Shophouses (ruko) appeal to investors because they can earn money in more than one way. You can rent one out, run your own business from it, or sell it on one day.

But a shophouse in the wrong location can sit empty for a long time, and an empty shophouse still runs up the Pajak Bumi dan Bangunan (PBB, the annual land and building tax) and maintenance. A good building doesn’t help if nobody wants to trade on that street.

This guide is for individual investors weighing up a shophouse purchase. It covers how to work out the rental return, how to judge the location, and the risks to price in before you pay.

Three ways a shophouse earns money

  • Renting it out. Income comes from rent paid by businesses, usually yearly.
  • Using it yourself. You save on rent for your own business, and the upper floor can be lived in or used for storage.
  • Selling it on. The result depends on the price when you buy and when you sell. Nobody can guarantee the price will rise.

The three can be combined, for example running your own business downstairs and renting out the upper floor. Each route calls for slightly different checks, so decide on the main goal first.

An investor after rent cares most about tenant demand. An owner-occupier cares most about whether the location suits their business. Someone planning to sell needs to think about who the next buyer will be.

How to calculate the yield

Gross yield is a year’s rent divided by the total cost of buying, times 100. The total cost of buying includes the price, the Bea Perolehan Hak atas Tanah dan Bangunan (BPHTB, the acquisition duty), deed and registration costs, and initial repairs.

Net yield is closer to reality. Deduct the final income tax (PPh final) of 10 percent on rent, PBB, upkeep, insurance and an allowance for empty months.

Worked example (illustrative numbers only): a shophouse priced at Rp 1.5 billion, plus Rp 100 million in purchase costs and initial repairs, makes Rp 1.6 billion in total. It rents for Rp 90 million a year, a gross yield of about 5.6 percent. After deducting PPh of Rp 9 million, PBB and upkeep of Rp 10 million, and one empty month of Rp 7.5 million, Rp 63.5 million remains. The net yield is about 4 percent.

Use rent figures from comparable shophouses that have actually been let, not the seller’s promises. And remember that the yield only measures the rental return. It tells you nothing about whether the shophouse’s price will rise or fall.

Location matters more than the building

A plain shophouse on a lively street is usually easier to let than an impressive one on a quiet street. Tenants pay for the customers walking past, not for the facade.

What to look for on site:

  • Vehicle and foot traffic during trading hours, on weekdays and at weekends.
  • Businesses that last in the area, and how long they have been open.
  • Competition, especially new rows of shophouses that will chase the same tenants.
  • Parking, because customers who can’t park go elsewhere.
  • Access, such as one-way streets, road medians and the distance to a U-turn.

The easiest warning sign to spot is a lot of empty units nearby, especially when for-rent or for-sale signs have been up for a long time. That usually means demand in that spot is weak.

Talk to the business owners around it too. Ask how long they have rented there, how busy trade is, and whether they plan to move. Their answers are often more honest than a brochure.

To see a shophouse through a tenant’s eyes, read our guide to renting a shophouse for your business.

A shophouse can be on a Sertifikat Hak Milik (SHM, the strongest freehold title) or a Hak Guna Bangunan (HGB, a time-limited right to build). SHM has no time limit, while HGB does. Under Government Regulation (PP) No. 18 of 2021, an HGB runs for 30 years, can be extended by 20, and then renewed for 30.

For an HGB shophouse, check how much of the term is left and estimate the cost of extending it. The route for upgrading HGB to SHM under Kepmen Agraria/Kepala BPN No. 6 of 1998 is meant for homes. For a shophouse, ask the Kantor Pertanahan (the land office) directly whether and how the title can be upgraded.

Check the Persetujuan Bangunan Gedung (PBG, the building approval) or the old IMB building permit as well. Make sure the building’s approved function covers business use, and ask for the Sertifikat Laik Fungsi (SLF, the certificate that a building is fit for use) if there is one.

Before the Akta Jual Beli (AJB, the deed of sale) is signed, the Pejabat Pembuat Akta Tanah (PPAT, the official who draws up land deeds) checks the certificate at the land office. If the shophouse is still being built by a developer, check the developer’s legal standing, the status of the master land title and the project’s PBG before paying anything.

Vacancy risk and upkeep

One empty month wipes out about 8 percent of a year’s rent. A shophouse empty for six months loses half its annual income, while PBB, minimum electricity charges and upkeep keep running.

Vacancy risk comes from several directions:

  • The tenant’s business fails, and the lease isn’t renewed.
  • New shophouses nearby offer lower rents.
  • Road changes, such as a new one-way system or a median that cuts off access.
  • Gaps between tenants for repairs and marketing.

A long lease with a tenant whose business is established reduces this risk. In return, such a tenant may ask for a lower rent or a fixed increase.

Upkeep on a shophouse covers the roof, gutters, rolling doors, wiring and plumbing, and paint. Set aside a maintenance fund every year rather than waiting for something to break.

Taxes and running costs

  • Final PPh on rent, 10 percent of the gross rent under PP No. 34 of 2017. If the tenant is a business entity appointed as a withholder, the tenant deducts it. If not, you pay it yourself, generally by the 15th of the following month. The details are in our guide to tax on rental income.
  • PBB, billed every year to the owner.
  • BPHTB when you buy, at most 5 percent of the transaction value after the tax-free allowance set by local regulation.
  • Final PPh of 2.5 percent of the sale value when you sell, under PP No. 34 of 2016.

Put every one of these into your numbers from the start. The rental tax alone takes a tenth of your gross rental income.

How easy it is to sell on

Shophouse buyers are mostly business owners or investors, so the market is narrower than for homes. Bank financing for a shophouse also follows each bank’s own policy.

A few things make a shophouse easier to sell:

  • A lively location, with busy businesses around it.
  • A long-standing tenant, because investors are buying the income as much as the building.
  • A clean certificate, and plenty of HGB term left if it is on HGB.
  • Complete paperwork, such as the PBG and proof of tax payments.

Count the cost of exiting too: the 2.5 percent final PPh, an agent’s commission if you use one, and the time it takes to find the right buyer.

To see asking prices on the market, keep an eye on the list of shophouses for sale in Banjarmasin. How shophouses compare with land and houses as investments is covered in choosing between land, a house or a shophouse.

Next steps

  1. Decide on the main goal: renting out, using it yourself, or selling on.
  2. Watch the location during trading hours, on weekdays and at weekends, and count the empty units around it.
  3. Work out the gross and net yield using rent from real comparables.
  4. Check the certificate, the remaining HGB term and the PBG through a PPAT before you pay.

If you’d like to talk through a shophouse you have your eye on, contact Vorneo on WhatsApp.