Southeast Indo Property

Whitepaper #1
Foreign Land Purchase and Ownership in Indonesia
April 2014




Land ownership rights in Indonesia can be confusing, especially regarding the rights of foreigners. Many
foreign individuals and companies, however, invest in Indonesian land every day, so it is far from
impossible. The goal of this paper is to explain the various Indonesian land titles and who may make use of
them, the rights of foreigners regarding Indonesian property, and a sample sale process. The appendix
consists of an English translation of a typical Indonesian Deed of Sale and Purchase.
1. Indonesian Land Titles
2. Foreign Property Ownership in Indonesia
3. Sample Purchase Process for Indonesian Property
Appendix: Sample Deed of Sale and Purchase (English Translation)



1. Indonesian Land Titles
The three most common land titles used when investing in Indonesian Property are Hak Milik, Hak Guna
Bangunan and Hak Pakai.

Hak Milik (Rights to Own)
This is what is commonly referred to as a freehold title. Hak Milik titles may be held by Indonesian
individuals, state banks, agricultural cooperatives and specific social or religious groups.
In order for a foreigner to have legal control over a property titled Hak Milik, they must have signed a set
of legally binding documents with the Indonesian owner. This is commonly referred to as a nominee
agreement.

Hak Pakai (Right to Use)
A Hak Pakai titled property may be held by foreign individuals, Indonesian citizens, as well as foreign
embassies, international organizations and social or religious organizations.
A Hak Pakai title may be placed over either state owned land or Hak Milik land. In the case of state owned
land, the initial rights of use are valid for 25 years and may be extended for an additional 20. In the case of
Hak Milik land, the rights to use will be valid for 20 years, but may be renewed pending the consent of the
underlying owner.
A Hak Pakai title can be considered a primary land title and is registered with the federal land bureau.

Hak Guna Bangunan (Right to Build)
A Hak Guna Bangunan (HGB) title may be held by Indonesian or foreign owned companies. These rights
are given for an initial period of 30 years, may be extended for another 20, and may be renewed.

All of the above titles may be sold, bequeathed or transferred. In most cases a property may be converted
from one type of title to another. For example, if a foreigner wishes to purchase a Hak Milik property, they
may apply to have the title converted to a Hak Pakai. Later if the foreigner wishes to sell the Hak Pakai
titled property to an Indonesian, the title may be converted back to a Hak Milik.




Other types of land titles in Indonesia include;
Hak Guna Usaha
Cultivation rights over state owned land. May be held by Indonesian individuals, corporations, and foreign
joint venture corporations.
Hak Pengelolaan
Rights to manage state owned land, given only to state owned companies and government institutions. It is
possible for a HGB to be placed over a Hak Pengelolaan.
Hak Memungut Hasil Hutan
Right to crop forest products.
Hak Membuka Tanah
Right to clear land.

Some properties have no title registered with the land office, but nonetheless are subject to a traditional
claim with the local government. Properties have been claimed by a community or individual as their
traditional or ancestral lands are referred to as customary lands. A common form of customary land is
designated as Sporadik. These properties have been registered with the village head but not yet with the
land bureau. Titles may be applied for and given over these properties following due process and payment
of the applicable fees.






