Indonesian Property Laws and Your Right to Acquire Property in Indonesia
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 advise 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 Batam 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 the: Right of Ownership (Hak Milik), Right to Cultivate (Hak Guna Usaha), Right of Building (Hak Guna Bangunan), Right of Use (Hak Pakai), and Right of Building Lease (Hak Sewa Atas Bangunan).
Right of Ownership is the most comprehensive and complete form of individual rights over land. There is no time limit, and the holder has the right to use the land, including the earth underneath and the water and air above. It does not, however, include the right to obtain wealth from resources underneath the earth. 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 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 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 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.
Property Rights of Foreigners UU 5/1960 only allows foreigners to obtain Right of Use or Right of Building Lease. However, UU 5/1960 only provides very general information on how to obtain either of these rights, the maximum time period, or the legal assurances provided. As a result, many foreigners in Indonesia are not willing to engage in such transactions because they do not know the regulations or feel insecure with the regulations.
Renewal of rights 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.
Property Sales Tax. When property is sold there is tax to be paid by both the selling and the buying party. This is 5% for the buyer and 2.5% for the seller, over the amount that is on the sales contract. Please note that the amount on the sales contract can be different from the actual price agreed upon. The tax has to be paid to the notary handling the transaction. Project developers usually include all in their pricing schemes, but when negotiating please ask how sales tax will be handled. Many a foreigner got an unpleasant surprise after agreeing on a price and hearing of the extra tax.
Hak Pakai for foreign investors
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.
A foreigner can purchase or construct a house built only on land with the right of use (Hak Pakai), the right of use with the right of proprietorship, or the right of lease (Hak Sewa). An apartment can only be purchased by a foreigner on land with right of use (Hak Pakai). Foreigners are not, however allowed to purchase houses or apartments classified as “low cost housing” or “very low-cost housing”.
Ownership is limited to 25 years, and can be extended for another 25 years provided that the foreigner remains an Indonesian resident or meets the status requirements. 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.