment or
Telstra would have gone through such turmoil", says Ross.

55. FUTURE OPPORTUNITIES
If investing in shares, select good shares. Diversify when you are selecting
your shares so you invest in different businesses, for example a mix of
retail, publishing, brewing, says Ross. "Sell your shares if you think they
are too high and take opportunities to invest in shares when they are
cheap", he says.
Ross says that Interest rates will fall over the next two or three years so if
you are investing in property it is a smart idea to invest in areas with high
population growth such as Queensland and South-East Queensland.
Best investments over the 10 years:
1. Listed Property Trusts
2. Australian Shares
3. Residential Property
4. Fixed Interest Investments
5. Cash in bank

56. FUTURE OPPORTUNITIES
"The best investments over the past 10 years are listed property trusts - which are
basically property trusts listed on the stock market that invest in offices or retail or
whatever it might be, Australian shares, and residential properties. Fixed interest
investments - are way behind, and cash at bank - just don't do it. The message here is
don't leave to much cash in the bank", says Ross.
Ross explains that although keeping your cash in the bank might seem like a good idea
for the older population - people are living longer these days and you need to invest
your money to make money for your future.
"The problem is most people get to 60 and just put all their cash in the bank - but your
life span might go on until your 90 and that’s the reason why assets need to keep
growing", says Ross.
Best investment tips for the future:
•Diversify your portfolio and invest in a variety of different businesses
•Invest in assets that will grow and that have an income (see below: Ross' 'building
blocks' for a diverse investment portfolio)
•Buy assets that will last - invest in the share market for the long term you will make
more money.

57. FUTURE OPPORTUNITIES
Warren McCarthy's advice:
"People are comfortable dealing with bricks and mortar as there is a culture
in Australia about buying your own home", says Warren.
Warren says that people feel they have a better knowledge with investing in
property than investing in shares and since the value of property doubles
every six to seven years - property is a good investment.
"Property is going to look fantastic for the next few years and there is two
main reasons, one is the fact that rent is soaring at present so from an
investment view its good to get in now and take advantage of that rise in
rental return. The other is supply - at the moment we are having a drastic
lack of supply of property to meet the demand right around the continent",
says Warren.
Although property prices are increasing, Warren says that the next few years
will be a good time to invest in property.
"The rental yields are at an all time high, so now is a good time to take
advantage of the high rental price," he said.

58. FUTURE OPPORTUNITIES
The rationale for investing in land
Despite this, there are many sound and rational reasons for
considering this as an attractive investment opportunity at the
moment. These include the following 13 reasons.
Land is a tangible fixed asset.
The value of land and property may vary but it rarely reaches
zero, so it always has a base value.
It is a finite resource.
The value of property can be realized.
It's value can be enhanced by planning promotion, obtaining
consents or acquiring complimentary land interests.
House builders will always require land with consent as their
primary raw material to continue in business.

59. FUTURE OPPORTUNITIES
 The amount of land being promoted within the planning system is
reducing as the large house builders cut back on investment in
forward land due to losses and the reduction in house building.
 There are a limited number of companies actively promoting land for
development due to the credit crunch.
 There is the possibility of making considerable capital gains.
 The disposal of an interest can be timed to react to market conditions
and the position in the property cycle.
 Base rate is at an all time low so returns from savings are extremely
poor.
 Inflation is dropping but is still at 3% so real returns are still low and
falling. The leading cash ISA is yielding 3.51% at the moment so with
inflation at 2% the real return is just 1.5% net!
 Cash is king at present. Having lent prodigiously to the sector for
many years, the banks are now reluctant to lend further on property.
In view of this gap in access to debt, there are some great buying
opportunities opening up in the land market.

60. FUTURE OPPORTUNITIES
As the property market is in such a poor state, why invest in strategic land now ?
now is an excellent time to take the plunge for the following reasons.
•
•
Greenfield land needs to be promoted and allocated for development before it can
be granted planning consent.
Land allocated for development or with consent is the primary resource for house
builders. House builders need large amounts of land for their business every year.
The UK's very largest house builders have been building up to 15-16,000 homes per
annum and so need to acquire over 15,000 plots of land every year just to stand
still!
Even now in these days of reduced house building, Persimmon PLC completed
10,202 homes in 2008 and had a land bank of 69,279 plots either owned or under
control. However the company has had a very cautious approach on land buying
for more than 18 months and expects to reduce its land bank by using land under
its control rather than new purchases. This strategy has a finite life as eventually
any land bank will become exhausted. So if Persimmon continued to build at the
same rate in the future as it did in 2008 it's land reserve would be gone in 6.79
years. If the company increased it's house building rate or any of its consent's
lapsed then this duration would be reduced.

61. FUTURE OPPORTUNITIES
The major house builders have built up stocks of land which they hold to cushion
them against the time it takes to buy land and obtain detailed planning consent.
At the moment the major house builders are not buying land and are using up
their land banks.
The residential land market is affected by the demand from house builders which
in turn reacts to the housing market. Whilst there are time lags between the 3
markets, the land market can be extremely sensitive (and volatile) because there
are relatively few land interests on the open market at any one time and a single
house building company desperate to acquire land in an area at any one time can
push the price much higher than normal very quickly. Getting the timing right to
maximize value is essential but one needs to have got the groundwork right and
have a consent ready. This means starting the process years earlier when the
market is low and the best deals can be done, which is the current position.
Once land has been allocated for development an owner can decide the timetable
for turning this into a consent to favor the position in the property cycle. As it
takes time for land to be allocated and consented it seems logical to start this
process at, or approaching the bottom of a property cycle