Presently, foreign citizens cannot own (freehold) property outright in Indonesia. Although, there are legal and safe ways to own/hold a property by foreign citizens in Indonesia.
Buying property mean issue certification of land.
Leasing property from a Landlord. When the lease period ends, the property will return to the landlord.* Long leasehold periods of 20-50 years are common in Indonesia.
*’Property’ means the land including building, Indonesia law deems the land and building above of the land together.
Before fully understanding how to go about property ownership, it is important to know the unique and specific laws and regulations relating to property in Indonesia.
There are three common types of property ownership structures:
Hak Milik – Freehold
Only a registered Indonesian citizen can own property as we understand the term ‘freehold’ or outright.
Hak Guna Bangunan HGB – Right to Built
Registered by Indonesian citizen and company registered in Indonesia which local company and foreign Investment company.
Hak Pakai – Right to Use
Registered by Indonesian citizen, company registered in Indonesia which local company and foreign investment company and foreign citizen.
There are more than three rights but the above are by far the most common and applicable to foreign ownership in Indonesia.
Example: Foreign citizen Mr.A purchases a property from Indonesian citizen Mr.B and Mr. A registers the property into Hak Pakai because he doesn’t have any companies registered in Indonesia. X years later, Mr.A sells the property to Indonesian citizen Mr.C. Mr.A arrange to transfer Hak Pakai to Hak Milik and sells to Mr.C by Hak Milik as freehold.
Process of transaction below:
It’s seems like nothing different between Hak Milik, HGB and Hak Pakai but how can a foreign citizen own property in Indonesia?
There are regulations associated to each of these structures/rights.
Hak Milik – freehold
There is no regulation own by free from anything.
Hak Guna Bangunan HGB – right to built
There is term 20 – 30 year from when you register in this right and it’s able to extension 1 year before it expires. It seems Hak Guna Bagunan HGB and Hak Pakai like driving license term need extension.
Hak Pakai – right to use
There is a term 25 year from when you resister in this right and it’s able to 20 year extension 1 year before expire.
Property land size over 2,500m2, have to have permit from government office.
A person registers only one property in this title for foreign citizen.
How to get freehold in Indonesia?
There is only way to arrange freehold ownership for foreign buyers, by using an Indonesian citizen nominee.
It may easy to borrow name but how to make safe your property?
Mortgage registration – foreign citizens are able to register a mortgage in land certification in Indonesia. In the mortgage certificate, the buyer can stipulate that the nominee cannot sell the property before the mortgage is released by the buyer. This protects the buyer from the nominee from selling the land without consent. However, the nominee is still the registered owner of the property in the legal document as certification so he can potentially, and legally, do whatever he wants with the property without further agreements in place.
So what’s to do?
Lease agreement – making long term lease agreement along with the mortgage registration protects both the sale and usage of the property from the nominee. The property has been leased the nominee as landlord can’t legally withhold use of the property by the buyer.
While this method can help you to protect your ownership of property, in the real transaction there will be more agreements between yourself and a nominee to make more safe your position.
The above information is intended as a high level guide only. Indonesian property law changes frequently, and we advise anyone interested in buying property in Indonesia to consult with a lawyer to understand the most current legislation. We do not take any responsibility for any issue, dispute or loss attributed to the above information, whether by a client of ours or not.