5 Terms of Foreigners Can Buy Property in Indonesia
Foreigners also have the right to purchase property in Indonesia, it is stated in the regulation of foreign property ownership of Government Regulation No. 103 issued last December 2015. Can foreigners buy property in Indonesia? Indeed, not all foreigners are allowed to purchase domestic property, there are several conditions that must be met, and here are some requirements that must be met by foreigners to be able to buy property in Indonesia:
Terms of Property Ownership by Foreigners
- Only Buy Property With “Rights of Use” Certificate, Sertifikat Hak Pakai.
- Have Kitas
- Only Houses and apartments Property Price above Rp 5 billion
- Married With Indonesian People
Only Buy Property With “Rights of Use” Certificate, Sertifikat Hak Pakai
For foreigners who want to buy propeties in Indonesia, the government only allows them to purchase property with a Right to Use Certificate. This certificate can be extended for 30 years, then extended again to 20 years and renewed for 30 years. So a total of a foreigner can stay in a property that he bought could reach 80 years. Not only that, properties purchased by foreigners can also be inherited.
Based on Government Regulation No. 103 article 2 paragraph 2 it is mentioned that foreigners who are allowed to purchase property in Indonesia must have a residence permit and settle in Indonesia issued by the Ministry of Justice and Ham. This residence permit, commonly referred to as KITAS (Limited Stay Permit Card), to obtain this Kitas a foreigner must work first in Indonesia and this card must be extended for 2 years. From this rule can also be understood that foreigners who want to buy property must work first in Indonesia, so their motivation to buy property is not to be invested but to live.
Only Houses and apartments
Not all types of properties can be purchased by foreigners, which are allowed only home footprint and apartments. This can be seen clearly in Government Regulation No. 103 article 1, paragraphs 2 and 3.
Property Price above Rp 5 billion
The government provides price limits for foreigners who want to buy shelter in Indonesia, with a standard price above Rp 5 billion. This is deliberately done in order to prevent foreigners from buying houses at low prices, so that low-income people can be protected.
Married With Indonesian People
The final requirement for foreigners who want to buy property in Indonesia is to marry Indonesians, so every foreign citizen can have the opportunity to become an Indonesian citizen. In addition, every foreign citizen is also required to include the purchased property into the Preparation Agreement Letter, since property purchased by a foreigner will be a joint property with a spouse.
How to purchase property in Bali
Indonesian law places restrictions on the ability of foreigners to purchase property in Bali. These laws aim to keep ownership within Indonesia and protect the country’s booming economy. But it takes more than a few laws to ward off the entrepreneurial kind and a little further digging uncovers some completely legitimate methods to acquire property.
The Indonesian government recognizes various rights concerning real estate, the three most relevant being:
- The Right to Use (Hak Pakai)
- The Right to Build (Hak Guna Bangunan)
- The Right to Own (Hak Milik)
As long as the property is not part of government subsidized housing, foreigners are allowed to invest in commercial and residential real estate or property as an investment. However, because non-Indonesians may not actually own property (Hak Milik) under Indonesian law without the help of a nominee or under a foreign investment company structure, the most common way foreigners buy property in Bali is to have a leasehold agreement under the title of Hak Pakai (Right to Use). The land titles Hak Milik (Right to Own) and Hak guna Bangunan (Right to Build) are certainly more advantageous, but these are not available to foreigners on their own
Various ways foreigners can purchase their dream investment property in Bali
1) A leasehold investment (long term renting)
This is a long-term lease contract. Although the land title is not under the foreigner’s name and remains under the ownership of the original owner, the land can be rented for an initial period of around 25 years and can then be extended up to a period of 70 years. After the lease begins, the owner’s title of Hak Milik (Right to Own) will be legally transferred to the foreigner under the Hak Pakai title (Right to Use).
Under the lease contract the property is able to be sub-leased (rented out to other people). This is how many foreigners turn a leasehold property into a lucrative investment and source of passive income. For most investors, the beauty of a lease is that their focus is immediate cash flow and a passive income, allowing freedom from the burden of watching market conditions as the actual value of the property is of no huge concern. In a low market there will be an increased number of long-term renters, and in a high market when everyone is purchasing, there is still the benefit of short-term holiday rentals.
If the leasehold is not renewed once it expires, all rights go back to the original owner and it becomes a freehold Hak Milik property again.
2) A leasehold – mortgage investment structure
The most common method for a foreigner to acquire and control land in Indonesia is a combination of the above lease agreement and a first registered mortgage over the property, together with various ancillary documents.
This security structure is a system of contractual agreements between the foreign investor and the Hak Milik land owner (often a business partner of the foreign investor) which grants leasehold occupation and mortgage security rights to the foreigner over the property for the terms of the lease and mortgage. The system of documents consists of:
(a) Deed of Lease in Notarial Form executed before an Indonesian Notary in the Indonesian language. The leasehold interest is an unregistered interest in the land so the foreigner’s leasehold rights do not appear on the Hak Milik certificate of title as an encumbrance. However, the unregistered leasehold interest of the foreigner is a strong, secure and enforceable right of occupation will take priority over subsequent encumbrances on the Hak Milik title. While the actual term of a lease is not regulated under Indonesian law, Notaries in Bali will generally grant leases to foreigners in terms of 25 years so that the lease term accords with the government decreed 25 year term of the Hak Pakai title available to an eligible foreigner as a registered interest in Hak Milik land.
(b) Notarial Loan Agreement and First Registered Mortgage: as the Notarial Deed of Lease is an unregistrable interest in the land (so the interest will not appear as an encumbrance of the Hak Milik Title) in order for the foreign investor to lawfully retain the original freehold certificate of title as against the Indonesian Hak Milik owner (being the Indonesian business partner) and also prohibit the Indonesian business partner dealing in a transfer of the title, the foreign investor may be registered as a first ranking mortgagee of the property. The principal amount of the loan is often the acquisition value of the property funded by the foreign investor as lender.
(c) Business Partner Agreement and Irrevocable Power of Attorney: this deed regulates the rights and obligations of the foreign investor and the Indonesian business partner. The power of attorney is back up protection which can be used in limited circumstances for the foreign investor to transact the property without the involvement of the Indonesian business partner. Advice should be taken on the circumstances in which the power of attorney can be implemented.
(b) Testamentary Wills: the Indonesian business partner may devise the Freehold land by way of testamentary will to the foreign investor who must re-transfer the land to an eligible Indonesian within one year. The foreigners interests in the property, primarily long term lease and the mortgage, can also be left by way of Indonesian Will to the beneficiaries of the foreigner.
Only an Indonesian citizen can own a freehold title, which is the highest right of ownership. A freehold title may be passed on from one Indonesian citizen to another.
As a foreigner, you are unable to acquire a Freehold title. Therefore the most common method used by dreamy ‘pendatangs’ wanting to acquire Freehold titles was to use a local person, or a nominee, The title deed would be purchased under the name of the nominee, and through a series of back-up agreements, the nominee would then give the foreigner full right to utilize the land, and waive his own rights through a power of attorney.
However this construction has many loopholes and insecure aspects, not to mention negative effects which strains the relationship between the foreigner and nominee. For example, if the nominee dies and his heirs decide they want to use the land themselves or ask for money from the foreigner, they can ultimately do so.
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