Foreign Ownership

The Basics

Indonesian Land Law is quite different indeed to the laws that apply in most Western or developed countries.  Foreigners wishing to purchase land for whatever purpose need to be aware of these differences and not assume that legal conventions that apply in their home country necessarily apply in Indonesia.

At Bali Realty, in conjunction with resident international legal experts, we can assist and guide you smoothly through the process of acquiring your dream home or idyllic investment property.

There are a number of different types of title recognised in Indonesia. Outlined below are those most relevant to foreigner buyers.

 

Freehold Title (HM or Hak Milik)

Freehold title is the strongest and fullest title that can be obtained. Freehold title may only be held by Indonesian citizens, or by Indonesian legal entities that are entirely owned and controlled by Indonesian citizens.  It is therefore impossible for a foreign individual to have direct freehold ownership of land in Indonesia.

All Indonesian companies, no matter if they are PMA (foreign investment companies) or not, cannot possess freehold title over land and are compelled to use other titles such as Hak Guna Usaha and Hak Guna Bangunan.


Building Rights Title (HGB or Hak Guna Bangunan)

A Building Rights Title (HGB) gives the right to construct and own buildings on a piece of land that someone else owns.  Such title is granted for a maximum period of 30 years, and can be extended for another 20 years.  HGB title is granted to Indonesian citizens or legal entities (including PMA companies), and can also be used as collateral or transferred to a third party.

 

Right to Use Title (HP or Hak Pakai) – Freehold Title for Foreigners

Hak Pakai title is the government approved method for foreigners to purchase the exclusive use over a Hak Milik land which is registered in a separate certificate of title in the name of the foreigner.

Hak Pakai title is granted for an intitial term of 25 years, which can then be extended up to a further three times giving a total tenure of 100 years.

Not to be confused with Leasehold title (Hak Sewa), Hak Pakai is a registered proprietary interest in the Hak Milik land rather than an unregistered interest. A foreigner is permitted to hold only one Hak Pakai title in Indoensia at any time.

Hak Pakai is transferable or renewable if sold to another foreign purchaser.

 

Leasehold (Hak Sewa)

Right of Lease (Hak Sewa) is similar to Leasehold. Leasehold rights are normally granted to tenants of both residential and commercial premises. Acquiring the leasehold of property is straightforward with the lease being in the name of the foreigner or Lessee. Lease periods vary but between 30 to 50 years is common in Indonesia with extensions normally agreed in advance.

 

So how do I legally obtain Indonesian Property?

Foreign individuals can legally acquire property in Indonesia and enjoy full beneficial rights. This is done using one of two models: the first by a nominee arrangement, and the second, by way of an Indonesian incorporated company.

With nominee method, an Indonesian citizen is nominated to buy the land on behalf of the foreign purchaser.  Land Title deeds will thus be under the name of the Indonesian nominee.  The Notary/PPAT handling the land sale and transfer will simultaneously make a Power of Attorney giving the foreign purchaser total and exclusive authority to utilise, sell, transfer, or lease the land without any reference whatsoever from the nominee, along with a statement declaring that the money used the buy the land belongs to the foreign purchaser and not to the nominee.

The power of attorney must give the foreign party full beneficial rights on the property and must waive all rights of the nominee.  The foreign party is then free to build on the land, sell or lease the property and transfer the title to next of kin.  Often, the nominee will receive a nominal fee for his/her responsibilities as the title holder.

The second method is to form a foreign investment company (“Penanaman Modal Asing”, PMA).  A foreigner can fully control a PMA company and the title of the property will be in the company’s name in the form of a right to build (“Hak Guna Bangunan”, HGB). The HGB expires after 30 years and can be renewed several times. However, there are tax implications to be considered and the Department of Trade will review PMA companies after 30 years so it may be necessary to re-apply for the PMA license

With our comprehensive understanding of the various processes, and in conjunction with expert legal due diligence to advise of the most suitable vehicle for purchasing, you can rest assured that with Bali Realty, you are in experienced, knowledgeable and trustworthy hands.

If you require further information about foreign ownership of property in Indonesia, feel free to contact us.

Related Links: Bali Real For Sale In Bali | Land In Bali | Bali Property For Sale In Bali