OWNERSHIP TITLES INDONESIA AND UNDERSTANDING HOW TO BECOME A PROPERTY OWNER IN BALI EXPLAINED
1. HAK MILIK/FREEHOLD TITLE
Hak Milik Freehold is the most complete and strongest form of land title ownership in Indonesia. Only individuals of Indonesian Nationality are entitled to own land under a Hak Milik title. Consequently, neither limited liability companies (PT/Perusahaan Terbatas) nor foreign individuals may obtain land with a Hak Milik title. Subject to zoning restrictions, the Hak Milik title owner can use the land for any purpose, although it does not entitle the owner to exploit the natural resources found on or under the land. The title has no limit and may be sold, gifted, exchanged and bequeathed and may also be used in the form of a mortgage.
Foreigners may, however, acquire land under a Hak Milik title in another form of entitlement called Hak Pakai or Right of use.
If you own property freehold (Hak Milik), means you own the building and the land it stands on. Your name is in the land registry. Foreigners are still not able to obtain freehold property. Only possible for Indonesian nationals.
2. HAK PAKAI/RIGHT OF USE TITLE
Hak Pakai or Right of Use is a title over Freehold land and entitles the holder to use the land, including (subject to permitting requirements) the right to construct buildings. A Hak Pakai title may be held by foreign individuals and foreign representative offices as well as Indonesian citizens and legal entities established under Indonesian law. For foreigners to acquire a Hak Pakai title, they must be a resident or domiciled in Indonesia and therefore must hold a limited stay permit (KITAS) or a permanent stay permit (KITAP).
According to the Government Regulation (PP) no. 103 Year 2015, the term of granting rights to foreigners is specified to having a single property. Foreigners can acquire usage rights for 30 years. If the period has expired, it can be extended for another 20 years, then after a span of 50 years, the foreign national may renew his usage rights for a period of 30 years. In total, the given Right of Use period can reach 80 years.
Previously, in the provisions of Government Regulation (PP) No.41 of 1996, the Right to Use title for foreigners was shorter. The foreigners could only acquire the Right to Use for 25 years. After the 25 year period, the foreigners could renew their Right of Use period for the next 25 years. So, the total time period that could be obtained was only up to 50 years.
Under current laws, a Hak Pakai title is the only registered form of entitlement over land that can be granted to a foreign individual which can be evidenced by a land certificate reflecting the name of the foreigner and the term on the certificate which serves as formal evidence of this form of ownership right. In accordance with Indonesian law, this title can be sold, gifted, exchanged and/or bequeathed, unless the deed of conveyance specifies otherwise, but under a Hak Milik title, it cannot be used in the form of a mortgage.
Since March 2004 in effect in Bali. Hak Pakai can be issued to (foreign) individuals, but also to companies that are domiciled in Indonesia. Hak Pakai is for people living in Indonesia. This does not mean that you can’t leave Indonesia, it just means that you spend a considerable time of the year in Indonesia.
Hak Pakai is an official certificate issued by the land offices. As soon as the Hak Pakai certificate is issued, the certificate has precedent over any other title the property may have.
A foreigner can own only one Hak Pakai title on his or her name at any time. The certificate is valid for an initial 25 years, and can be renewed after that. Some companies offer prepaid renewals. It’s freely transferable to another name, so you can buy and sell existing Hak Pakai titles.
3. HAK SEWA/LEASEHOLD TITLE
Hak Sewa or Leasehold title entitles the holder the right to use an empty plot of land or the building(s) on someone else’s land for a fixed period of time. A Leasehold Right title can be granted over land currently held under a Freehold title (Hak Milik), Right to Build title (HGB) or Right to Use title (Hak Pakai). Indonesian individuals, Indonesian legal entities and foreign individuals and legal entities resident in Indonesian may acquire Hak Sewa. The period of lease is generally around 25 years and usually there is an option to extend the lease, which will be specified in the agreement.
In accordance with general principles of lease laws, the right cannot normally be sold or otherwise transferred without the consent of the lessor. Hak Sewa cannot be used in the form of a mortgage, nor can it be registered with the National Land Agency. Subject to the conditions of a lease contract, a foreigner may lease an empty plot of land, build permanent buildings on the land and resell the remaining balance of the lease term to any third party by way of a sub-lease or transfer of Leasehold Right.
Leases of office space, factory buildings and residential premises are all examples of Hak Sewa titles. Residential properties can include apartments, condominiums, villas and houses.
Leasehold (Hak Sewa) means you have a lease from the freeholder (the landlord) to use the property for any number of years, up to 25 years or more.. The leaseholder has a contract with the freeholder, defining legal rights and responsibilities of either side. This method offers complete protection to both the lessor and lessee during the term of the lease, once the lease term has expired the agreement can be extended or the property reverts to the owner.
4. HAK GUNA BANGUNAN/HGB RIGHT TO BUILD
Hak Guna Bangunan or HGB title entitles the holder to construct and own buildings or other structures on the land in state-owned land (Tanah Milik Negara), freehold land (Hak Milik) and HPL (Hak Pengelolaan) land. This is the most common title for residential, commercial and industrial properties. An HGB title can be owned by individuals of Indonesian Nationality, Indonesian legal entities, including Foreign Capital Investment Companies (Penanaman Modal Asing/PMA), or Domestic Capital Investment Companies (Penanaman Modal Dalam Negeri/PMDN). Thus, any legal entities such as limited liability companies (Perusahaan Terbatas/PT) which are established under Indonesian Law and domiciled in Indonesia, may obtain an HGB title. However, an HGB title is not available for foreign individuals.
An HGB title is granted for an initial period of up to 30 years and can generally be extended for an additional period of 20 years. Subsequent extensions are at the discretion of the state and may be renewed for another 30 years. An approved capital investment company (i.e., PMA or PMDN company), may obtain HGB rights for a period of 80 years (i.e., 30 year initial term, plus 20 year extension term, plus 30 year renewal term) by payment of certain up-front official costs (Uang Permasukan).
HGB title over Freehold (Hak Milik) land is valid for a period of 30 years only. Any extensions beyond 30 years would be subject to a new agreement with the landowner and registration of a new HGB/Right to Build title over the privately owned land.
An HGB/Right to Build title can be sold, gifted, exchanged or bequeathed by an Indonesian and/or encumbered by a mortgage.
Indonesian companies are allowed to hold the HGB title (Hak Guna Bangunan), this is the Right to Build title. In this case the freehold title is handed over to the state and the company is given the possession of the property under right to use title for a period of 30 years with the right of extension.
Foreign investors can have 100 % ownership of companies. This is called a PMA (Penanaman Modal Asing), the only form of company allowed for exclusively foreign investment. Foreigners can legally hold property by means of a PMA, without the involvement of an Indonesian shareholder.
WHAT FOREIGNERS CAN USE?
Under Government Regulation No. 41/1996 issued on June 1996, individual foreigners are allowed to own residential properties as long as they can provide benefits to national development, reside permanently or temporarily in Indonesia, and have immigration documents or a work visa. Under these requirements, they may purchase:
- Non-subsidized houses on land with Right of Use title;
- Strata-title apartment units on land with Right of Use title; or
- Vacant land with Right of Use title.
If you have any questions about owning property on Bali, feel free to contact us. Our experienced staff is happy to help.
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