Thinking about buying land or Property in Bali or 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. Here are some of the basics you should know about:
Indonesian Land Law is quite different from 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. There are a number of different types of titles recognised in Indonesia. Outlined below are those most relevant to foreigner buyers of Bali land and properties
- Freehold Title (HM or Hak Milik)
Freehold title is the strongest and fullest title that can be obtained. However, 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 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 initial term of 25 years, which can then be extended up to 70 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.Do note, a foreigner is permitted to hold only one Hak Pakai title in Indonesia 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?
Let’s start with what NOT to do – The nominee agreement:
You may have heard of the ‘nominee agreement’ where an Indonesian citizen is nominated to buy land or property on behalf of the foreign purchaser but in fact, this way of purchasing land or property in Bali is not legal and more importantly, it is very risky. The nominee agreement leaves the foreigner with no protection over their investment – you don’t own anything – the nominee can overtake your property and there is nothing you can do about it. Better to avoid!
What you can (and should!) do – start a PT PMA foreign company
To obtain Indonesian property safely and legally, you need to set up a foreign company (PT PMA) and acquire the ‘Hak Guna Bangunan’ license (the right to build). Once you’ve got done, you can apply for the ‘Hak Pakai’ license (the right to use). Do note, you can only apply for Hak Pakai if the land already has a building on it.
By setting up a PT PMA, your investment is solid and safe. You can enjoy your property, lease it to other people, resell it or even inherit the property to a family member.
Another thing, it’s very important to know what zone your property is located as there are areas where you are not allowed to build such as green belts and agricultural land. Furthermore, there are residential and tourism areas and if you are planning to rent out your property, it needs to be located in a tourism zone. Renting out property in a residential area is illegal.
Learn more from our experts at Bali Realty
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.