Property Ownership Rights Of Foreigners In Indonesia

Foreigners can acquire property in Indonesia but here is the catch:
a. The title is only a limited Right to Use which does not extend beyond 70 years
b. The ownership cannot be retained in the event that the foreign owner loses the right to reside in Indonesia

These two factors severly reduces the investment value of Indonesian property.

In the case of apartment where the underlying land is not Right to Use but Right to Build (indefinite in duration), there is some ambiguity as to whether the foreigner can acquire a unit where the land sits on Right to Build land. Some believe that the foreigner’s share of the land will be converted into Right to Build title when he or she is issued the title certificate.

Some developers offer a convertible lease which effectively means a contractual promise to convert the lease to permanent title in the event that the law changes to allow foreigner to hold full ownership right with indefinite duration. This arrangement is largely based on a hope that the government will alter its position that outright land ownership is only reserved for indonesian citizens.

This might have worked when there were previous announcements of some vague plans that the government would relax the rules on land ownership by foreigners. Developers came up with this rather disingenuous arrangement of “convertible lease” to market to foreigners. This is also good news to Indonesian investors who stand to see gains in their investment from the uptake in land value with general increase in interest from foreign buyers. Alas, this is not to be and foreign buyers who bought into the convertible lease are not likely to see relaxation on foreign ownership anytime soon. Effectively, those who signed into the convertible lease agreement are stuck for now. Please contact us if you would like to discuss this further.

FOREIGNER WITH RESIDENCY RIGHT

Foreigner with restricted residency or permanent residency right may own house or apartment with Hak Pakai (Right of Use). This is a limited right for a total duration of 70 years provided steps are taken to extend at the 25th year and the 50th year. The relevant regulation is Ministerial Regulation No. 29 of 2016 on Procedure for Granting, Releasing, or Transferring Land Rights over Residential Houses to Foreign Nationals in Indonesia issued by Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency (Regulation 29),

OWNERSHIP IN COMMON PROPERTY

The title of the land on which the apartment stands can be either Right to Use or Right to Build. Right to Build is not limited in duration. The regulation contemplates that the underlying land will eventually be transferred by the developer to the strata unit owner association.
In theory, the developer is to surrender the land to the owners association when it is formed. However, this may not always be the case. In certain housing development, the developer still get to charge transfer fee for sale between existing owner to a purchaser. The developer is in the position to charge for this because it is probably still holding onto the land on which the condominium stands.

In some rather mature developments, the certificate of title might not even have been issued. It can safely be assumed that the developer still hold rights to the land on which the apartment is built – right to build title. This puts the unit owners in a severely disadvantageous position when the developer determines management fee and transfer fee when existing ownership sells their unit to a buyer.

When purchasing a unit from the original purchaser, the second tier purchasers should enquire further whether the developer is still able to charge “transfer fee” where the apartment is considered mature say past 10 years since completion. In such cases, the reputation of the developer is important – occupiers have to rely on the goodwill and track record of the developer to behave reasonably and not to exploit their stronger position as the ultimate landowner relative to the apartment owners who may still have not received their strata title certificates. Track record is therefore important for peace of mind because the current legal framework by itself will not guarantee against abuse.