Indonesian Property Law - Sunrise Property Bali

Feb. 5, 2014 - PRLog -- Both Indonesians and foreigners who are considering to buy property in Indonesia should however educate themselves adequately regarding the Indonesian property legislation to avoid any pitfalls or unexpected costs arising in the future.

Sunrise Property will offer legal guidance regarding Indonesian property laws to our clients. However we actively encourage our clients to seek additional independent legal counseling from a reputable lawyer or notary.

Hereunder is an overview of the most important property terms and guidelines; keep in mind that this is just a short introduction, aiming to give you a general overview mainly for residential purposes.

Property Ownership Titles – In Short
Below you can find a schematic description of the main property titles and who can own them. Please note that Hak Sewa (also referred to as ‘Right To Rent’ or ‘Leasehold’) is not mentioned in the short schematic description below because strictly speaking it is not a public ownership certificate, but rather an agreement between the Lessor and the Lessee.

Below you can find a short schematic description of the main property ownership titles with their maximum durations and their renewal costs (if applicable).

Abbreviation: NPT (Nilai Perolehan Tanah) or Land Acquisition Value  = Land Area x NJOP (Nilai Jual Obyek Pajak) or Tax Office Appraised Value(/sq. m)

Property Ownership Titles – More Detailed
★ HAK MILIK (‘Right Of Ownership’, also referred to as ‘Freehold’)

Freehold Title (Hak Milik) is in general reserved for Indonesian citizens only (apart from a few exceptions). It gives the titleholder the absolute and unlimited rights to the land and its belongings.

This means that both non-Indonesian citizens and (most) companies registered in Indonesia (such as PT or PMA) cannot under any circumstances own this property title.

Most importantly to know for potential foreign buyers: a foreign individual cannot directly own land in Indonesia. Period.

The 1960 Agrarian Law states that Indonesia’s land is a “gift from God” to the Indonesian people and the nature of this relationship is eternal. The land is a “national treasure” to be controlled by the state for the maximum prosperity of the people.

Properties listed under Hak Milik however can be bought by anyone (including foreigners and companies registered in Indonesia) but the Hak Milik title will simply be converted to another legal ownership title, resulting in an ownership title the new owner or legal entity is allowed to own (Hak Pakai or HGB for example).

The Hak Milik title can be sold, gifted, exchanged, by an Indonesian bequeathed, and/or encumbered mortgage.

★ HAK PAKAI / HAK PAKAI ATAS HAK MILIK (‘Right To Use’ / ‘Right To Use On Top Of Freehold’)

Hak Pakai title can be held by both Indonesian citizens, non-Indonesian citizens and legal entities registered in Indonesia. Please note that whenever ‘non-Indonesian citizen’ or ‘foreigner’ is mentioned, we specifically mean foreigners who are domiciled in Indonesia and/or spend a reasonable amount of time per year in Indonesia, making them eligible for property ownership titles in Indonesia.

Hak Pakai ownership gives the titleholder the ‘right to use’ of the property for a limited amount of time (with some exceptions).

In case of the Hak Pakai title (over state-owned land), the ‘Right to Use’ is valid for a maximum of 25 years, but extendable for another period of 20 years.

In case of the Hak Pakai Atas Hak Milik title, the underlying Hak Milik title stays under ownership of the original owner, and he/she will gain back full rights after the Hak Pakai title has expired.

The Hak Pakai Atas Hak Milik is valid for a maximum of 25 years and cannot be extended. However, subject to mutual agreement between the landowner and the right of use holder, the ‘Right Of Use’ can be renewed.

A non-Indonesian citizen is only allowed to hold one Hak Pakai title, for residential purposes, at any time in Indonesia and the land area of the property under Hak Pakai title must be less than 50 are / 5000 m².

The Hak Pakai title is not a lease as the Hak Pakai title is actually issued in the name of the (foreign) owner and the owner’s interest is noted as an encumbrance on the Hak Milik title unlike a leasehold structure.

A (foreign) holder of a Hak Pakai, can sell, give, bequeath or otherwise dispose of the title as they wish, subject to approval of the landowner.

This method is generally considered the safest method for a foreigner to own a property in Indonesia.

★ HAK GUNA BANGUNAN or HGB (‘Right To Build’)

This title can be owned only by individuals of Indonesian nationality, and Indonesian legal entities (such as PT or PMA).

The holder of Hak Guna Bangunan (“HGB”) is entitled to
construct and own buildings or other structures on the land.

This is the preferred title of  property ownership if a foreigner wishes to obtain several properties in Indonesia (remember Hak Pakai only allows a foreigner to own one property in Indonesia at any time). Typically this is done through a PT PMA company, which may be under 100% foreign ownership. PT PMA company structures are also used by foreigners using the nominee structure system (see further below), to improve their legal protection in case of dispute.

In principle, the HGB right is granted for an initial period of up to 30 years, although it may be extended for another 20 years. An approved capital investment company (PMA or PMDN company) may obtain HGB rights for a period of 80 years (i.e., 30-year initial term, plus 20-year extension term, plus 30-year renewal term).

Like Hak Milik, HGB can be sold, gifted, exchanged, by an Indonesian bequeathed, and/or encumbered mortgage.

★  HAK SEWA (‘Right To Rent’ or ‘Leasehold’)

This agreement may be held by Indonesian citizens, foreigners or legal entities registered in Indonesia.

The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents. So in essence you are renting the property long term from the certificate owner.

Leasing from the Indonesian owner for an agreed period of time is relatively easy to arrange. Generally a new lease is for a maximum period of 25 years, usually payable in full in advance.

Whether the leasehold can be renewed or not depends on the original agreement between the parties (lessor & lessee).

This right may not be mortgaged.

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