2. Foreign Property Ownership in Indonesia

Foreign Individuals
Foreign purchasers often leave their land with a Hak Milik designation, and sign a series of papers granting
sole rights to sell, lease or otherwise alter the land exclusively to the foreign partner. The Indonesian
partner, whose name is on the original title, is generally paid either a flat fee or a percent from future sale.
The Indonesian partner is referred to as the nominee. Transactions of this type are generally less costly
than the creation of a new title, but it should be noted that the supporting documentation is not registered
with the land bureau. To ensure the rights of all partners, a nominee agreement should be drawn up and
reviewed by reputable legal counsel.
In addition to the above method, roreign individuals are legally allowed to possess a Hak Pakai land title.
Hak Pakai titles are utilized by foreign individuals in order to possess a house or villa in Indonesia.
A Hak Pakai may be held as the primary land title over a property, in this case the land is technically
owned by the state, with the rights to its use granted to the foreign individual. For instance, a Hak Milik
property that was sold to a foreigner could be converted to a Hak Pakai title. In this case the foreign
individuals title would be valid for an initial 25 year period with the possibility for another 20 year
extension. According to Government Regulation Number 40 of 1996; the initial period, an extension as
well as a renewal period may be guaranteed all at once following the payment of the Uang Pemasukan, or
up-front official costs.
A Hak Pakai may also be placed over a Hak Milik title, in this case it is the Indonesian holder of the Hak
Milik who technically owns the land, while the foreigner maintains the rights to its use. This is known as a
Hak Pakai Atas Hak Milik. A Hak Pakai Atas Hak Milik is granted for an initial period of 20 years and
may be extended. The owner of this type of title may wish to sign additional legal agreements with the
owner of the underlying Hak Milik title, granting the foreign owner sole rights to sell or transfer the Hak
Milik title as well as the Hak Pakai. One advantage to retaining the original Hak Milik title instead of
transferring ownership to the state would be that the property could be resold to an Indonesian buyer
without the need to create a new title.
It is technically possible for a Hak Pakai to be mortgaged, however it should be noted that at the time of
writing, Indonesian banks were not typically lending money against Hak Pakai titles.
A foreign individual may only own one Hak Pakai title at a time, and the size limit for a Hak Pakai is
5000 square meters.



Foreign Corporate Ownership
Partial or fully foreign owned companies registered in Indonesia are given many of the same rights as
wholly Indonesian owned companies. Neither Indonesian nor foreign companies are allowed to own Hak
Milik land titles, they are however allowed to possess Hak Guna Bangunan (HGB) and Hak Guna Usaha
(HGU) land titles.
HGB titles allow a company to build on a property. The use of the building must match the stated purpose
of the company. I.e., in order to build a hotel, the possessing company would need to be a hospitality
provider.
A HGB is granted for an initial period of 30 years, with a 20 year extension. According to Government
Regulation Number 40 of 1996, the initial period, an extension as well as a renewal period may be
guaranteed all at once following the payment of the Uang Pemasukan, or up-front official costs. The total
period in this case would be 80 years.
If a foreign owned company wishes to purchase land that is registered as Hak Milik, the original Hak
Milik title must be cancelled and a HGB must be created.
A HGU title is placed over state owned land and may be used for fisheries, agriculture and animal
husbandry. A HGU is given for an initial period of 35 years, with the possibility of a 25 year extension and
subsequent renewals.




3. Sample Purchase Process.
The process described below would apply to a foreigner purchasing Hak Milik land from an Indonesian
owner via a local nominee. Before this process begins, the buyer should conduct a due diligence
investigation and discuss the entire process with the seller, notary and legal counsel.

1. Nominee agreement signed by both parties. This agreement should be drawn up by a notary, it
is also recommended that the buyer be supported by reputable legal counsel. The foreign buyer
is given all rights over the use and transfer of the property, while the Indonesian partner is
compensated with one or more of the following; 1-2% payment from total transaction value if
the property is resold, a yearly fee, a one-time upfront fee.

2. Deed of Sale and Purchase agreement signed by both parties. This agreement will describe the
process outlined below and the responsibilities of both parties.

3. 10% Deposit paid to notary. Original Sertifikat is given by the owner to the notary. Notary
applies to land bureau (BPN) to transfer the property and convert the title.


4. Full payment made to notary after purchase is approved by BPN. Buyers tax is added to final
amount as well as sellers half of notarial fees. Sellers tax taken from payment and held by
notary. Buyers and sellers taxes are both 5% of the reported value of the transaction. This
process should be explained by the notary to both parties and included within the Deed of Sale
and Purchase.


