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Buying Property in Indonesia

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For many years Indonesia has decreed that land in Indonesia can only be owned by Indonesian citizens. Thus, if you want to buy a house (as a foreigner), this would have been legally impossible.

In the late 90s, new laws were enacted so that foreigners are now permitted to purchase apartments and office space in Indonesia if the building has a strata title status. This enables the foreigner to own the apartment or office space but not the land on which it stands.

Further laws were passed in 2010 which may make it easier for expats to hold 70-year leases on land, but tthe particulars of the law aren't always clear.

Indonesian Agrarian Law, Law No. 5 of 1960, governs the ownership of land in Indonesia. In it is a category of land ownership called Hak Pakai - which mean the right to use the land.  As stated in this law, foreigners are only permitted to purchase land or homes under the “Right to Use” (Hak Pakai) title.

Purchasing an apartment or office under Strata Title

Ownership of offices and apartments is possible through strata title deeds, but you need to be very cautious when dealing with the laws and regulations to ensure that your ownership of an apartment in a high rise building is secure.

The 1996 regulation (No. 41/1996) states that foreigners who reside in Indonesia, or visit the country regularly for business purposes, can purchase a home, apartment or condominium as long as it isn't a part of a government-subsidized housing development. However, foreigners can only hold land-use (hak pakai) deeds, and the development holds the right-to-build deed. It's not possible for someone to have a land-use deed for a sub-unit of a right-to-build deed. The length of these titles varies as well. Therein lies some of the difficulties and unclear ownership issues.

This means that foreigners can effectively lease (not truly own) an apartment for up to 70 years, but not a free standing houses. Within this 70-year period, foreigners must also periodically renew their right to use. The initial Hak Pakai period is for 25 years, then renewed for an additional 25 years and finally 20 years.

Convertible Lease Agreement

One way for foreigners to go ahead an purchase property despite these legal ambiguities is to sign a Convertible Lease Agreement with the apartment property management office to purchase an apartment. Basically what this agreement entails is that the foreigner may purchase the apartment, but the title is still held in the name of the developer or property management firm, or an Indonesian friend. This lease agreement is for a definite period.

The Convertible Lease Agreement states that if and when the prevailing laws and regulations permit the Lessee to become legal owner of the apartment/strata title unit, both the Lessor and the Lessee shall be obligated to sign a Deed of Sale and Purchase and the title shall be transferred to the foreign owner.

If you are interested in purchasing an condominium through this type of agreement, investigate the property management company thoroughly. Many property developers are undergoing serious economic pressures and construction on many properties has been postponed or canceled. Show your contracts to a bona fide lawyer to ensure that all legal implications are covered thoroughly.

Note: When asked about the legality of Convertible Lease Agreements, lawyers we consulted stated very clearly that this is a VERY BAD idea and that lawyer should never advise that you to sign a Convertible Lease Agreement. As a foreigner you are entitled to Hak Pakai and you should insist that legal property status from the apartment building or developer so that the title is in your name. With a convertible lease agreement…you are totally at the mercy of the “appointed party” and that if they decide to change their minds you do not have much of a legal case against them as the agreement that the expat has between themselves and the Indonesian "appointed party" is not really a legal document.

It is best to just insist that the Hak Pakai is in your name. If the developer can not provide a Hak Pakai document in your name, it may be because they do not have Hak Bangunan title. If this is the case, DO NOT BUY IT.

January 2012 update: Property Ownership Still Taboo for Foreigners in Indonesia, But 60 Year Leasehold by Non-Indonesians to Soon be Possible

Purchase of Property by an Expat/Indonesian Couple

The crucial preparation for purchasing property is whether or not the Indonesian spouse and the expat spouse have a prenuptial agreement for separation of property. If you do have this agreement, it would mean that the couple could legally purchase the property. This agreement must be signed before you are married.

Under Indonesian law property is jointly owned after marriage, unless there is a prenuptial agreement, and this means that property owned by the Indonesian spouse also becomes the property of the foreign spouse, which is illegal according to the Agrarian Law. Therefore the property must be sold within one year of marriage to a foreigner or converted from "hak milik" (right of ownership) to "hak pakai" (right of use) which decreases the value of the property. (Pasal 26 ayat (2)

Using an Indonesian friend to hold your title

Another way that you can purchase a condo is by purchasing the property and having it in the name of an Indonesian citizen. Needless to say, this must be someone you trust implicitly since, according to the law, this person would be the legal owner, no matter what verbal or written agreement that you may have between the two of you.

