Indonesian Property Ownership Options for Foreigners

[Chiron]

I'm starting a thread on the topic of Indonesian property ownership by foreigners, that I'm sure has been discussed in various contexts. Please pardon me in advance if some of this is repetitive. In any case, here's the scenario:

I'm a foreigner (WNA) from the US, and my wife is still an Indonesian citizen (WNI) and holding an Indonesian passport. Over the years we've talked about retiring in Indonesia, and after some lengthy consideration I have agreed to consider moving to her hometown in Central Java, or to Bali (which is preferable to me, and acceptable to her). The plan would be for me to go through the spousal KITAS process, and I'd probably want to someday end up with a KITAP - that's another topic which has been covered in detail elsewhere on this forum.

So for sake of argument, let's assume we end up deciding to live in Bali. Now we have to decide whether to rent or purchase a property. Both of us prefer the purchase option, especially my wife. The deal breaker for me between these two options is making sure both of us are legal owners of any property. So after a considerable amount of research from various sources, I've come to find out that if a property is certified as Hak Milik (HM), I (as a WNA) cannot be on the title. As I understand it, there are only two options:

1. Find an Indonesian citizen who would essentially have their name on the title, and through an Indonesian notary assign all legal rights of use and ultimately sale of the property to my wife and I. Ironically, my wife who is a WNI cannot be this citizen, since she married a WNA - namely me. I realize there's a whole prenup, postnup, and other means to possibly work around that, but at the end of the day my name is not on the title with either of these routes. If I really had to, the preference would be my wife doing some sort of postnup thing, but I would never feel comfortable with some third party in the mix - regardless of who they are. The big drawback in this case, is that she's the sole owner. What would I do if she departed the earth before me??

2. There's apparently a recent updated law related to Hak Guna Bangunan (HGB), that would allow both of our names on the title. This has been discussed a bit elsewhere on the forum, but wanted to elaborate more. From all my interactions with my wife's Indonesian family members, HGB is quite undesirable. They in fact had a business that had an HGB certificate, and the government basically came in and reclaimed the land and relocated all of the businesses who were on this property. It turned out to be a very bad deal. I also have a nephew-in-law who bought a relatively inexpensive HGB property, and spent almost a year to convert this to an HM property - and it almost didn't get approved. For him, it was a make or break situation, as it was part of an investment strategy. Without the HM, this property was, in his words, almost worthless. All that said, I think the new laws related to foreigners and HGBs are probably more beneficial than a long term lease or renting. At least the money you sink into your home situation can hold it's value and be sold in some form if need be later on.

With regards to the second option on HGB, there's some things I'm not completely clear on. From another post on this forum, it appears possible to convert an HM property to HGB. So let's say I find a decent home that I can afford in Bali, that has an HM certificate. Would I approach the owner and say: "could we convert your HM to HGB, so I can legally buy the house?". Then let's further assume I live in this place for five years and decide to move. Based on everything I've learned, this property may have to be greatly discounted because it's an HGB. Would I have to go through the apparently difficult process of getting it converted back to an HM (as I understand that this is possible in the new law). If so, when does that happen? As long as my name is on the title, it would have to be HGB. Do I make a deal with my prospective buyer to agree in contract for the conversion? This part of going back to the HM is not really clear. Hoping someone may shed some light here.

Additionally, there appears to be other stipulations on this new HGB foreign ownership law. The property can't exceed 600m2, and it has to exceed a certain value in rupiah to be allowed. In Bali, I've read on the web that it has to be 3 billion rupiah. I think the value in Central Java is 1 billion, but that's not clear to me. The website I read mentioned Yogyakarta being 3 billion, but all others 1 billion. Finally, there may be some sort of "luxury tax" assessed (oh joy...). There may be other stipulations, and forgive me if I've left them out.

After all is said and done, it seems easier to just go to Bali and find a rental property. That said, if there is a way to pursue the new HGB ruling, I don't mind putting in a bit of effort to make that happen.

Any comments on this are welcome. If there's been updates to these laws, please pass them along if you aware.

Thanks!

 

[scouser59]

you are aware of the illegality of nominee agreements as voiced by the minister march 2015,

It is absolutely not allowed for [a] foreigner to own a single inch of land in Indonesia. This is as stipulated by the National Constitution,” the minister told reporters in early March. He went on to highlight that the survey and inventorying of land ‘owned’ by foreigners must be conducted to verify that there is no land in Indonesia controlled by outsiders.

It is a risk .
[h=3]Foreign Property Ownership Under the Magnifying Glass in Indonesia ...[/h]indonesiaexpat.biz/.../foreign-property-ownership-under-the-magnifying-glass-in-ind...

 

[dafluff]

Unfortunately for foreigners (WNA) there are no good options for owning property. Please forget about using another Indonesian as a nominee, as this practice is fraught with problems, and there are many horror stories.

Hak Guna Bangunan or HGB is not possible for individual WNA either, only for a foreign investment company (PT-PMA). The company holds the deed in the company's name.

For individual WNA, Hak Pakai is the title that is available. There are not many Hak Pakai titles available (literally close to none for residential plots), unless you are buying from another Expat who has converted a Hak Milik down to Hak Pakai.

So in practice what you will do is buy a Hak Milik/HGB title, then at the notary process a "Penurunan Hak" (reduction of rights). The process on your end is no different than a regular purchase, as the notary will handle the penurunan hak.

Now on the other side when you sell the land to a WNI, they can apply for a "Peningkatan Hak" (increase of rights). The current regulation states the maximum land size for this is 600m2. The regulation is only a Ministerial Decree (Permen), dated from 1998. Keep this in mind, because Ministerial Decrees are easy to change.

Now for you to consider: Since you will most likely find a freehold title, and you are reducing the rights, you will have to buy the property from the current WNI owner at full price. From their perspective, they are selling a freehold land. So your cost would be equivalent to buying freehold.

My recommendation is just to lease a piece of land for a long time (~30 years or so is common). In Bali the difference in price right now between a 30 year lease villa and an identical hak milik villa is a 60-70% discount. Buy something nice for the wife with the difference.

My second preference would be to get a post-nup, then have the property in your wife's name, and you have a 30 year lease from her. If God forbid, she passes before you, then her heir will have to respect the remaining lease you have. If you are the heir, then you will have 1 year to sell the hak milik title.

 

[Chiron]

My recommendation is just to lease a piece of land for a long time (~30 years or so is common). In Bali the difference in price right now between a 30 year lease villa and an identical hak milik villa is a 60-70% discount. Buy something nice for the wife with the difference.

My second preference would be to get a post-nup, then have the property in your wife's name, and you have a 30 year lease from her. If God forbid, she passes before you, then her heir will have to respect the remaining lease you have. If you are the heir, then you will have 1 year to sell the hak milik title.

Thanks to both you and scouser59 for this timely information. I wasn't aware of recent government activity, and am certainly happy I've inquired about it here. I get the feeling from your responses, that wisdom is speaking and I should adjust my decision making process accordingly.

In the two preferences noted, I think first one may end out being the more economically feasible path. In all my research, I've done some comparisons of yearly rent versus one of these long term leases. If you have the money upfront, you certainly can get a much nicer place - assuming you stay for the full 30, 20, or whatever year lease term it is. I'll have to look into the details of these leaseholds. I'm guessing you have to ability to re-sell a partial lease out on the market, if for some reason you had to leave before the term was up. I can only imagine there's wise and unwise things you can do with regard to leaseholds as well. If I hand over $100K for a 30 year lease, I would want to have at least some certainty I could count on living there without disruption. As well, have some sort of exit plan with at least part of the funds back in the bank.

Thanks again!

 

[PhilippeD]

I'm a little bit out with the terminology of form of leasing a land.

In another life (another forum) I had a long conversation with someone arguing foreign can "own" a land.

In fact it's a long term lease (25 year) that you can buy and sold plus or less as same as a HM. Also it is easily convertible (for an Indonesian) into an HM.

Strangely it is widely unknown from most people.

the drawback: you need to sell every 25 year and buy something else.

 

[dafluff]

I'll have to look into the details of these leaseholds. I'm guessing you have to ability to re-sell a partial lease out on the market, if for some reason you had to leave before the term was up. I can only imagine there's wise and unwise things you can do with regard to leaseholds as well. If I hand over $100K for a 30 year lease, I would want to have at least some certainty I could count on living there without disruption. As well, have some sort of exit plan with at least part of the funds back in the bank.

