How can foreigners acquire property in Bali?
Under Indonesia law foreigners are not permitted to have property title in Indonesia. However, foreign individuals can legally acquire property Indonesia and enjoy full beneficial rights by on the following methods.
Bellows are some conditions to acquire property in Indonesia:
- Enter into a legal arrangement with an Indonesian nominee, either an individual or PT company, whereby he/she/corporation hold title to the property simultaneously, complete a power of attorney, handing over full rights from the Indonesian entity to the foreign investor.
- Make a leasehold investment in the property, usually for 20-30 years partnership with Indonesian citizens is not required in leasehold transactions. This method does offer complete protection to foreigner during the term of lease, however, once the lease term has expired the agreement can be extended or the property reverts to the owner.
- Form a foreign investment company (PMA).here the foreigner can own the company 100% and the title of the property will be in the company name. However, PMA companies have to re-apply to Indonesian government to extend their license.
Based on the Basic Agrarian Law of 1960, we recognize several types of rights over Real Estate, as outlined below. However, only the following three main rights are relevant to foreign investor:
- Right of Exploitation ( Hak Guna Usaha )
- Right of Building ( Hak Guna Bangunan )
- Right of Use ( Hak Pakai )
These right all 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 Indonesia citizens
- Right of ownership (Hak Milik)
This is refers to absolute ownership of land and corresponds to a freehold title in common legal terms. This right can only be held by Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such us a state Bank, agricultural cooperatives, religious bodies, and social right of ownership is held perpetuity. It can be sold, transferred, bequeathed, and mortgaged.
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 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, 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 company.
If it PMA company need a land for factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.
This is the right of use over state-owned (crown Land) or Property owned by public or private persons/entities for a specific purpose for (generally) a finite period and occasionally for indefinite period. This land right may not be sold, exchanged or transferred unless explicitly stated in an agreement.
Hak pakai may be held by an Indonesian individual or entity, or foreigner permanently domiciled in Indonesia, a foreign legal entity with representative office in Indonesia such as foreign Banks, embassies, etc.
- Right of exploitation (Hak Guna Usaha)
This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for period of 35 years, which may be extended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individual/entities as well as
Government approve PMA companies, may be mortgaged.
Foreign investor who have obtained mining rights from the Minister of Mines and 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 operation of enterprise.
FOREIGN INVESTMENT COMPANY (PMA)
The most significant change in investment law came in 1997 when the government introduced the PMA (Penanaman Modal Asing or Foreign Investment Company Programme).This allows foreign investors to set up company in Indonesia, without having to have Indonesian partners. PMA companies are allowed to own the title of the property for period of 20 or 30 years, when the title has to be renewed by the Government.
To set a PMA company you will be required to:
- Submit a detailed business plan.
- Operate in business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit.
- Make an appropriate cash deposit in an Indonesian Bank. (The amount varies and is calculated from the capital employed in the business.
- Show the property investment as an asset of the company.
The process takes approximately 3 to 4 months and once completed the company can apply for work permits for foreigner directors, 3 permits in the first years of operation. The cost of setting up is between 30 to 40 million Indonesian Rupiah.
BUYING THE PROPERTY
Land parcels for sale in Bali into one of two categories:
- Pipil : Land that has been passed down through a local Balinese family but has never been formally registered with the Land Registry Office.
- Certificate: Land which has already been registered with the Land Registry Office. Only land which has registered can be sold.
That conversion of ‘pipil’ land into certified status is handled by qualified Notaris normaly takes 4-6 months. Once your chosen land has a certificate, a transaction can be completed within 1 day, however, with legal due diligence this process normally takes 1-2 weeks.
All land purchases in Indonesia must by witnessed in the presence of an officially appointed ‘notaris’ or lawyer. The standard contracts are written in Bahasa Indonesia language, however, house of Bali can arrange for translations upon request.
Step to take for Nominee Ownership
If an Indonesian acts as a nominee for a foreign investor, there are a number of contracts and other documents which must be prepared by and signed in front of a qualified notary.
These include but are not limited to,
- A Purchase Contract for the property, transferring the rights from the previous owner to the nominee.
- A Loan Agreement for the purchase between investor and the the nominee.
- An irrevocable and transferable Power of Attorney to sell, transfer or otherwise dispose of the property and to represent the nominee in any dispute regarding the property, given from the nominee to the investor.
- The nominee will also be asked to hand over all original land titles to the foreigner.
In essence, the Indonesian is owner in name only.
To the best of our knowledge, those who have utilized this type of purchase, when set up with a professional attorney and notaries have had no problems.
Qualifications for ownership
There has been no formal change in categories of persons who can hold Hak Pakai, which remain limited to:
- Legal bodies
- Government bodies
- Religious and social bodies
- Foreigners resident in Indonesia
- Foreign companies with representative offices in Indonesia
- Representatives of international organization
- Representatives (i.e. embassies and consulates) of foreign countries.
The fees for setting up a nominee system may vary from 1% to 2% of the value of the property.
Leasing of land does not require a nominee and is very easy. land is normally leased for 20 or 25 years with an option to extend.
The fact that it takes some time and expertise has curtailed large speculation of Balinese property keeping price at a small fraction of similar properties on major tourist islands around the world.
As more, and more foreigners discover that they can enjoy pleasure, and substantial profit by purchasing Bali real estate, prices will probably escalate more rapidly in the future.
