Buying property in Indonesia
There are various ways to acquire property in Indonesia and enjoy full beneficial rights to the property. In any case, we recommend that buyers seek impartial and independent advice from an accredited legal firm specializing in property acquisition. There are a number of law firms on Bali and Lombok 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 in offering those services may be to sell you something quickly and cut corners.
Indonesian law recognizes different rights on land depending on the status of the titleholder. Only individual Indonesian citizens – not companies – are entitled to own land with freehold status (“Hak Milik”). Indonesian companies, domestic or foreign owned, as well as foreign individuals are entitled to leaseholds, rights of use, rights of exploitation or rights to build. In practice, there are four different ways for foreigners to acquire property in Indonesia:
1) A popular method is to enter into a legal contract with an Indonesian citizen (‘nominee’ as they are referred to), whereby he/she holds a freehold title to the property but signs over practical control to the foreigner through power of attorney to sell the land and a loan agreement with the property pledged and secured as collateral.
2) Forming a foreign investment company (“Penanaman Modal Asing”, PMA) is the preferred choice of those intending to operate a business in Indonesia. A foreigner can fully control a PMA company and the title of the property will be in the company’s name in the form of a right to build (“Hak Guna Bangunan”, HGB). The HGB expires after 30 years and can be renewed several times. However, there are tax implications to be considered and the Department of Trade will review PMA companies after 30 years so it may be necessary to re-apply for the PMA license.
3) The Government has recently introduced a right of use (“Hak Pakai”) title for foreigners. This title ‘floats’ over a freehold title in the name of an Indonesian citizen and is granted for an initial 25 years term. It can be extended up to three times adding up to a total tenure of 100 years. A foreigner is entitled to only one “Hak Pakai” title for a property not exceeding a certain size. The “Hak Pakai” is transferable or renewable if sold to another foreigner.
4) Acquiring the leasehold (“Hak Sewa”) of a property is a straightforward approach for a foreigner. At the expiry of the lease, the property reverts back to the Indonesian owner with all structures built on it. This method is popular in commercial property situations where a return on investment can be achieved within the lease period, but less popular with individuals who wish to make longer-term investments. Lease periods vary and extensions are often agreed in advance; 20-30 years is a common lease period in Indonesia.
The Process of Acquiring Property in Indonesia
Once we have negotiated the best price for you and both buyer and vendor have agreed on the terms and conditions of the deal, the buyer normally engages a notary or lawyer to initiate due diligence with regard to the authenticity of the title and to make sure that no encumbrances, mortgages or other liens are attached to the property. The notary will also make sure that it is possible to build on the property, verify access, and any other issues related to the property including the settlement of all outstanding government taxes. Fees for due diligence vary. Notaries/lawyers either charge a fix amount which could be between USD 1.000 to USD 3.000 depending on the complexity of the deal or include the cost for due diligence in their overall fee to secure the property for the buyer.
If the buyer decides to proceed with the acquisition of a property a Sale and Purchase Agreement (“Akte Jual Beli”) is signed and notarized. Until full payment is made, the notary holds the land title on escrow. Once the vendor has received full payment the title is transferred to the new owner. Typically the notarial fee would vary between 0.75% - 1% of the actual transaction value. There is no rule as to which party has to pay the notarial fees, however, the foreign buyer mostly ends up paying the fee as he opts to choose the notary. Both buyer and vendor have to pay 5% government transfer tax, which is based on the government designated value of the property (“Nilai Jual Obyek Pajak”, NJOP) and which is substantially below the market price.
The transfer of titles may take about two weeks once the notary is in possession of the land certificates and has concluded due diligence. All our offices have escrow accounts allowing monies to be safely held prior to disbursement.
Our commission fees are amongst the lowest in Bali and are normally paid by the vendors. All property prices we advertise have our fees built in, including those featured in this website.