The change in the law on foreign property ownership that would extend the leasehold period to a full 70 years as opposed to 25 years followed by subsequent renewals was expected at the end of 2010 but is yet to be passed in the House of Representatives.
Current rules governing foreign ownership of property in Indonesia are laid out in Government Regulation Number 41 Year 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia. This is now under discussion to be redrafted as part of Law 1/2011 regarding Housing and Residential Areas. As of June 2011 the current law is still in place stipulating that foreigners who maintain a ‘presence’ in Indonesia be it through regular visits, residency or business interests are allowed to own a leasehold on a property in Indonesia for up to 70 years. This 70 year period is subject to renewal after an initial tenure of 25 years, then 20 years and then another 25 years. Non Indonesian nationals may not own a freehold Hak Milik, but rather leasehold under the land title Right of Use Hak Pakai. This means that land under the more advantageous land titles of Right to Build (Hak Guna Bagunan and Hak Milik) that are often in the most sought after areas are off limits to foreign buyers.
Non Indonesian nationals are currently able to buy a property in the following ways:
The purchase of a piece of land that is state owned or freehold (Hak Milik) that has an existing residential structure or to construct one on it, which has Right of Use (Hak Pakai) land title.
Purchase of a freehold property by a nominee Indonesian national who would own the freehold title but signs over power of attorney and other legal rights.
Strata title is regulated under the Law No. 16 of 1985 on Condominium (the “Law of Condominium”). Under the Law of Condominium, a condominium can only be built over the land of the Right to Own, Right to Build, Right to Use or Right to Manage according to the prevailing laws.
It is called “strata title” because it is a combination of personal and common ownership. The developer of strata title condominium has the obligation to determine the divisions of condominium building before the land officials can produce the certificate of the right to own of strata title.
Strata Title – the deed or right of use of an apartment can be purchased by a foreigner who resides in or has a regular ‘presence’ in Indonesia, as it is considered to be vertical space as opposed to land.
A PMA can own a freehold plot of land and the building under a right to build HGB (Hak Guna Bangunan) land title not Hak Milik. The property is owned in the name of the company and therefore must pay the applicable taxes and IUT fixed operation license are subject to renewal after 30 years.
As it is said earlier above, the Right to Build can be owned by Indonesia legal entity. A PMA company is also regarded as an Indonesia legal entity. Further, for property development/investment sector, there is no limitation for a foreigner or foreign entity to establish a PMA company. Therefore, a foreigner or foreign entity, through a PMA company, can own a property or a strata title building which is built over the land of the Right to Build.
The real estate law in Indonesia is mainly governed in the Law No. 5 of 1960 on Principle Provisions of Agrarian (the “Agrarian Law”).
Under implementing regulations of Agrarian Law, we also recognize Right to Manage (Hak Pengelolaan). This right is specifically granted to the governmental bodies or governmental companies so that they can manage and determine the use of some plots of lands in their region.
– Right to Own Hak Milik – Right to Own is the strongest right of land. It can be used for residential or commercial land. However, it is widely and mainly used for residential land. It also has unlimited period of ownership. Freehold title that can be bought, sold, mortgaged and inherited and is only available for Indonesia nationals and Indonesian corporations. International corporations cannot hold a freehold title. Can only be owned by Indonesian and limited Indonesia legal entity as determined by the Government of Indonesia. The right to own a strata title is known as the Right to Own of Strata Title (Hak Milik atas Satuan Rumah Susun). This right is individual and separated in nature. This right also includes common land (tanah bersama), common equipment (bagian bersama) and common facility (benda bersama). Right to Own of Strata Title can be owned by an individual and legal entity that fulfills the requirements under the law. These requirements will depend on the underlying land which a condominium is built.
– Right to Rent Hak Sewa Bagunan – the right to rent land for building purposes by a determined amount of time by the two parties. This is an informal agreement in that it is not certified or registered with the land authorities and the legal protection of those engaging in it is therefore unclear. It can be held by a foreigner that is residing in Indonesia or the Indonesian branch of a foreign company. The agreed use of the land must be maintained throughout the lease period.
– Right to Use Hak Pakai – is the right to use or to cultivate the land owned by the State or another party. Under its implementing regulations, the right to use can be granted for the maximum of 25 years and can be extended for another 25 years or unlimited, provided that it is used for certain purpose e.g. foreign embassy representative. The right to use land for a specific and pre agreed purpose for a defined amount of time. This can be held by an Indonesian national, foreigners domiciled in Indonesia, foreign investment companies (PMA) and representative offices. Right to Use can be owned by (i) Indonesian (ii) foreigner (iii) Indonesian legal entity and (iv) foreign legal entity that has representative in Indonesia. The holder of the Right to Rent is the same as Right to Use.
– Right to Cultivate Hak Guna Usaha – is for plantation, fishery or animal husbandry purpose, the right of exploitation, applicable for state owned land to be used for agricultural and aquaculture purposes for a period of up to 35 years with a 25 year extension by applying to the National Land Agency. The land must be used for the purpose that it was leased for and may not be left idle.
Foreign Investment on Property Development / Investment Sector
Currently in Indonesia, there is no limitation for the foreigner or foreign entity to establish an Indonesia legal entity, fully owned by foreigner or foreign entity, which has main business in property development/investment sector. This matter is regulated under the Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment as amended by Regulation of President of the Republic of Indonesia Number 111 of 2007 on Amendment to Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment.