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Introduction

The subject of property ownership in Indonesia is much debated and one of the few clear facts that should be remembered at all times is that only Indonesian citizens may currently own freehold land. Companies, whether Indonesian, foreign or joint venture, or foreign individuals can only enter into what international investors would generally refer to as lease agreements.

The three major methods of purchase available to a non-Indonesian

As stated in the introductory paragraph, only Indonesian individuals may hold freehold land. However, all improvements upon land can be owned by non-Indonesians, i.e. houses, trees, structures of all types and excavations such as swimming pools, so long as they are deemed “movables”.

Method 1: Utilization of an individual Indonesian nominee

The most common method utilized to “acquire” land in Bali is to do so in the name of an Indonesian individual, i.e. to use and Indonesian nominee to purchase the property. There are always risks inherent with purchasing property through a third party, but this method has been used for many years and a clear process has now evolved with legal precedents being established.

Once the appropriate site has been selected, the nominated Indonesian purchases the freehold land from the previous owner. It is always important to have a change in ownership from one individual to another, registered on the land title deed. We strongly recommend that the original landowner does not become the foreigner’s nominated individual, as there is no clear transition of ownership. Where this has occurred previously, families have successfully contested that a transfer never took place.

Simultaneously to acquiring the land, the Indonesian individual completes three additional agreements with the foreigner:

A loan agreement acknowledging that the foreigner has lent to the Indonesian citizen the purchase price of the land. This is then registered on the land exactly the same as a first mortgage or caveat. This is then noted on both the title at the Land Department and the copy held by the owner.

Secondly, an irrevocable power of attorney is signed giving the foreigner complete authority to sell, mortgage, lease or otherwise deal in the land.

Finally, a permanent right of use agreement is completed, giving the foreigner rights to use and occupy the land.

Method 2: Utilization of a PMA Company

Some foreign investors may find the above method unacceptable due to the third party ownership. Certain publicly quoted companies, trusts or multi-nationals may be precluded from third party ownership by their memorandum and articles, shareholder agreements or trust deed regulations. Those parties looking to purchase a large site and subsequently divide the site into smaller parcels that are individually sold may also wish to utilize a PMA Company.

The non-Indonesian investor can effectively control 100% of the shares in a PMA but should bear in mind that only the HGB form of title is available, which is valid for 30 years and a further extension of 20 years and then another 30 years (for a total of 80 years).

Please bear in mind that all PMA entities are highly regulated and must submit semi-annual comprehensive reports on the status of the company including payment of taxes, all assets acquisitions and changes in ownership to BKPM, the central administering authority for PMA companies in Indonesia.

Method 3: Leasehold title granted to a foreign individual domiciled in Indonesia (“GR41”)

A foreign individual domiciled in Indonesia, satisfying a number of conditions and holding a KITAS working visa can enter into a 25 year lease renewable for a further 25 years.

The Role of an Indonesian Notaris

All land transactions must be completed at the offices of an Indonesian Notaris, who fulfils a combined role, similar to a Western Notary Public and a land registration official. The quality and ethics of these officials in Indonesia can be variable and we would always suggest that an Indonesian lawyer be asked to provide a recommendation. Normal lawyers cannot complete property transactions. The Notaris is under no obligation to advise or protect the buyers or the sellers interest. Each Notaris has authority in specific jurisdiction/region and can only register documentation in the particular region.

Other issues that need to be considered at the time of purchases

Having determined which method you are going to utilize to acquire your land or property, prior to parting with any money, several details need to be investigated and confirmed. Do not part with a deposit, even if the land you are looking at, is according to the broker or owner “in high demand and likely to be sold to somebody else tomorrow if you do not immediately commit today and pay a 10% deposit”. This is never usually the case and we suggest you use a reputable law firm to assist in several areas, prior to exchange of funds.

Real estate firms in Indonesia have no code of conduct regulations that are common to more developed countries and the old principle of “buyer beware” truly applies. They are under no obligation to guarantee the accuracy of the title of to provide you with any advice to protect your interests.