Foreign citizens can own certain types of property in Indonesia, including commercial ones. Under the country’s legislation, for the vast majority of properties they can only obtain a long-term lease agreement known as Hak Pakai, with a term of 20 to 40 years. Only Indonesian citizens can register land ownership rights.
Below we will discuss the main ways to protect the rights of foreign investors who have decided to invest in Indonesian real estate, as well as the most significant risk categories affecting investment rights.
Purchasing real estate in Indonesia is possible both in person and remotely. The vast majority of investors prefer to buy leasehold rights. First, it is a more financially advantageous option, and second, it carries less risk.
The long-term Hak Pakai lease is the most common and safest form of property ownership for foreigners. The lease term ranges from 20 to 40 years with the option of extension.
Registering property under an Indonesian citizen’s name is also a common practice in Indonesia. It is important to note that this type of transaction can lead to risks associated with eviction from the premises. Eviction can be initiated not only by the nominee (actual) owner but also by any municipal authority.
To understand why, one must refer to the Agrarian Law. In accordance with Article 9 of this legislation, only Indonesian citizens can register land ownership. When obtaining an Indonesian passport, a foreigner is required to renounce their previous citizenship. This means that nominee ownership is essentially an illegal transaction.
Nevertheless, many investors still use this method of purchasing real estate.
This type of transaction can be broadly divided into three main stages.
Due to the significant number of risks involved, the vast majority of investors prefer to enter into such transactions with individuals who are close to their family. Registering rights under a complete stranger can be quite risky.
The nominee owner may pass away, and the land rights would transfer to a person unwilling to honor the original agreements. Of course, the heir inherits both rights and obligations. However, recovering the loan amount from the new owner would have to be done through the courts. Legal proceedings not only entail additional costs but also significantly delay the process of recovering investment capital.
Moreover, going to court is not always a solution. First, in such a situation the investor cannot independently protect their rights, and second, in the event of a dispute, the judge may view such a transaction as an agreement made in circumvention of current legislation. Therefore, in such a dispute, the judge may side with the local citizen rather than the foreigner.
Investors also need to consider how profits from the increase in land value will be distributed. The investor can demand that the nominee owner pay the amount within the framework of their rights under the loan agreement. In such situations, it is recommended to immediately ask the nominee owner to write a receipt for the return of funds received as profit from the land investment.
To protect your rights, it is recommended to engage a lawyer who thoroughly understands the Indonesian Civil Code as well as local laws, including the Agrarian Law. Such a specialist will not only explain the main requirements associated with land acquisition but will also provide a list of documents necessary to protect property rights.
Due to the high risks of registering land under a nominee owner, investors are advised to consider purchasing real estate through a PT PMA.
PT PMA is the equivalent of a limited liability company in which, under Indonesian investment law, a foreign citizen can be an owner.
Registering a PT PMA grants investors the right to acquire land and property under the company’s name with the Hak Guna Bangunan (HGB) title. In this case, ownership rights are valid for 80 years. Furthermore, the investor retains a greater degree of control over the land and property than with a standard lease or transactions involving a nominee owner.
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