Indonesian Ownership Laws
Owning Property in Bali
Please note that the information here supplied is to be used as a guide only. For exact information please consult a lawyer or notary familiar with Indonesian (ownership) law. 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 it is generally safe for foreigners to acquire properties, if arranged the right way. Just look at the large number of foreigners living in Indonesia (Bali).
Nameholder Construction, honored but obsolete
One of the most used ownership structures for foreigners, necessary because foreigners can not own freehold property in Indonesia, has been the so called "nameholder construction"; an Indonesian national "holds" the freehold property for the foreigner while the foreigner can use the property as if they own it out right with all the obligations that come with owning freehold property. De Indonesian national is rewarded for this service. Today, still a lot of those ownership contructions are in place and honored. In the last years however, notaries are advising against these arrangements.
Long Term Lease is the way
Leasehold is the ownership structure that is used mostly now. It is easy and safe. This legal arrangement can be issued (with renewals) for up to 100 years. The lease can be sold, selling after 25 years f.i. allows the lease holder to make a good profit.
There are alternatives to freehold or leasehold. One of those alternatives is Hak Pakai, right of use. See our Hak Pakai page.
Ownership for companies
Property can also be owned by a company and foreigners can establish a company in Indonesia. The scope of the company determines the percentage of ownership a foreigner can own of this company. Some company types allow a full 100% foreign ownership, others only allow a shared Indonesian / foreign ownership. Simply raising a company to own property for residential purposes is not allowed however.
The most common way how to acquire a property in Bali is via PT PMA (Foreign Investment Limited Liability Company) the only form of company ownership open to non-Indonesian nationals. Get the right certificate The legislation dealing with real estate recognizes several documents that regulate the rights of their holder. Those that a foreign individual could take advantages from include: Hak Guna Bangunan – Right to Build Hak Guna Bangunan (HGB) certificate entitles its holder to build property on land that it is issued for. It is valid for 30 years and can be extended afterwards for another 20 that gives in total a 50-year-long period during which the property built on the land is at your disposal. Upon its expiration, the holder can re-apply for a new certificate once again under the same conditions. In addition, HGB certificate is recognized by banks and the property it is related to can be used for a mortgage and other securitization purposes. The holder of HGB is free to sell or exchange the property and if bought by an Indonesian citizen, he or she may convert it to full ownership (Hak Milik) as well.
The Right to Build is granted by the National Land Agency (BPN) and a foreign national can apply via ownership of PT PMA or if he or she is in possession of a valid stay permit (KITAS or KITAP). This is the most common and recommended way of how to build one’s own piece of property in Bali.
Hak Pakai – Right to Use Hak Pakai (HP) is a form of a long-term lease. Foreign national can use the HP land certificate for the purpose(s) both parties agree on. The title is granted for an initial period of 25 years with possible extensions that do not exceed 80 years in total. Companies with demand on a piece of land usually used this certificate for manufacturing activities. Further, international organizations this advantage for social, religious and other events. You cannot, however, deal with banks or other financial institution as there are no other rights besides the right to use the land and/or facilities connected with this certificate. HP can be granted to a foreign citizen by a local individual or the government.
An owner of a foreign-owned company, PT PMA, or a residency permit holder (KITAS or KITAP) may apply. Hak Guna Usaha – Right of Cultivation Hak Guna Usaha (HGU) allows its holder to use a piece of land for agricultural and farming purposes. The title is valid for 25 years and you can extend the title for another 35 years. Establish PT PMA company will enable you to exploit this right. Hak Milik Atas Satuan Rumah Susun – Right of Strata Title This relatively new government regulation allows foreigners to own a unit, an apartment or office, in a multiple story building without being the owner of the land the property is built on. The validity of the title may vary depending on the land the property stands on. Please note that there are other forms of ownership such as Hak Milik (Right of Full Ownership), Hak Sewa(Right to Lease) and Hak Pengelolaan (Right of Management) that cannot be currently obtained by foreigners. Purchasing through a local nominee After living in Bali for a while and being acquainted with many locals, some expatriates decide to buy a property with the help of one of their new friends. Purchasing a property in the name of an Indonesian citizen is, however, risky.
Even though the foreigner would sign an agreement with the local nominee, such document has no legal force and the only owner remains the person with Indonesian citizenship. If such a lawsuit gets to a court, Indonesian litigant’s full ownership would be confirmed. Otherwise,the government will seize the land due to illegal contract signing on behalf of a foreign citizen. Purchasing as a PT PMA or as an individual In addition to the information mentioned above, a foreigner can acquire land or property in Bali even without establishing a PT PMA. However, there is a requirement that he or she is a holder of a valid residence permit (KITAS or KITAP). And, one KITAS/KITAP holder can only own one property. Basically, the permanent residents in Bali can purchase property or land for residential purposes only. It is subject to a minimum value in Bali; 3 billion IDR (225,000 USD) for a landed house and 2 billion IDR (150,000 USD) for an apartment. For other parts of Indonesia, you will need to check the minimum value set by the Ministry of Agrarian Affairs regarding your location of choice. Nevertheless, if one is about to buy property for investment or business purposes then establishing PT PMA is inevitable.
Property Holding Company: The Quick Option Other than establishing a PT PMA for investment or business purposes, which may take up to three months for the whole establishment process to be completed, foreigner can opt for a quicker option through what is called a property holding company. A property holding company comes in the form of a ready-made company, also known by its popular name shelf company, that offers foreign investors to purchase a land or a property in Bali, or anywhere else in Indonesia, within one week’s time. After purchase, the company can be used for holding as well as for business activities or future sell (a selling company owning a real estate can enjoy tax benefits). As such, a property holding company becomes the safe and fast tool to purchase a real estate in Bali. Risks when purchasing property in Bali Anyone trying to buy property in Bali will most likely feel overwhelmed by the volume of regulations and enormous bureaucracy. It might be difficult to keep yourself independently up to date with all the requirements.
Therefore, you will need professional assistance from a consulting company, contact us. So what are the common mistakes during the process of purchasing a piece of property that can place your investment at risk? Burdened by an ongoing lawsuit One of the most important steps is to undertake proper due diligence.
Should you need further legal advise you may contact us for notary advise, research before making any financial commitment. To buy property without its background check is always a risk. You should be sure that it does not have an ongoing lawsuit, unpaid taxes or other issues. Untrustworthy local partner Relying on untrustworthy nominee can turn purchase of your dream property into a nightmare. It is wise to consider the involvement of a local person very carefully.
Confiscation: Becoming the owner of property in Bali, you must not stay out of the country for more than one year. In the opposite case, the government has the right to confiscate your property without any compensation. No prenuptial or post-nuptial agreement (if married to a local) A foreigner who is about to marry or who is already engaged with an Indonesian citizen should draw up a prenuptial or post-nuptial agreement in order to divide his or her and the spouse’s assets. Failure to provide the agreement may result in seizure of conjugal property by the government. Wrong property right The foreigners in mix marriages do not always realize that the only legal owner with Hak Milik, Right of ownership, can be the Indonesian wife or husband since foreigners must not own properties even after entering wedlock. This issue may arise if the marriage ends in divorce.
Buying a Property in Bali in a Nutshell
Buying property in Bali could be a great decision and lucrative investment if approached correctly. That is why you should always seek professional legal assistance to avoid any disappointment or frustration.