PROPERTY OWNERSHIP IN INDONESIA

Can Foreigners Own Property in Indonesia ?

The straight answer to this question has been in the past a clear NO. Up to now foreigners cannot OWN freehold property in Bali i.e. having their name on the official land title. These laws are changing, but until now (Year 2004) it has not yet been clearly defined by law WHICH foreigners (permanent residents, temporary residents with working or retirement visa, certain categories of visitors, etc) will qualify.

However, although foreigners probably will not be able to own "freehold" property (Hak Milik), several Government Regulations issued in 1996 allow foreigners to hold a "Hak Pakai" title (Right of Use) valid for 25 years with the possibility of another 25 years extension. The following "Regulations" are the official rules at this time:

Government Regulation No. 41 of 1996 (GR41/96) states that "foreigners resident in Indonesia" can hold a Hak Pakai title. This broad definition was clearer defined with the issue of "Regulations of the Minister for Agraria" No. 7 of 1996 (RMA 7/96): Article 1(1) states that "a foreigner whose presence in Indonesia gives opportunities for national development" may own a property under Hak Pakai, and Article 1(2) says such a foreigner is one who "has and maintains an economic interest in Indonesia by implementing an investment in the ownership of" that property. In a letter accompanying RMA 7/96 the Minister stated specifically that, according to this new concept, a foreigner will qualify for Hak Pakai even if he is in Indonesia only "from time to time".

In other words, the Minister says any foreigner who invests in and maintains a property in Indonesia is contributing to national development and therefore entitled to hold a Hak Pakai title – even if he is only an occasional visitor to Indonesia.

However, as the validity of a Hak Pakai title is limited to a certain period and it is not possible to mortgage a "Hak Pakai", this is not comparable to "freehold" or ownership in perpetuity. Holding a Hak Pakai offers the foreign investor protection for a certain period, but this title seems not well suited for long-term investment purposes.

How Do Most Foreign Investors Solve this Problem ?

In most cases an Indonesian citizen will hold the interest in the property as the nominee and on behalf of a foreigner, and the land title will be issued in the Indonesian's name. Whilst such arrangements are not strictly against the law, it is understood they are contrary to current government policy and the spirit of the law.

Using an Indonesian Nominee

If an Indonesian acts as nominee for a foreign investor there are a number of contracts and other documents which must be prepared by and signed in front of a qualified notary. These include the Purchase or Rental Contract for the property transferring the rights from the previous owner to the nominee; a Loan Agreement for the purchase/rental price between the investor and the nominee; and an irrevocable and transferable Power of Attorney to sell, transfer or otherwise dispose of the property and to represent the nominee in any dispute regarding the property, given from the nominee to the investor. The nominee will also be asked to hand over all original land titles to the foreign investor.

Using a PMA Company

Although most foreigners have found the above arrangement to work satisfactory without any problems (as long as all agreements have been properly executed in front of a qualified notary), some buyers prefer to have their property owned by a PMA (Penanaman Modal Asing = Foreign Investment) Company directly controlled by the foreign investor.

Since the investment deregulation package issued on May 19th, 1994 (Government Regulation No. PP-20/1994), a PMA Company can be 100% foreign owned. The foreign investment may comprise both debt and equity, but the BKPM (Badan Koordinasi Penanaman Modal under the Ministry of Investment in Jakarta) has a rule of thumb that the ratio of debt to equity should be no more than 3:1.

Before the establishment of a PMA Company an application has to be made to the Investment Coordination Board for approval of the company and its investment project. This approval is usually received after two or three months in the form of a 'Capital Investment Approval Letter', or 'Surat Pemberitahuan Pesetujuan Presiden' (SPPP).

Major disadvantages of using a PMA Company are that the property must be directly used for the approved project, and that a PMA Company - like any other corporate entity (Indonesian or foreign) - cannot hold a freehold title (Hak Milik). Whenever freehold land is transferred to a corporate entity the title is changed to 'HGB' which has to be renewed after 20 or 30 years (see "Property Law" for details).

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