What to Know When Purchasing Indonesian Real Estate as a Foreigner – Frequently Asked Questions

Introduction:

Since real estate rights in Indonesia are highly regulated for foreign citizens, buying real estate could be a confusing thing. In practice, the only real estate rights available to a foreign individual is the “Right of Use” (“Hak Pakai”), which is the right a foreigner gets when he or she “purchases” real estate in Indonesia. We put a purchase in quotation marks because the acquisition of Hak Pakai rights don’t truly constitute a purchase as it is understood in most markets; rather Hak Pakai rights are better understood as a lump sum payment for long-term, limited rights to Indonesian real-estate.

There are several rules and ownership criteria with respect to Hak Pakai rights that foreigners need to be aware of before moving forward with a transaction. We’ve summarized the key details around these rights in a table below (Table 1) that we have also shared in a previous post .

Question 1: What constitutes a valid residence permit?

The first requirement a foreigner must meet in order to purchase real estate in Indonesia is to have a local residence permit (“Izin Tinggal”). Valid residence permits include[1]:

• Diplomatic residence permit – Issued to foreign government diplomats.
• Official residence permit – Official permit often issued to foreign NGO staff or foreign government staff that are not diplomats.
• Visiting residence permit – A temporary visit pass for foreigners.
• Limited stay permit – Otherwise known as a KITAS, this is an extendible long-term resident permit (often tied to a work permit, marriage to an Indonesian citizen, retirement, etc.).
• Permanent residence permit – Otherwise known as a KITAP.

Hak Pakai rights are valid for as long as a foreigner has a valid residence permit; the rights expire if the residence permit is not renewed (most of the residence permits available to foreigners need to be extended every year and are subject to various terms and conditions depending on the type of the permit). In the event that a foreigner acquires Hak Pakai rights but then has his or her residence permit expire or become invalid, he or she will be required to relinquish or transfer his or her Hak Pakai rights to another party that is eligible to receive the transfer.

Question 2: What are the minimum purchase price regulations for foreigners buying real estate?

A foreigner buying real estate (via Hak Pakai) in Indonesia must ensure that the real estate is acquired at a price that conforms with the minimum purchase price regulations set by the government (see Table 2 below for the latest list).

Question 3: How long do Hak Pakai rights last?

Hak Pakai rights can last for as long as 80 years. The initial term is for 30 years which can be extended for another 20 years. After the first extension, a second extension can be obtained for an additional 30 years after which the rights must be surrendered or transferred.

Question 4: What legal documents are involved when a foreigner buying real estate in Indonesia, and what is the process?

• A sale purchase deed (“AJB”) that essentially outlines the terms of the transaction must be prepared between the buyer and seller.
• A land deed official, known in Indonesian as a Pejabat Pembuat Akta Tanah (“PPAT”), must be engaged to prepare the AJB.
• The PPAT must reside in the same area as where the asset that is being transacted upon is located
• After signing the AJB, the PPAT will ask the buyer and seller to provide proof that they have paid the taxes and levies required of each of them with respect to the transaction.
• The taxes which need to be paid include: Land and Building Acquisition Fees (“BPHTB”), VAT, PPh (Withholding tax)
• During the sale, the PPAT will also ensure that the Seller is current on his or her Land and Building Taxes (“PBB”), if these haven’t been paid the PPAT will require the Seller to clear these costs before moving forward with the transaction.
• Once taxes and fees are taken care of the PPAT will execute the transfer of title from the seller to the buyer (i.e. Changing the name on the certificate from the seller to the buyer) and register the transfer with the National Land Registry (“BPN”).
• Once the PPAT receives confirmation of the registration from the National Land Registry the revised land certificate will be handed over to the buyer.

Question 5: What are the important questions that the buyer (Foreigner) needs to ask the seller (Indonesian)?

• What type of rights does the seller have on the asset? Make sure to see the original official documents that grant the seller ownership of the land (Hak Milik)
• Are there any liens or mortgages on the asset? It is important to make sure that there are no competing claims on the assets.
• Is the seller married? If so, the partner of the seller needs to sign the AJB unless the seller has a prenuptial agreement with the partner giving the seller the sole rights to the asset.

Question 6: What structure does Permitindo recommend for foreigners who would like to purchase land in Indonesia?

1. In general, we recommend our clients acquire land assets through a locally owned entity that they can control (i.e. using a PT PMA as the vehicle to purchase the asset).

   • We recommend this structure because PT PMAs are able to secure HGB rights which are more expansive relative to Hak Pakai rights (read more about the various types of land rights here).

2. A PT PMA structure also provides the client with greater security because the client’s land rights are no longer contingent on him or her having a valid residence permit in Indonesia.

3. Another benefit to using a local entity is that local corporate entities can enter into various types of agreements with Indonesian real estate owners that foreign nationals are not privy to, including agreements that effectively give the entity full legal control over the real estate without having to secure official land rights.

   • For instance, a local entity (foreign buyer) could enter into a long-term lease agreement or cooperation agreement with an Indonesian national that would not entail the transfer of official land rights but would give the entity a fair degree of control over the asset for the term of the agreement including:

     • Collecting rent on the asset.

     • Mortgaging the asset.

     • Transferring the asset during the term of the agreement.

     • Issuing HGB and other land-rights certificates in the name of the original landowner.

We hope this article is informative and useful. We’ve tried to address many of the common questions we are asked, but if you still need any more information about buying real estate in Indonesia, or have any other questions that haven’t been addressed please do reach out to us using this link or via e-mail directly at anita@permitindo.com.

Notes:

[1] According to Government Regulation No. 103 in 2015

Photo by CHUTTERSNAP on Unsplash

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