5. Both parties sign bill of sale (Akte Jual Beli). Notary registers Akte Jual Beli.

6. Notary releases funds for payment of tax.

7. Sertifikat is processed by BPN. Processing time may vary.

8. Registered Sertifikat is released by BPN. The Sertifikat should be kept in the possession of the
foreign buyer.


Process for purchase of a HGB will be similar, except that a foreign owned investment company (PMA)
must be created, no nominee will be used, and a new HGB Sertifikat will be created by the BPN.



Appendix: Sample Generic Deed of Sale and Purchase (English Translation)

DEED OF SALE AND
PURCHASE



On this day____ the ____ of____, ____ , I _____, in the presence of the witnesses which are recognized by me and will be
mentioned at the end of this deed:

The Parties Involved
I recognize and have been introduced to the parties appearing before me and the witnesses which are mentioned at the end of
this deed.
The First Party is recognized as the seller to the Second Party and
The Second Party is recognized as the purchaser of the following from the First Party:

Freehold/ Right of Use/ Right to Build/ Right to Use Land Title
Number _________ on a plot of land recorded in Document of Measurement / Situational Drawing dated
__________ and numbered ____________, recording the size of the land as __________ square meters, with
Land Parcel Identification Number (NIB) ____________ and Land and Building Tax Return (SPPT PBB)
Number__________.

Furthermore, regarding all that is described within this Deed as the Object of Sale and Purchase, it has been
explained by the First Party and the Second Party that:
A: This sale is conducted for the price of______
B: The First Party states to have received full payment from the Second Party, for which this Deed shall act
as a receipt.
C: This Sale and Purchase shall be enacted according to the following terms:

Article 1
From this day forth the Object of Sale described in this Deed has become the property of the Second Party,
and hence al benefits and losses stemming from the Object of Sale and Purchase have become the
right/responsibility of the Second Party.

Article 2
The First Party ensures that the Object of Sale and Purchase is not involved in any dispute, is free of all
encumbrances, is not bound as security for a debt, is not something that is not listed on the Property Title, and is
free from burdens of any form.

Article 3
Regarding this Sale and Purchase, the permission for transfer or rights commence from _________,
Number____

Article 4
The Second party hereby declares that with this Sale and Purchase, the total land owned by the Second
Party does not exceed the maximum tenure of land provisions as laid down by the legislation prevailing on this date.

Article 5
If there should be a vast difference in the total size of the Object of Sale and Purchase as described in this Deed and
the results of the measurements enacted by the National Land Agency, both Parties agree to accept the results of the
National Land Agency and will not change the sale price of the Object of Sale and Purchase nor engage in a lawsuit.

Article 6
Furthermore, the Parties state that the information, documents, deeds, prices and statements contained in this Deed
are legitimate, that their truth is recognized by both parties, so that if any part is found to be untrue, each Party will
bear their own consequences and any prosecution demanded by the authorities.

Article 7
Both parties in this case, with full knowledge, agree to select a public courthouse which shall not change, and which
shall be the Penitera District Courthouse of Mataram, in Mataram.

Article 8
Any costs relating to making this deed, engaging witnesses and transferring payments shall be borne by both parties.

I state to have been present here, in the presence of the same witnesses as mentioned at the end of this Deed, who
have stated that they recognize what is outlined above and agree to the Sale and Purchase enacted by this Deed.
This Deed has been drawn up in the presence of the parties involved as well as:
1. Witness 1
2. Witness 2

I recognize these two witnesses and after having read and explained the proof of the claims of the First Party and the
Second Party, this Deed is signed/stamped by the First Party, Second Party, the Witnesses and I, PPAT, consisting
of 2 (two) original copies, 1 (one) copy kept in the office of myself, and 1 (one) copy submitted to the Head of the
District/City Land Office of West Lombok for the purpose of registering the transfer of rights resulting from the
Sale and Purchase described in this deed.