PROPERTY OWNERSHIP IN INDONESIA Can Foreigners Own Property in Indonesia ? The straight answer to this question has been in the past a clear NO. Up to now foreigners cannot OWN freehold property in Bali i.e. having their name on the official land title. These laws are changing, but until now (Year 2004) it has not yet been clearly defined by law WHICH foreigners (permanent residents, temporary residents with working or retirement visa, certain categories of visitors, etc) will qualify. However, although foreigners probably will not be able to own "freehold" property (Hak Milik), several Government Regulations issued in 1996 allow foreigners to hold a "Hak Pakai" title (Right of Use) valid for 25 years with the possibility of another 25 years extension. The following "Regulations" are the official rules at this time: Government Regulation No. 41 of 1996 (GR41/96) states that "foreigners resident in Indonesia" can hold a Hak Pakai title. This broad definition was clearer defined with the issue of "Regulations of the Minister for Agraria" No. 7 of 1996 (RMA 7/96): Article 1(1) states that "a foreigner whose presence in Indonesia gives opportunities for national development" may own a property under Hak Pakai, and Article 1(2) says such a foreigner is one who "has and maintains an economic interest in Indonesia by implementing an investment in the ownership of" that property. In a letter accompanying RMA 7/96 the Minister stated specifically that, according to this new concept, a foreigner will qualify for Hak Pakai even if he is in Indonesia only "from time to time". In other words, the Minister says any foreigner who invests in and maintains a property in Indonesia is contributing to national development and therefore entitled to hold a Hak Pakai title - even if he is only an occasional visitor to Indonesia. However, as the validity of a Hak Pakai title is limited to a certain period and it is not possible to mortgage a "Hak Pakai", this is not comparable to "freehold" or ownership in perpetuity. Holding a Hak Pakai offers the foreign investor protection for a certain period, but this title seems not well suited for long-term investment purposes. How Do Most Foreign Investors Solve this Problem ? In most cases an Indonesian citizen will hold the interest in the property as the nominee and on behalf of a foreigner, and the land title will be issued in the Indonesian's name. Whilst such arrangements are not strictly against the law, it is understood they are contrary to current government policy and the spirit of the law. Using an Indonesian Nominee
If an Indonesian acts as nominee for a foreign investor there are a number of contracts and other documents which must be prepared by and signed in front of a qualified notary. These include the Purchase or Rental Contract for the property transferring the rights from the previous owner to the nominee; a Loan Agreement for the purchase/rental price between the investor and the nominee; and an irrevocable and transferable Power of Attorney to sell, transfer or otherwise dispose of the property and to represent the nominee in any dispute regarding the property, given from the nominee to the investor. The nominee will also be asked to hand over all original land titles to the foreign investor. Using a PMA Company
Although most foreigners have found the above arrangement to work satisfactory without any problems (as long as all agreements have been properly executed in front of a qualified notary), some buyers prefer to have their property owned by a PMA (Penanaman Modal Asing = Foreign Investment) Company directly controlled by the foreign investor. Since the investment deregulation package issued on May 19th, 1994 (Government Regulation No. PP-20/1994), a PMA Company can be 100% foreign owned. The foreign investment may comprise both debt and equity, but the BKPM (Badan Koordinasi Penanaman Modal under the Ministry of Investment in Jakarta) has a rule of thumb that the ratio of debt to equity should be no more than 3:1. Before the establishment of a PMA Company an application has to be made to the Investment Coordination Board for approval of the company and its investment project. This approval is usually received after two or three months in the form of a 'Capital Investment Approval Letter', or 'Surat Pemberitahuan Pesetujuan Presiden' (SPPP). Major disadvantages of using a PMA Company are that the property must be directly used for the approved project, and that a PMA Company - like any other corporate entity (Indonesian or foreign) - cannot hold a freehold title (Hak Milik). Whenever freehold land is transferred to a corporate entity the title is changed to 'HGB' which has to be renewed after 20 or 30 years The Property Laws in Republic of Indonesia
All property matters, except for those pertaining to the mining and forestry sectors fall under the jurisdiction of the national land agency (Badan Pertanahan Nasional, or BPN for short), which was formed to administer all matters relating to the basic "Agrarian Law of 1960", such as the registration of the use of land. The Indonesian land legislation is based on the basic Agrarian law number 5 of 1960.
The Basic Agrarian Law recognizes several types of rights over Real Estate, all of which are outlined below. However, to the foreign investor, the following three main rights are relevant:
1. Right of exploitation ( Hak Guna Usaha HGU)
2. Right of building (Hak Guna Bangunan HGB)
3. Right of use (Hak pakai)
These rights all authorize the use of land. The differences lie in the duration of validity and nature of utilization and the opportunities for obtaining a mortgage. The right of ownership is an inheritable right that can be held only by Indonesian citizens.
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as a state bank, agricultural cooperatives, religious bodies, and social right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and mortgaged.
Right to Rent (Hak Sewa)
This is the right to use, leasing land owned by another private party for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents.
The law does not stipulate a period for such lease agreements and whether this can be transferred or not depends on the original agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.
Right to Build (Hak Guna Bangunan)
Better known by its abbreviation, "H.G.B.", this is the right to construct a building/s on a plot of land for a period of 20 or 30 years, and which can be renewed on consideration of policy of the regional government. This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA (joint venture) company.
If a joint venture company needs a land for a factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.
Right of Use (Hak Pakai)
This is the right of use over state-owned (crown land) or property owned by public or private persons/entities for a specific purpose for (generally) a finite period and occasionally for an indefinite period. This land right may not be sold, exchanged or transferred unless explicitly stated in an agreement.
Hak Pakai may be held by an Indonesian individual or entity. or foreigner permanently domiciled in Indonesia, or a foreign legal entity with a representative office in Indonesia such as foreign Banks, embassies, etc.
Right of Exploitation (Hak Guna Usaha)
This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for a period of 35 years, which may be exended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individuals/entities as well as government approved PMA (foreign joint venture) companies, and may be mortgaged.
Foreign investors who have obtained mining rights from the Minister of Mines and Energy or exploitation rights from the Minister of Agriculture or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the enterprise.
Based on Presidential decree number 34 of 1992 concerning the use full of right of exploitation (HGU) and the right of building (HGB) for the joint venture company, stated that in the joint venture company that established on Indonesian Law and domiciled in Indonesia. Those HGU that kept by the joint venture company can be used as collateral and can be transferred after having permission by the Chairman of BPN. |