Most lawyers will advise that you should NOT do this as again you do not have any “legal” document that says the property is yours. You are REALLY putting yourself in a vulnerable position. We've heard many stories of people who have lost major investments by trusting an Indonesian "friend".

Single Family Dwellings - Houses

Ownership of single family dwellings faces even greater legal issues as foreigners are not allowed to own land in Indonesia. Where the home you want to purchase is part of a housing development, the developers can often work something out for you to 'purchase' a home through a long term lease agreement.

One reader writes of his positive (and successful) experience in this matter:

Basically, I hold full title to the house, in my own name. The fact that my wife is Indonesian was not considered (in fact, my wife was not considered at all). She also owns property, and we could see no difference in the title and rights of mine. The developer owns the land the house is built on, and I own a 30-year fully paid up lease on the land, which by law the developer has to extend for a further 30 years on request. At that time they can charge me a nominal rent, which I can opt to pay for now at US $35 per year. I can sell or bequeath (but not sub-lease) the lease together with ownership of the house as I choose. The developer can sell the land, but only under the same covenants as already exist. These provisions apply to Indonesians as well, although Indonesians could purchase the land outright if the developer agreed to sell, and Indonesians could sub-lease the land if they want.

If my wife was not Indonesian, and I was not present in Indonesia for a full calendar year, in theory the state could take my house unless I could prove that reasonable efforts to sell had failed, but just being anywhere in Indonesia for one day would re-set the clock. As my wife is the sole beneficiary of my will and is Indonesian, this rule does not apply in my case.

I purchased the house without finance; I'm not sure what effect there would be in title if you took a loan or mortgage to assist with the purchase. I would imagine getting a mortgage would be the hardest part for a foreigner, and the finance company would definitely retain powers to repossess in event of default. Such things are very closely regulated at home, but they probably have a lot more scope for legally lining their own pockets here. On the subject of payment, I paid the deposit in rupiah cash, because that's what the developer wanted at the time, but then he preferred dollars for the balance, so I paid dollars at a mutually acceptable rate. There are no restrictions on how you pay for a personal transaction - you could pay with groats (or even goats!) if you wanted."

Purchase of Land by a Foreign Company

If a foreign company is recognized by the Indonesian government as a legal entity, the foreign investors can purchase either of the two types of land titles, Right to Build (Hak Guna Bangunan), is valid for 30 years and can be extended for another 20 years, and/or Right to Use (Hak Guna Usaha) , which is valid for 35 years and can be extended for 20 years.

Buying Land

By Indonesian agrarian law a foreigner can not legally own land in Indonesia. If someone is telling you that you can ... buyer beware ...! As a Jakarta Expat article put it "The 1960 Agrarian Law states that Indonesia’s land is a “gift from God” to the Indonesian people and the nature of this relationship is eternal. The land is a “national treasure” to be controlled by the state for the maximum prosperity of the people."

If a foreigner chooses, he/she can own land 'indirectly'. To do this you need to have an agreement between the foreigner and an Indonesian, signed with the witness of a notary public. In the agreement the Indonesian is the 'legal owner' while acknowledging that the foreigner is the 'rightful owner' of the land and thus the Indonesian owner would carry out any instructions from the foreigner regarding the land, including selling the land at certain price with the funds to be paid to the foreigner owner. Again, if the Indonesian "owner" changes their mind, you will not have any legal title to the land.

It is clear, as well, that these types of agreements are NOT at all enforceable under Indonesian law and the foreigner is at risk in the true ownership of his investment. We do NOT advise entering into this type of agreement!

All land titles within Greater Jakarta (DKI) are subject to the conditions of Presidential or Governor's decrees. Essentially, this affects the provisions for Hak Milik titles in the Jakarta DKI area.

Special Provisions for Batam

The rules for property ownership by foreign nationals in Batam fall under Decree No 068/KPTS/KA/III/1999. This regulations states that foreign nationals or companies are permitted to 100% own residential or commercial property in the Barelang area (Batam, Rempang and Galang). The only properties excluded from this decree are low cost and very low cost housing, but includes all other types of building structures.

Even though there is a “special provision” for the special economic zones in Batam and Kalimantan, the land law still falls under the “Hukum National” (Indonesian national law) and the same overall laws and principals still apply, no matter where you are in the country.