Thanks again!

You can make many stipulations within the lease, including the right to resell the remaining years on the lease, of course.

One thing to look out for: If you buy a leased villa from someone, insist on inspecting the rights that the seller has over the land. There has been cases for example, where a seller has a 25-year lease, then turned around and made a 30 year lease with their buyer. The buyer failed to check what the rights of the seller was (only a 25-year lease).

 

[Davita]

You can make many stipulations within the lease, including the right to resell the remaining years on the lease, of course.

One thing to look out for: If you buy a leased villa from someone, insist on inspecting the rights that the seller has over the land. There has been cases for example, where a seller has a 25-year lease, then turned around and made a 30 year lease with their buyer. The buyer failed to check what the rights of the seller was (only a 25-year lease).

Good warning....dafluff

There are sometimes confusion over what a 'leasehold' in Indonesia means...

If purchased from an Indonesian Hak Milik owner privately it is really only buying into a long-term rental contract, and the conditions agreed and annotated in the contract drawn up by a notary.

Hak Pakai is a 'use right' and is registered with the land office in the area of the property, and is subject to law. Hak Pakai is more associated with what foreigners interpret as leasehold property in their own country.

 

[PhilippeD]

Chiron, you can read an old conversation I had with dafluff in another in this other forum.
The conversation start at aaround the post #60.

 

[Chiron]

Good warning....dafluff

There are sometimes confusion over what a 'leasehold' in Indonesia means...

If purchased from an Indonesian Hak Milik owner privately it is really only buying into a long-term rental contract, and the conditions agreed and annotated in the contract drawn up by a notary.

Hak Pakai is a 'use right' and is registered with the land office in the area of the property, and is subject to law. Hak Pakai is more associated with what foreigners interpret as leasehold property in their own country.

Yes, and I also second those thanks to dafluff! I would certainly be reading the contract language carefully, or having someone who's better than myself to check things out. In looking at all the listings online, I can't really get a feel for what is the real story. I really won't know until I get there. I'm not even sure that internet based listings are the best way to look. I may end up getting a short term rental (1 year or less), and just taking my sweet time looking for something longer term. I've seen a number of leasehold deals that are 5 year, 8 year, 15 year, etc. I'm guessing these are people trying to exit early for some reason. I might find some better deals this way, but would certainly need to even be that more diligent in reading the fine print and making sure the property doesn't have major issues.

 

[Chiron]

Chiron, you can read an old conversation I had with dafluff in another in this other forum.
The conversation start at aaround the post #60.

I looked at that thread, and it seemed to span quite a bit of time from the beginning to end. It was interesting but not always easy to follow. In any case, thanks for the share.

 

[Smallworld]

... In looking at all the listings online, I can't really get a feel for what is the real story. I really won't know until I get there. ..

I would rent out property for the time being and in the meantime look for any "promotions" in your desired area. The most crucial part is to know the areas, property market and prices you can get that from Internet, talking to satpam or owners of houses. If you want to find out more about property you will have to visit it and talk to the owner (I recommend) rather than talking to knowing-nearly-nothing property agent.

You have to be aware of things like local land sinking, flooding ...... and the most common thing (and my favourite) in Indonesia roof leakage.

I wouldn't be in rush. You may observe how some properties are on sale for the last 2-4 years, the same properties are put on/off the market every 3-6 months with the only change of the agent's name and price.

 

[Davita]

I've seen a number of leasehold deals that are 5 year, 8 year, 15 year, etc. I'm guessing these are people trying to exit early for some reason. I might find some better deals this way, but would certainly need to even be that more diligent in reading the fine print and making sure the property doesn't have major issues.

You are correct...usually it means that's what is left on the current lease and the 'owner' of that lease may be afraid of what will be the cost to re-lease or simply want to walk away and try to recoup something. This may be a good bargain if a reasonable new lease was available, guaranteed and cost-acceptable, if a longer term was needed...hati-hati.

 

[dafluff]

I may end up getting a short term rental (1 year or less), and just taking my sweet time looking for something longer term.

