Indonesian regulation
land ownership titles
Text is freely taken from expat.or.id
Expatriate business people in Indonesia have rightful concern regarding
land use and ownership rights for business purposes. Act No.
5 of 1960 regulates the umbrella law regarding rights over land
ownership. The law covers some rights - mostly those to Indonesian
citizens - namely rights of ownership (hak milik), building rights
on land (hak guna bangunan), cultivation rights on land (hak guna
usaha) and rights of use (hak pakai).
With the emergence of foreign investment and business in Indonesia,
many foreign investors need buildings or land for their company.
A foreign investor who wants to run their business in Indonesia
can obtain building/office or land under these following rights:
Building Rights on Land (Hak Guna Bangunan)
The right to build and possess a structure on land owned by others:
The duration of right for the building is maximally 30 years, extendible
for 20 years (article 30 Act No. by 5/1960). This right can be transferred
to other persons selling and inheriting, who also can secure a loan,
as a Hypothec Right.
Those who may obtain right-to-build deeds are Indonesian citizens
and legal entities (such as a PT/limited liability company) established
under Indonesian law and domiciled in Indonesia, either for 100
percent foreign-owned, joint venture or 100 percent Indonesian-owned
companies.
Foreign investors who desire to establish their business in Indonesia
can have their building/office under a “rights to build” deed for
a stipulated period.
Cultivation Right on Land (Hak Guna Usaha)
This is a right to cultivate on state land for agriculture and
farming enterprises. The duration is maximally 25 years, extendable
for 35 years, and should be registered at the Land Register at the
National Land Agency (Badan Pertanahan Nasional/BPN). As in Right
to Build, Cultivation Rights can secure a loan by delivering the
certificate of Cultivation Rights to the lender.
Indonesian citizens can own these rights, as can legal entities
(such as PT/limited liability companies) established under Indonesian
law and domiciled in Indonesia, either for 100 percent foreign-owned,
joint venture or 100 percent Indonesian-owned companies.
Right of Use (Hak Pakai)
This is the right to use and/or harvest from land directly owned
by the state (rendered by authorized official government deed),
or private land (by agreement with the owner of the land). This
may be applied to land for use as a building site or for agricultural
purposes. The transfer of this right must have local government
authorization.
Right of Lease of Building (Hak Sewa)
A person or Indonesian legal entity has rights to lease another's
land. This right belongs to Indonesian citizens, foreigners, and
legal entities (such as PT/limited liability companies) established
under Indonesian law and domiciled in Indonesia or the representative
office from a foreign legal entity. The leasee and the leaser can
make an agreement to arrange it.
Hak Guna Banguna n vs. Hak Milik
Hak Guna Bangunan is only the right to use a building for a fixed
period of time, which then has to be extended. The owner of Hak
Guna Bangunan land is the Indonesian government. Meanwhile, only
with Hak Milik do you actually own the land or the building. Hak
Milik does need to be extended.
Purchasing Properties (Strata Title, Convertible Lease Agreement
or indirect purchase)
By Indonesian law, a foreigner cannot own land in Indonesia but
purchasing apartments or office space is possible through a strata
title deed. The 1996 regulation (No. 41/1996) states that an expatriate
who resides in Indonesia or visits the country regularly for business
purposes can purchase a house, apartment or condominium, as long
as it is not a government subsidized development. The title is only
for right of use. In reality, the regulation No. 41/1996 is still
somewhat unclear and no foreigner has actually been able to receive
a strata title as a certificate of ownership. Despite this unclear
legal ownership, foreigners sign a convertible lease agreement with
property management companies or indirectly by using the names of
an Indonesian citizen whom they have a separate agreement with.
Convertible Lease Agreement
One manner for a foreigner to proceed with property purchases,
despite legal ambiguities, is to sign a Convertible Lease Agreement
to purchase an apartment. Under the forgoing agreement, the foreigner
may purchase the apartment, but the title is still held in the name
of the developer or property management firm. This lease agreement
is for a definite period.
The Convertible Lease Agreement states that, if and when the prevailing
laws and regulations permit, the lessee becomes the legal owner
of the apartment/strata title unit. Both the lesser and the lessee
will be obligated to sign a deed of sale and purchase and the title
will be transferred to the foreign owner.
If you are interested in purchasing a condominium through this
type of agreement, investigate the property management company thoroughly.
In the current economic downturn, many developers are bearing serious
economic pressures and construction costs on many properties that
have been delayed or canceled. Consult with a reputable lawyer to
ensure that all legal implications are thoroughly covered.
Indirect Ownership
Another way to purchase a condo is in the name of an Indonesian
citizen. But the person must be someone you really trust. The person
would be the legal owner of the property according to the law.
Suggestion
It is strongly suggested that before making any property purchases
or signing any property agreements, foreigners should consult bona
fide lawyers that are experts in Indonesian property ownership to
understand the legal status of the ownership and prevent any regrets
in the future.
This article was contributed by IndoTrade. |
