Investing in land and leasing it out can be a lucrative source of passive income, especially when your tenant is a well established retail chain like Indomaret. But how much is a fair annual rent for land? What’s the typical rent to price ratio in Indonesia and how do you calculate whether a deal is worth it? In this article, we’ll walk you through national averages, risk analysis, tax implications and a real-world case study involving a rural land plot rented by Indomaret.
Understanding Rent-to-Price Ratio (Rental Yield)
The rent-to-price ratio, often referred to as rental yield, is a key metric in evaluating any real estate investment. It is calculated by dividing the annual rent by the property’s market value.
For example:
If a plot of land is valued at IDR 1 billion and rented out for IDR 50 million per year, the yield is:
50 million / 1 billion = 5%
This yield reflects how efficiently your asset is generating income. In developed real estate markets, 5–8% is considered healthy. But in Indonesia, especially for vacant land, the yield can be significantly lower.
What Is the Average Land Rental Yield in Indonesia?
Based on online research, investor forums, and property analytics, the typical land rental yield in Indonesia ranges between 0.5% to 2.5% per year. Here’s a rough breakdown:
- Vacant land in suburban/rural areas: 0.5%–1.5% annually
- Land with commercial potential or located roadside: 1.5%–3.5%
- Prime commercial land already rented to brands (e.g., Indomaret): 3%–5%, sometimes more
For comparison:
- Residential property (e.g., houses): 2%–3% yield per year
- Shophouses (ruko): 3%–6%, but subject to tenant risk and maintenance
Case Study: Indomaret Leasing Land in a Javanese Village
Let’s consider a real case from a community discussion. A landowner in a small town in Java owns a 1,000 m² roadside plot worth around IDR 1 billion. This land has been rented to Indomaret for seven years already, with a five-year upfront lease payment. The lease was recently extended up to 10 years, and there’s a verbal commitment for another extension.
The annual rent paid by Indomaret equals around IDR 36-40 million/year, which puts the rental yield at 3.6%-4%, well above average for raw land.
Why This is Significant
Such a yield is considered excellent, especially given that:
- The tenant is a national brand with strong financial backing
- Rent is paid in advance (5 years upfront = IDR 180–200 million)
- The tenant has shown a strong track record of staying and renewing the lease
This scenario shows that land leased to Indomaret can become a high-yield, low-maintenance asset but only if the legal and contractual framework is solid.
Is 4% Rental Yield Realistic or Too Good to Be True?
For a rural location, 4% is relatively high and might raise eyebrows. In more typical cases:
- Land yields only 1%-2%, and rental negotiations are tough
- A 4% yield suggests that the land location has significant strategic value (e.g., near markets, schools, or intersections)
It’s also possible that the landowner is pricing rent below market due to familiarity or urgency for cash (commonly known as BU - Butuh Uang / Need Money Urgently). This could present a great investment opportunity - but only after thorough due diligence.
Legal Considerations Before Buying Rented Land
If you're considering buying land that’s already leased, such as this Indomaret case, you’re essentially buying both the land and the rights to the rental income. But watch out for potential pitfalls:
Review All Contracts
Ask for the original rental agreement. Check for:
- Lease duration
- Renewal clauses
- Penalty terms for early termination
- Who owns the building (tenant or landowner?)
- Exit strategy: what happens at the end of the lease?
Get the Tenant’s Confirmation
If possible, talk directly to the Indomaret branch manager or central office. Verify:
- Who signed the lease? (Indomaret head office or a franchisee?)
- Are they planning to extend?
- Have there been any disputes?
A face-to-face conversation can reveal more than what’s on paper.
Use a Notary
Any sale of land with an active lease should go through a licensed notary. They can help draft new agreements or append the old ones to ensure your ownership is protected and the tenant is properly informed.
Tax Implications: Do You Pay Tax on Land Rent?
Yes. In Indonesia, income from land rent is subject to Final Income Tax (PPh Final) at a flat rate of 10% of gross rental income, as per PP No. 34/2017.
Example
If Indomaret pays IDR 250 million in upfront rent for 5 years, you’ll owe:
10% x 250 million = IDR 25 million in tax
You’re responsible for declaring and paying this through your tax identification number (NPWP). It's best to consult a tax consultant to avoid underreporting or overpaying.
Potential Hidden Costs and Risks
Even if the numbers look good, beware of non-obvious risks, such as:
Demolition Costs
If the tenant owns the building and decides not to renew, you may need to demolish the structure. This can cost tens of millions of rupiah. Make sure your lease includes a clause that puts this responsibility on the tenant.
Tenant Default or Disputes
Even big tenants can change strategy. If they default or leave early, will you have trouble leasing the land again?
Market Risk
Land value appreciation is not guaranteed. In some cases, the only return you get is from the rent itself.
How to Evaluate a Land Lease Investment
Here’s a quick checklist for assessing a land-rental opportunity:
| Factor | Question |
|---|---|
| Location | Is it on a major road? Near traffic generators? |
| Tenant | Are they corporate or individual? Can they pay? |
| Rent yield | Is it at least 3% per year? |
| Payment method | Lump sum or annual? In advance or arrears? |
| Contract | Legally binding? Clear terms? Renewal options? |
| Taxes | Are you ready to report and pay 10% PPh Final? |
Final Thoughts: Is It Worth It?
If you can get 4% yield per year from a passive land lease with a strong tenant like Indomaret, that’s significantly better than most rental properties or bank deposits in Indonesia. But it’s only worth pursuing if:
- The documents are in order
- The tenant relationship is healthy
- You’re protected legally and financially
Investing in land with a corporate tenant can be low-maintenance and relatively low-risk, as long as you're thorough in your due diligence.
Frequently Asked Questions (FAQ)
What is the average land rent yield in Indonesia?
Typically between 0.5%-2.5% annually. Premium leases (e.g., Indomaret) can go up to 4%-5%.
Is income from land rental taxable?
Yes. You must pay 10% final income tax (PPh 4 ayat 2) on rental earnings.
Is it safe to buy land that’s already rented?
It can be, provided you:
- Review all contracts
- Verify tenant legitimacy
- Consult a notary
- Consider the worst-case exit scenarios
What are hidden costs of land rental investment?
- Demolition costs
- Vacancy risk
- Legal and notary fees
- Unpaid taxes
If you’re considering investing in rented land, particularly involving major tenants like Indomaret, make sure you go through a step-by-step due diligence process. Legal clarity and realistic yield expectations are the keys to turning this into a safe, passive and profitable investment.