Foreign Ownership. A Guide to Indonesian Law on Property Rights
This is an overview of the legal structures in Indonesia in respect to land and property investments. This is for information purposes only. Please consult with us or an attorney for up to date information.
Here is a simplified summary of the real property rights under Indonesian law, relevant to foreign buyers/investors.
Terms used in Sale of Villas and Land in Indonesia. We have not included information which does not pertain to foreign investment, whether individuals of companies.
• Hak Milik — roughly equivalent to Freehold title of English common law jurisdictions
• Hak Guna Bangunan — Building Rights Title
• Hak Pakai — Right to Use Title
To foreign as well as domestic investors, the most important titles to be aware of are Freehold Title (Hak Milik), Building Use Title (UGB or Hak Guna Bangunan) and Right to Use Title (HP or Hak Pakai).
Freehold Title (HM or Hak Milik, Article 20-27)
This is roughly equivalent to Freehold title of English Common Law. It is a property right duly recorded in the local real estate registries, and may be used as collateral for local mortgage financing. Freehold title may only be held by Indonesian citizens, or by Indonesian legal entities that are entirely owned and controlled by Indonesian citizens.
Please be cautious of the use of the nominee system ,whereby the property is purchased using an Indonesian Nominee, with a series of leases mortgages quit claim deeds and Powers of Attorney meant to provide you, the actual buyer, with protection. These types of ownership structures can be very dangerous and illegal.
Please keep reading for information on foreign investment.
An individual purchasing property in Bali can choose several ways. A long term lease, typically between 25 years and 50 years or they can choose the Hak Pakai title.
Right to Use Title (HP or Hak Pakai, Article 41-43)
A Foreigner CAN BUY freehold property and CONVERT the title to Hak Pakai. The Right of Use on Land (HP) is the right to use land for any purpose for a period of 25 years, and can be extended for another 20 years.
Foreign residents of Indonesia and Indonesian legal entities (including PMA companies) may hold HP titles. Under the law, Foreigners domiciled in Indonesia are allowed to own one residential property.
To purchase property under Hak Pakai the foreigner must be a resident of Bali in possession of a KITAS/KITAP. This can be arranged.
A foreigner can purchase or construct a house built only on land with the right of use (Hak Pakai)
The land title can be converted back to freehold when sold or transferred. So the owner can sell to and Indonesian buyer OR another foreigner who can initiate a new Hak Pakai title on the property and restart the time frame to allow another 45 years.
New laws were recently put in place so that foreigners are now permitted to purchase apartments and office space in Indonesia 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.
FOR DEVELOPERS OR INVESTORS SEEKING MORE THAN ONE PROPERTY
Building Rights Title (HGB or Hak Guna Bangunan, Article 35-40)
Companies incorporated in Indonesia that have a foreign equity component (known here as PMA companies) are allowed to possess title over property by use of Hak Guna Bangunan.
The right to build on land is a type of title that includes the right to build or construct on land. This form of title is available to PMAs. This type of title may be granted for an initial period of 30 years, and extended for two additional periods of 30 and 20 years (for a total of 80 years); thereafter it may be renewed for additional 30 years periods, by payment of an HGB tax; such subsequent renewals entail the right to then renew for two additional periods of 30 and 20 years, and so on. The level of taxation is set by the local Government.
HGB is a real property right, and as such is recorded in the land registries and appears on all land title certificates. It may be transferred to third parties by sale, gift or inheritance, and may be used as collateral for local mortgage financing.
The land under this type of title may be freehold or leasehold. In the case of freehold title, the tile is converted to HGB for purposes of investment
Using a PMA Company
Some foreign investors looking to purchase a large site and subsequently divide the site into smaller parcels that are individually sold may also wish to utilize a PMA Company.
A foreign investor can effectively control 100% of the shares in a PMA and control the property via the HGB form of title. This is valid initially for 30 years and a further extension of 30 years and then another 20 years (for a total of 80 years); subsequently, the HGB may be renewed for similar periods of 30 years, with the right to extend for further 30 and 20 years periods. (A renewal is necessary because local real estate companies, including PMAs, have a term of up to 75 years). Most hotels, resorts and villa complexes in Bali have been built under this type of title and structure.
If you are making an investment in Bali, particularly as a developer, please schedule a meeting with us. We can advise you every step of the way and assist you in setting up a structure that will make it easy both to purchase and to sell your units and minimize your costs.