Indonesian Property Law
Indonesian Land Titles
Forms of land title regulated by the UUPA and issued by the National Land Board (BPN) include:
- Hak Milik -- roughly equivalent to Freehold Title of English common law jurisdictions
- Hak Guna Usaha -- Cultivation Rights Title
- Hak Guna Bangunan -- Building Rights Title
- Hak Pakai -- Right to Use Title
- Hak Sewa untuk Bangunan -- Right to Rent for Buildings
- Hak Membuka Tanah -- Land Clearing Rights
- Memungut Hasil Hutan -- Forestry Rights
- Hak Guna-Air, Pemeliharaan & Penangkapan Ikan -- Water Use and Fisheries Rights
- Hak Guna Ruang Angkasa -- Airspace Use Rights
- Hak-Hak Tanah untuk Keperluan Suci & Sosial -- Land Title for Social & Religious Purposes
To foreign as well as domestic investors, the most important titles to be aware of are Freehold Title (Hak Milik), Cultivation Rights Title (HGU or Hak Guna Usaha), Building Use Title (UGB or Hak Guna Bangunan) and Right to Use Title (HP or Hak Pakai).
Freehold Title (HM or Hak Milik, Article 20-27)
Freehold title is the strongest and fullest title that can be obtained. However such rights are not absolute as the UUPA recognises the "social functions" of land, however infers a right of "peaceful occupation" of land by the titleholder. Freehold title may only be held by Indonesian citizens, or by Indonesian legal entities that are entirely owned and controlled by Indonesian citizens. It is therefore impossible for a foreign individual to have direct freehold ownership of land in Indonesia.
All Indonesian companies, no matter if they are PMA (foreign investment companies) or not, cannot possess freehold title over land and are compelled to use other titles such as Hak Guna Usaha and Hak Guna Bangunan.
According to the UUPA, land that is titled Hak Milik can be used as security for debt. However, foreign companies and individuals must take care in accepting freehold land as security, and should consult with competent advisors beforehand.
Land Cultivation Rights Title (HGU or Hak Guna Usaha, Article 28-34)
The Land Cultivation Title (HGU) gives the right to use a state-owned land for the purpose of agriculture, in particular plantations, fishing or cattle-raising. Such title is granted for periods of 25 or 35 years, and may be extended for another 25 years if the land is deemed to be managed and utilised properly. This title of right is given to Indonesian citizens or legal entities (including PMA companies). A HGU title can be used as collateral, or, with the approval of the government, transferred to a third party.
Building Rights Title (HGB or Hak Guna Bangunan, Article 35-40)
A Building Rights Title (HGB) gives the right to construct and own buildings on a piece of land that someone else owns. Such title is granted for a maximum period of 30 years, and can be extended for another 20 years. HGB title is granted to Indonesian citizens or legal entities (including PMA companies), and can also be used as collateral or transferred to a third party.
Right to Use Title (HP or Hak Pakai, Article 41-43)
The Right of Use on Land (HP) is the right to use land for any purpose for a period of 25 years, and can be extended for another 20 years. This type of title should not be confused with a lease contract or sharecropping agreement. Foreign residents of Indonesia and Indonesian legal entities (including PMA companies) may hold HP titles. HP title has no collateral value to the owners and is not transferable.
Foreign Ownership
Under Indonesian law foreigners are not permitted to have property title in Indonesia. However, foreign individuals can legally acquire property in Indonesia and enjoy full beneficial rights. This is done using one of three methods: (1.) nominee arrangement. (2.) leasehold agreement. (3.) Indonesian incorporated company.
With nominee method, an Indonesian citizen or legal entity is nominated to buy the land on behalf of the purchaser. Land Title deeds will thus be under the name of the nominee. The Land Deed Official, also know as PPAT (Pejabat Pembuat Akte Tanah) or Notary handling the property sale and transfer will simultaneously make a Power of Attorney giving the foreign purchaser total and exclusive authority to utilise, sell, transfer, or lease the land without any reference whatsoever from the nominee, along with a statement declaring that the money used to buy the land belongs to the foreign purchaser and not to the nominee.
The power of attorney must give the foreign party full beneficial rights on the property and must waive all rights of the nominee. The foreign party is then free to build on the land, sell or lease the property and transfer the title to next of kin. Often, the nominee will receive a nominal fee for his responsibilities as the title holder.
With a leasehold agreement partnership with an Indonesian citizen is not required. This method does offer complete protection to the foreigner during the term of the lease, however, once the lease term has expired the agreement can be extended or the property reverts to the Owner.
Form a foreign investment company (PMA) which can now be 100% foreign owned. Such a company can then become the legal owner of the land, with the Title Deed in the name of the company. Whist freehold title is not possible with this method, the Building Rights Title has effectively the same strength as freehold title as long as the company continues to operate and utilise the land.
* AharaBali always recommends that you seek legal advice from a reputable legal notary or lawyer when securing property in Bali.