The Different Type of Land Title
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds to a fee simple or freehold title in common law jurisdictions. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as State Banks, agricultural cooperatives, religious bodies, and social foundations may hold this right subject to certain restrictions. This right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and hypothecated (mortgaged).
Right to Build (Hak Guna Bangunan – HGB)
This is the right to construct a building on land for a period of 20 or 30 years (renewable for another term of 20 years). 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.
Right to Rent (Hak Sewa Bangunan)
This is the right to use land owned by another private party (the lessor) for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. 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.
This right may be held by a foreigner permanently domiciled in Indonesia or a foreign legal entity having a representative office in Indonesia. It cannot be mortgaged.
Right of Use ( Hak Pakai )
This is the right to use State-owned or other land by public or private persons or entities for a specific purpose for a definite period or occasionally for an indefinite period. This land right cannot be sold, exchanged or transferred unless explicitly provided in its grant or agreement and normally for a period not exceeding 10 years.
This right may be held by an Indonesian individual or entity or foreigner permanently domiciled in Indonesia, or a foreign legal entity with a representative office in Indonesia such as foreign banks, embassies, etc. Simple Explanation of Right of Use ( Hak Pakai )
Right of Exploitation (Hak Guna Usaha)
This is the right to exploit State-owned land for agriculture, fishery or husbandry purposes for a period of up to 35 years with a possible 25 years extension. This right can be held by Indonesian individuals/entities as well as government approved PMA companies. The certificate can be mortgaged.
Renewal Of Rights
Renewal or extension of rights on expiry of the initial term is via an application to the National Land Agency and is subject to payment of a fee. An application must be submitted one year before expiry of the term. Although the law is silent in regard to the period after the expiry of the extended term/s, the consensus is that a land right can be extended if there has been no infringement of the conditions attached to its usage.
Procedure For Property Acquisition
All transactions of land rights must be via deeds executed before a land deed official at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located and must be registered in the regional office of the National Land Agency. The PPATs are privately managed offices (usually run by a notary) authorized by the National Land Agency to handle land acquisition matters.
Although there is no regulation that contracts have to be in Indonesian language, we recommend having contracts and agreements always drawn up and executed in Bahasa Indonesia to prevent later arguments that the local partner did not fully understand the content.
The costs to convert an existing freehold land certificate (Hak Milik) to Hak Pakai (Right of use) are:
- BPN (Building Permit Office) Land Office approximately Rp.20.000.000 per 200 m 2 in the Badung area (in other regions we would have to submit an inquiry with the regional BPN office
- Notary fee: 1% of sale value ( real price)
- 5% of the Land Value (Buyer tax) – minimize price
- 5% of the Land Value (Seller tax) – minimize price
- BRE service for co-ordination of Hak Pakai: Rp.10.000.000
Foreign Investment Company (PMA)
The most significant change in Indonesian 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 a company in Indonesia, without having to have Indonesian partners; the PMA can be 100% owned by the foreign investor. PMA companies are allowed to own the title of the property for a period of 20 or 30 years, when the title has to be renewed by the Government.
To set up a PMA company you will be required to:
- Submit a detailed business plan
- Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit
- Make an appropriate cash deposit in an Indonesian based 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 the foreign directors, 3 permits in the first year of operation. The cost of setting up is between 30 to 40 million Indonesian Rupiah
Gili Property recommends that potential customers seek impartial and independent advice from an accredited legal firm specializing in property acquisition. There are a number of law firms on the Island and our office staff will guide you in the direction of the most appropriate legal partners.
Be wary of real estate firms who offer ‘legal services’. Their primary objective is to sell you something and it is in their best interest that legal corners are cut, to either save money or speed up a transaction.
For a list of the real estate legal professionals in Bali contact us at: email@example.com
- Enter into a legal arrangement with an Indonesian nominee, either an individual or PT company, whereby he/she/corporation holds title to the property. Simultaneously, complete a power of attorney, handing over full rights from the Indonesian entity to the foreign investor. ( see details below)
- Make a leasehold investment in the property, usually for 20-30 years. Partnerships with Indonesian citizens are not required in leasehold transactions. This method does offer complete protection to the foreigner during the term of the 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, title in this case could only last for 20 or 30 years as PMA companies have to re-apply to the Indonesian Government to extend their license