FOREIGNERS BUYING HOUSES IN INDONESIA
Indonesia offers comparative natural and regulatory advantages to the investor, with an attractive range and composition, for example:
- A vast, fertile country endowed with nature's bounties.
- A big population around 200 million people who generally live peacefully and are dynamically adaptive towards progress, constituting the market with a colossal potential as well as a competitive workforce.
- A strategic location, at the crossroads of two great continents and oceans that control important sea communication lanes.
- A nation in the process of change/reformation, return to a civil and democratic society will manifest itself in a stable political environment.
- A government committed to continuously provide a favorable business and investment climate, especially for the private sector, being constantly prudent in macro-economic management and maintenance of high international financial credibility.
However, for many years has decreed that land in can only be owned by Indonesian citizens. Thus, if you want to buy a house (as a foreigner), they wouldn't have let you in the past.
In the late 90s, new laws were enacted so that foreigners are now permitted to purchase apartments and office space in 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.
Purchasing an apartment or office under Strata Title
Ownership of offices and apartments is possible through strata title deeds, but the set of laws and regulations that were enacted in 1996 are still somewhat unclear and ambiguous. Therefore, to our knowledge, no foreigner has actually been able to receive a strata title certificate of ownership to reflect their office or apartment ownership.
The 1996 regulation (No. 41/1966) 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 deeds, and most developments hold right-to-build deeds. As it stands now, 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.
Convertible Lease Agreement
One way for foreigners to go ahead to 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. 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 a condominium through this type of agreement, investigate the property management company thoroughly. In the current economic downturn 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.
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.
Single Family Dwellings - Houses
Ownership of single family dwellings faces even greater legal issues as foreigners are not allowed to own land in . 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 to www.expat.or.id :
"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."
Buying Land
By Indonesian law a foreigner can not own land in .
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.
It is not clear, however whether or not these types of agreements are at all enforceable under Indonesian law and the foreigner is at risk in the true ownership of his investment.
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. Besides, Foreign visitors to Batam will be given Visa on Arrival for most nationalities. Foreign nationals are allowed to buy and own houses, including shop-houses, whether or not they work in Batam. So, Batam could become a second home for foreigners.
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.
Here are the alternative ways how foreigners can own property in Indonesia
A. TITLE
There are different types of title in :
1. Hak Milik (Freehold) is the type of title that can only be held by an Indonesian citizen.
2. Hak Pakai (essentially leasehold title) and other forms of title can be held by a P.T. or PMA Company (Foreign Investment Company).
A non-Indonesian citizen cannot own land in . However a foreigner can acquire a leasehold title to a building - almost the same as a strata title except that the title lasts only for 25 years with an extension of 30 years for a maximum of 55 years and then reverts to the original owner (lessor).
B. SOLUTION
There are 2 ways for foreigners to own the land in :
Using the Nominee
The Nominee will sign four documents with the foreigner as follow:
1. A Loan agreement: acknowledges that the foreigner has lent to the Nominee the purchase price of the land.
2. A Right of Use agreement: allows the foreigner to use the land.
3. A Statement Letter: where the Nominee acknowledges the foreigner’s loan and intention to own the land.
4. Power of Attorney: The nominee signs an irrevocable Power of Attorney giving the foreigner the complete authority to sell, mortgage, lease or otherwise deal in the land.
Using the PMA
The most significant change in Indonesian investment law came in 1997 when the government introduced the PMA (Penanaman Modal Asing or Foreign Investment Company). This allows foreign investors to set up a company in , without any Indonesian partners. The PMA can be 100% owned by the foreign investor. PMA companies are allowed to own the title of the property for a period 25 years and have to be renewed by the government.
To set up a PMA, you will be required to:
1. Submit the detailed business plan.
2. Operate in a business environment that adds value to in terms of foreign skills, employment and environmental benefit.
3. Make an appropriate cash deposit in an Indonesian based Bank. The amount varies and is calculated from the capital employed in the business.
4. Show the property investment as an asset of the company.
The process time is approximately 3 or 4 months and after completion; the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost to setting up the PMA is between IDR 30 to 40 Million or equivalent with USD 4,500.
C. FEES
1. Notary: 1% - 1.5% of the value of the transaction.
2. Seller Tax & Buyer Tax: seller and buyer pay 5% each of tax value added.
3. Mortgage Certificate: 2% of value of mortgage.
