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
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
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
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
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 Bangunan 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.
Source: http://www.expat.or.id/
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