JAKARTA. The Financial Services Authority ( OJK ) is considering providing a legal basis for Islamic real estate investment trustees ( REITs ) in the third quarter of 2016, hoping that it will attract more property investors, especially those from the Middle East.

OJK deputy director of sharia market Muhammad Touriq said the demand for Islamic REITS would be enormous as Indonesia had many Islamic institutions such as takaful ( Islamic insurance ) companies that need medium-term investment and Middle Eastern investors.

"Takaful companies are interested in investing in the REITs, but have failed to do so as the existing REITs are not sharia-compliant. Middle Eastern investors also prefer to invest in property. We’re working on the rule right now. We hope to finish it in the third or fourth quarter this year," he told thejakartapost.com in Jakarta on Wednesday.

To make it more attractive, Touriq continued, the government would provide an incentive for the Islamic REITs, equal to the conventional REITs as included in the ninth economic policy package launched in March 2015.

The incentive allows REITs investors to pay only 0.5 percent income tax, much lower than the prior tax of 5 percent. "The incentives are similar to the conventional REITs. The difference is only at the securitization, which will follow Islamic principles," he explained.

According to Indonesia Stock Exchange ( IDX ) report, 11 developers including Ciputra and Summarecon have expressed interest in issuing REITs. Several investment management companies are also interested, such as Ciptadana Asset Management.

Ciptadana is the pioneer of REITs issuance in Indonesia, after issuing Ciptadana Properti Ritel Indonesia REITs in 2011. Lippo Group, that launched their REITs Lippo Malls Indonesia Retail Trust in 2007, issued the securities on the Singapore stock exchange. (Anton Hermansyah)

Editor: Barratut Taqiyyah Rafie