This is a darn good idea.

 

[centurion]

Your wife can buy the land/house as Hak Milik and give to you a Hak Pakai atas Hak Milik (right to use the land) on 30 years term. You will have uninterrupted right to live and your wife will have full title.
Additional to this If you want to be more secured that value of this land or part of it belongs to you after eventual divorce you can give your wife a loan for buying the land and install a mortgage (hak tanggungan) in your favor. No third party would buy a land with a mortgage and your hak pakai on it, it is too risky for the buyers and this will be your protection.

 

[Chiron]

Your wife can buy the land/house as Hak Milik and give to you a Hak Pakai atas Hak Milik (right to use the land) on 30 years term. You will have uninterrupted right to live and your wife will have full title.
Additional to this If you want to be more secured that value of this land or part of it belongs to you after eventual divorce you can give your wife a loan for buying the land and install a mortgage (hak tanggungan) in your favor. No third party would buy a land with a mortgage and your hak pakai on it, it is too risky for the buyers and this will be your protection.

Hi Centurion,

I'm guessing what is implied here is that we would have to go through the new post nuptial process (that I've been reading in another thread). Once we got the postnup, we could get the Hak Pakai atas Hak Milik. With everything you mentioned here, that should cover most situations. Thanks for this great suggestion.

 

[jstar]

This might sound a bit controversial, but a pre- and postnup can make it in fact more difficult for you as WNA if the sh!t hits the fan and if your marriage ends. There even have been divorce cases with law suits in which the WNA got assigned the property. The fact someone needs to sell within a year then, is only an inconvenience.

Something else; the biggest issue (next to a divorce of course) is selling the property. The buying process is not scrutinized. Of course you never know if the government would ever take future action to those couples who own properties without a marital agreement. Many people I know don't care and have gotten away with it (so far). Everybody does a different risk assessment I reckon.

 

[godmachine12]

Your wife can buy the land/house as Hak Milik and give to you a Hak Pakai atas Hak Milik (right to use the land) on 30 years term. You will have uninterrupted right to live and your wife will have full title.
Additional to this If you want to be more secured that value of this land or part of it belongs to you after eventual divorce you can give your wife a loan for buying the land and install a mortgage (hak tanggungan) in your favor. No third party would buy a land with a mortgage and your hak pakai on it, it is too risky for the buyers and this will be your protection.

You'll never be able to own land outright as a foreigner, but this is by far the most logical solution that I've read.

 

[godmachine12]

...... and the most common thing (and my favourite) in Indonesia roof leakage.

Nearly half a year in my new place and I've had mine patched twice already. Just never ends, does it?

 

[Nasigan]

Nearly half a year in my new place and I've had mine patched twice already. Just never ends, does it?

I am 9 years in my own build house and never have leakages, Indonesians like to build roofs with all kind of funny corners, bad materials and don't know how to do it.
I made a simple saddle roof (like an upside down V) with good quality roof tiles, never had problems.

 

[centurion]

Hi Centurion,

I'm guessing what is implied here is that we would have to go through the new post nuptial process (that I've been reading in another thread). Once we got the postnup, we could get the Hak Pakai atas Hak Milik. With everything you mentioned here, that should cover most situations. Thanks for this great suggestion.

Yes, you should make a postnup first with a notarial deed (some members mentioned that some notaries already do it) and registration in Catatan sipil (when it becomes possible and probably obligatory).
Take care to record the loan and the asset in your and your spouse annual tax report (SPT) so there is a financial origin of the property.
It is usual that loan receiver officially (they stipulate that in the loan/mortgage agreement) hand over the land certificates to the mortgage lender so it is not possible to sell the land. Landowner, however, theoretically can take a land certificate duplicate from the Land Agency, but this would already constitute a criminal offence.
Besides that, the mortgage can be removed only on lender`s request and you can put a provision that the land/house cannot be sold while the mortgage is on.
Indonesian law does not recognise bona fide buyer, so if somebody bought something (land, shares etc) and it was done illegally total reinstatement has to be
done (buyer has to give back the asset). The buyer even in he bought in good faith cannot keep the property. General limitation for legal claims is 30 years, probably the longest in the world, meaning you can sue somebody for something that happened 30 years ago!