Hak Guna Bangunan vs Hak Milik

Hak Guna Bangunan is only the right to use a building for a certain period of time and then has to be extended. The owner of HGB land is the Indonesian government.

Only with Hak Milik do you actually own the land or building. Hak Milik does not need to be extended.

Hak Pakai allows you the use of the facilities, but not the ownership.

Obtaining a Loan from an Indonesian Bank to Purchase Property

The Indonesian banks will NOT lend money to property owners that only have Hak Pakai status for their property. The land title MUST be Hak Milik in order for the bank to use the title as collateral. Therefore, expats have never been able to get loans to purchase property in Indonesia, because they can not have Hak Milik titles. This applies to everyone....even Indonesians. The normal length on house loans in Indonesia is five years, not 20-30 years as it is in the west.

Reporting of the Purchase to the Money Laundering Watchdog Agency

Beginning in March 2012, all property developers in Indonesia must report the purchase of residential properties valued at over US$55,000 to the Financial Transaction Reports and Analysis Center (PPATK). This agency is the government's money laundering "watchdog". The goal of this new regulation is to deter money laundering from official corruption that was going on through the purchase of luxury residences and condos.

Indonesian Agrarian Law Undang Undang No. 5 Tahun 1960 Tentang: Peraturan Dasar Pokok Agraria.

Pasal 21:

(1) Hanya warga-negara Indonesia dapat mempunyai hak milik.

(Only Indonesian citizens can have a hak milik - free hold land title)

(2) Oleh Pemerintah ditetapkan badan-badan hukum yang dapat mempunyai hak milik dan syarat-syaratnya.

(The Government is to determine which corporate bodies can have a hak milik and the conditions for it.)

(3) Orang asing yang sesudah berlakunya Undang-undang ini memperoleh hak milik karena pewarisan tanpa wasiat atau percampuran harta karena perkawinan, demikian pula warga-negara Indonesia yang mempunyai hak milik dan setelah berlakunya Undang-undang ini kehilangan kewarga-negaraannya wajib melepaskan hak itu didalam jangka waktu satu tahun sejak diperolehnya hak tersebut atau hilangnya kewarga-negaraan itu. Jika sesudah jangka waktu tersebut lampau hak milik itu dilepaskan, maka hak tersebut hapus karena hukum dan tanahnya jatuh pada Negara, dengan ketentuan bahwa hak-hak pihak lain yang membebaninya tetap berlangsung.

(A foreigner who, following the enactment of this Law, acquires a hak milik by way of inheritance without a will or by way of joint ownership of property resulting from marriage and an Indonesian citizen holding a hak milik who, following the enactment of this Law, looses Indonesian citizenship is obliged to relinquish this right within one year following the date the hak milik is acquired in the case of the former or following the date upon which Indonesian citizenship is lost in the case of the latter. If following the expiry of the said time period, the right is not relinquished, then the said right is nullified for the sake of law and the land falls to the State with the proviso that the rights of other parties which encumber the lands remain in existence.)

(4) Selama seseorang disamping kewarga-negaraan Indonesianya mempunyai kewarga-negaraan asing maka ia tidak dapat mempunyai tanah dengan hak milik dan baginya berlaku ketentuan dalam ayat (3) pasal ini.

(As long as one with Indonesian citizenship concurrently holds foreign citizenship, he/she cannot have land with a hak milik status, and the provision as meant in paragraph 3 of this article should apply to him/her.)

Pasal 26:

(2) Setiap jual-beli, penukaran, penghibahan, pemberian dengan wasiat dan perbuatan-perbuatan lain yang dimaksudkan untuk langsung atau tidak langsung memindahkan hak milik kepada orang asing, kepada seorang warga-negara yang disamping kewarganegaraan Indonesianya mempunyai kewarga-negaraan asing atau kepada suatu badan hukum kecuali yang ditetapkan oleh Pemerintah termaksud dalam pasal 21 ayat (2), adalah batal karena hukum dan tanahnya jatuh kepada Negara, dengan ketentuan, bahwa hak-hak pihak lain yang membebaninya tetap berlangsung serta semua pembayaran yang telah diterima oleh pemilik tidak dapat dituntut kembali.

Also, Read the full 1960 Agrarian Law

Read the 1996 law (in Bahasa Indonesia) - Peraturan Pemerintah Republik Indonesia Nomor 41 Tahun 1996 tentang Pemilikan Rumah Tempat Tinggal atau Hunian Oleh Orang Asing yang Berkedudukan di Indonesia

 

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