Indonesian Property Law And Your Rights
Bali Property Report
INDONESIAN PROPERTY LAWS AND YOUR RIGHT TO ACQUIRE PROPERTY IN INDONESIA – UPDATED for 2021
Please note that the information here supplied is to be used as a guide only. For exact information please consult a lawyer or notary in your area, and seek advice from foreigners who have been living in Bali for some time. There are exceptions on the information here supplied, depending on the area of Indonesia; rules in Bali and Jakarta are different. There are “decrees” with exemptions. In general one can conclude that there many unclear areas in the Indonesian law, but it is generally safe to acquire properties.
Can a foreign person or other foreign entity legally purchase property in Indonesia?
The Indonesian government issued Law 5 of 1960 on the “Basic Regulation Of Land in Indonesia” (“UU 5/1960”), which came into force on 24 September 1960. This law explicitly and implicitly revoked many older laws. As a result, it can be said that UU 5/1960 established revolutionary new rules and principles concerning rights in land. UU 5/1960 recognized and regulated several rights over land and houses, including:
- Right of Ownership (Hak Milik), commonly (and somewhat mistakenly) referred to as “Freehold”
- Right to Cultivate (Hak Guna Usaha)
- Right of Building (Hak Guna Bangunan), commonly referred to as “HGB”
- Right of Use (Hak Pakai)
- Right of Building Lease (Hak Sewa Atas Bangunan), commonly referred to as Hak Sewa or “Leasehold”
Right of Ownership may be had only by Indonesian citizens.
The Right to Cultivate is the right to cultivate State-owned land or to use it for other agricultural purposes for a certain period of time. There are two kinds of Right to Cultivate: for farming enterprises that are smaller than 25 hectares and for enterprises that are 25 hectares or more. Government Regulation 40 of 1996 on the Right to Cultivate, Right of Building, and Right of Use (“PP 40/1997”) states that the period for Right to Cultivate is not to exceed 35 years initially but can be extended for another 25 years. When the extension period expires, the Right To Cultivate shall be renewed over the same land. The Right to Cultivate may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.
Right of Building (HGB) is a right over land, either State-owned or private, with which the holder may erect and possess buildings for a certain period of time not to exceed thirty years (can be extended for another twenty years). When the extension period expires, Right of Building shall be renewed. There are no limitations on the size of the holding. Right of Building may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.
Right of Use (Hak Pakai) is a right over land, either State-owned or private, which gives the holder the right to use and obtain the product of a certain piece of land. The land to which Right of Use is applied may be used as a building site or for agricultural purposes. PP 40/1997 states that the initial period for Right of Use is not to exceed 25 years but can be extended for another twenty years or even indefinitely if the land is still in use for a certain reason.
Right of Use may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia. Currently it is easy for foreigners in Bali to obtain the right of use.
Right of Building Lease (Hak Sewa/Leasehold) is a right to lease land, either State-owned or private, which gives the holder the right to use the land in return for compensation. The payment could be one-time or periodical as determined by mutual understanding between the parties.
Right of Building Lease may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia.
Renewal of rights (HGB and Hak Pakai) on expiry of the initial term is via an application to the National Land Agency and is subject to payment of a fee. An application must be submitted one year before expiry of the term. Although the law is silent in regard to the period after the expiry of the extended terms, the consensus is that a land right can be extended if there has been no infringement of the conditions attached to its usage.
Pipil is land owned by Balinese families by in heritage and never has been formally registered with the Land Registration office. Before acquiring this type of land it has to registered. This takes usually 4 to 6 months.
Procedures for Property Acquisition. All transactions of land rights must be via deeds executed before a land deed official at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located and must be registered in the regional office of the National Land Agency. The PPATs are privately managed offices (usually run by a notary) authorized by the National Land Agency to handle land acquisition matters. Although there is no regulation that contracts have to be in Indonesian language, it is recommended having contracts and agreements always drawn up and executed in Bahasa Indonesia (or two languages) to prevent later arguments that the local partner did not fully understand the content.
Hak Pakai for foreign investors:
How Foreigners Can Acquire What We Like to Call “Freehold” without violating the Law?
Since March 2004 in effect in Bali:
The government offers foreign investors land rights that are relevant to the nature of their business. Prospective buyers of land for any purpose should consult the local government authorities on land use, planning and zoning. Based on a Presidential Decree issued in June 1996, foreigners domiciled in Indonesia are allowed to own one residential property. To meet the regulations of ownership of a house or an apartment, a foreigner must be deemed to be “beneficial to national development” and must be either:
- An Indonesian resident (domiciled permanently in Indonesia) in possession of a permanent resident permit
- A non-resident (domiciled in Indonesia only at particular times) in possession of appropriate visit and immigration stamps in his/her passport.
Hak Pakai “ownership’ is structured in 80 year use-rights terms; 50 years are granted upon handover and an option to extend for 30 years is offered for a small administrative fee provided that the foreigner remains an Indonesian resident or meets the status requirements. In the 79th year of ownership, the foreigner can re-apply for an additional 80 year term. If the foreigner departs from Indonesia, the property must be sold or transferred within one year after departure. If the foreigner or his family does not use the house for more than 12 consecutive years, then the foreigner forfeits the “being domiciled” status, for the purpose of owning residential property.
An Indonesian citizen or a foreigner can acquire property that is marketed as “Freehold” and own it under a Limited Liability Company structure. (See the Right of Building description above.) The position of the current administration has consistently favored the creation of legitimate PT/PMAs for individual foreign investment in real estate or commercial industry.
Contact Patrick on +628179733031/[email protected] to learn more about any of the topics above.