Property Ownership

Legal PaperAll property matters, except for those pertaining to the mining and forestry sectors fall under the jurisdiction of the national land agency (Badan Pertanahan Nasional, or BPN for short), which was formed to administer all matters relating to the basic "Agrarian Law of 1960", such as the registration of the use of land. The Indonesian land legislation is based on the basic Agrarian law number 5 of 1960.

The Basic Agrarian Law recognizes several types of rights over Real Estate, all of which are outlined below. However, to the foreign investors, the following three main rights are relevant: 

  1. Land Cultivation Rights (Hak Guna Usaha HGU)
  2. Building Rights Title (Hak Guna Bangunan HGB)
  3. Right of Use on Land (Hak Pakai) as the most common one.

The said rights authorize the use of land. The differences lie in the duration of validity and nature of utilization and the opportunities for obtaining a mortgage. The right of ownership is an inheritable right that can be held only by Indonesian citizens.

Right of Ownership - FREEHOLD (Hak Milik)

This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as a state bank, agricultural cooperatives, religious bodies, and social right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and mortgaged.

Right to Rent (Hak Sewa)

This is the right to use, leasing land owned by another private party for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents.

The law does not stipulate a period for such lease agreements and whether this can be transferred or not depends on the original agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.

Right to Build (Hak Guna Bangunan)

Better known by its abbreviation, "H.G.B.", this is the right to construct a building/s on a plot of land for a period of 20 or 30 years, and which can be renewed on consideration of policy of the regional government. This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA (joint venture) company.

If a joint venture company needs a land for a factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.

Land Cultivation Rights (Hak Guna Usaha)

This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for a period of 35 years, which may be exended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individuals/entities as well as government approved PMA (foreign joint venture) companies, and may be mortgaged.

Foreign investors who have obtained mining rights from the Minister of Mines and Energy or exploitation rights from the Minister of Agriculture or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the enterprise.

Based on Presidential decree number 34 of 1992 concerning the use full of right of exploitation (HGU) and the right of building (HGB) for the joint venture company, stated that in the joint venture company that established on Indonesian Law and domiciled in Indonesia. Those HGU that kept by the joint venture company can be used as collateral and can be transferred after having permission by the Chairman of BPN.

Right of Use (Hak Pakai)

A question often asked is how foreigners can buy property in Indonesia;
"Can I as a foreigner buy properties in Indonesia, under my own name?"
The good news is YES, and answer is Right of Use (Hak Pakai) property ownership status, as summarized below.

The full details of Hak Pakai can be found in Presidential Decree No. 41 of 1996, which is the preferred referral document of many public notaries and one which is the reputable Public Notary, Evi Susanty Panjaitan, SH, who adds the following comment:

"Hak Pakai is the right of use over state-owned land or property owned by public or private person/entity for a specific purpose, for (generally) a finite period, explained further below, and occasionally for an indefinite period.

Hak Pakai can be sold, exchanged or transferred, under the specific period, explained further below.

Hak Pakai may be held by an Indonesian individual or entity (PT. Local), foreign individual, or a foreign legal entity (PT. PMA) with a representative office in Indonesia, e.g., foreign Banks, embassies, etc
Hak Pakai is not necessarily restricted to apply only to foreigners domiciled in Indonesia. 
The BPN/ Badan Pertanahan Negara (National Land Office) would only require the immigration (arrival) stamp proof on the foreign owner's passport."

For documentation purposes, while not domiciled in Indonesia, the foreign owner's address may be the address of the land/house to be purchased or another existing permanent residential address in Indonesia, excluding a hotels.

Properties under Hak Pakai status are mortgageable.

With the Hak Pakai a foreigner could be granted the right of use for a period of 90 years.

  • Right of Use initially will be granted by the government for 25 years and extendable for another 20 years, which then is renewable for the same period of time (another 25+20 years).
  • The fees involved (for the extension) will be 2% of the NJOP/ Nilai Jual Objek Pajak (Government's Land & Building Valuation), to be paid 2 years prior to the expiry date.

If a foreigner wishes to purchase vacant land a letter stating that the immediate construction of a building will be part of the investment has to accompany the Hak Pakai in order for it to comply with what constitutes to be legal documents.  Alternatively the land has to be leased out to under a long lease agreement should a building not be part of the land investment.

In short, while the said foreigner does not stay in Indonesia, the land property must be managed and/or be leased out for a long period of time.

What happens if a property with Hak Pakai status needs a villa rental permit (to be run as a rental villa)?
The only difference is the original NJOP/ Nilai Jual Objek Pajak (Government's Land & Building Valuation) will be adjusted to be close to the market transaction value.

Please be informed that, in Bali, the NJOP of a property is usually much less than the market transaction value. Nobody would be able to give a certain indication on how much less as the value really varies from one area to another.

 

NOTE: 
The above explanation is for information purposes only and NEL Bali Property recommends all clients to seek independent legal advise in Indonesia, with regards to the propose property purchase. Subsequent to the purchase, legal advise should be taken in the home jurisdiction of the purchasers with regards to the wills and successions planning for Indonesian properties.