The relatively low entry threshold for investments, high profitability rates, lack of climatic seasonality, ease of obtaining a residence permit (investor KITAS) or a resident visa — all this affects the growing interest of Russian investors in Indonesia. Olga Gorkhiyan, Head of Floors Indonesia, talks about the investment opportunities offered by technology, why the government allowed fintech to operate freely in 2024, and what PropTech niches Russian developers can occupy in order to become local unicorns
A financial sandbox for the blockchain
Indonesia is one of Russia's most important partners in the Asia—Pacific region and is among the top countries where Russians buy real estate, as well as the so-called group of eleven, a list of developing countries that could potentially become one of the largest economies in the world in the future (according to Goldman Sachs analyst Jim O'Neill). The volume of the Indonesian real estate market is expected to grow from $64.8 billion to $86 billion in 2029.
The country is at the peak of fintech development. One of the world's most massive trends in real estate is blockchain platforms for quick transaction processing and online transactions. Back in 2019, the government joined the trend and legalized cryptocurrency as trading assets. In 2020, it introduced a standard for monitoring and verifying the activities of financial service providers. Among the requirements are licensing, compliance with KYC (customer identity verification procedure) and AML (Anti-Money Laundering, prevention of money laundering).
At the beginning of 2024, the country introduced technological innovations in the financial sector and implemented a regulatory sandbox that extends to blockchain and cryptocurrency. Fintech companies, through which it is possible to acquire the right to own real estate in tokens, have a large number of legal restrictions. For example, paying for real estate from a developer in cryptocurrency is illegal, so companies use third-party, gray solutions for such operations. The sandbox is a temporary license that allows startups to work more freely to reform and scale Indonesian fintech.
To obtain a license, a startup must demonstrate the innovativeness of the solution, its benefits for consumers and the financial ecosystem. Entrepreneurs submit the relevant documents to OJK (Otoritas Jasa Keuangan, Indonesian Financial Services Authority), in case of a positive decision, the company tests the full range of its services for a year. If, at the end of the time, the regulator evaluates the quality of the development, the business will be given six months to obtain a full license from OJK. It allows you to enter the market indefinitely and officially outside the sandbox. This approach at the state level opens up more opportunities for the development of Fin/PropTech.
Tokenization vs traditional investment methods
"Traditional" investment methods involve the purchase of apartments or villas in their entirety, rather than a certain number of square meters. In Indonesia, foreigners have access to such forms of real estate rights as Hak Guna Bangunan (ownership) and Hak sewa (lease).
Hak sewa is the investor's right to lease a land plot within the time period stipulated by the contract, which is usually at least 25-30 years. The land ownership certificate of Hak Guna Bangunan (HGB) is legally issued for 80 years and can be extended for the same period. First, the investor receives ownership rights for up to 30 years, then it can be extended. In both cases, the minimum investment amount is $1700-2800 per square meter of real estate on this land.
Modern technologies simplify the process of acquiring property rights and make the market more liquid due to the ability to sell your share in the secondary market at any time. So, the blockchain has the following advantages::
collective investment — investors can jointly purchase real estate;
the opportunity to sell your share at any time on the secondary market;
the security of real estate transactions through transparent storage of information in the blockchain.
Tokenization of real estate is a process in which the rights to a real estate object are converted into digital tokens using the blockchain. This allows investors to purchase and trade shares of real estate, increasing liquidity and reducing barriers to entry into the market. That's how it works.:
Creation of tokens. First, the property is evaluated and its value is divided into a variety of digital tokens. For example, an object for $1 million can be divided into 1 million tokens, each of which will cost $1.
Purchase of tokens. Investors can buy these tokens by obtaining ownership in the property. Along with the tokens, the investor also owns part of the income from the rental or sale of the property.
Management and revenue. Depending on the conditions, token holders can receive regular payments in the form of dividends from the ownership of tokens, for example, a share of the rent or a share of the transaction if the property is sold.
Token sale. Tokens can be sold and bought on specialized platforms. This allows investors to easily enter and exit investments.
Transparency and security. All information about token transactions is stored on the blockchain, which ensures transparency, data security and reduces the risks of fraud and errors.
There are two types of real estate tokenization companies on the market:
B2C services that work directly with investors and enable them to buy shares in real estate;
B2B sites that allow developers to sell their properties in shares.
For example, a startup with Russian roots, Apato, helps investors buy real estate in Indonesia and other countries around the world, which allows them to diversify their investment portfolio. To do this, the Apato team searches and verifies real estate objects, registers a legal entity, issues tokens certifying the rights of investors, collects funds, buys out the object, after which it hires a management company and pays regular income to all co-owners. Tokocrypto and Sinar Mas Land platforms operate on a similar principle.
Potential for Russian companies
Given Indonesia's demand for innovative solutions, the country is interested in cutting-edge innovations that can be provided by Russian companies. Indeed, according to the Global FinTech Adoption Index study, Russia is one of the three world leaders in the quality of fintech services.
There are various technology services in the Indonesian market that allow foreign investors to purchase real estate as assets. For example, a Russian startup Villo.asia It is a real estate search platform, an analog of Cyanogen. This is one of the few services in Bali that makes it possible to bring its facilities to the secondary sales market.
Many PropTech companies need technological improvements. A startup with a high-quality IT solution has high competitiveness, which can allow it to become a local "unicorn". Russian developers can consider such niches as:
Services of legal verification of real estate (arranged according to the principle of Russian "Dominfo" or "DomClick").
Platforms for tokenization of objects that provide a full range of services for investors who want to purchase a share in a real estate object: from the purchase of property to the creation of a legal entity for token holders.
AI developments for real estate management (for example, they can be used to analyze big data on the real estate market and predict price trends, as well as to optimize asset management).
Technologies for transaction automation, such as electronic signatures and platforms for remote transaction conclusion, can significantly simplify the process of buying and selling real estate.
The editorial board's opinion may not coincide with the author's point of view.