Foreigners are not allowed to own property in Indonesia. However, although foreigners will not be able to own freehold (Hak Milik) property, several Government Regulations issued in 1996 allow foreigners to hold a Right of Use (Hak Pakai) which valid for 25 years with the possibility of another 25 years extension.
However, as the validity of a Right of Use title is limited to a certain period and it is not possible to a mortgage a Right of Use, this is not comparable to freehold or ownership in perpetuity. Holding a Right of Use offers the foreign investor protection for a certain period, but this title seems not well suited for long-term investment purposes.
2 (Two) Possible Solutions
In order to own the property in Indonesia, there are 2 (two) possible solutions for foreigners i.e.:
Using the Nominee
The nominee sign several documents with the foreigner i.e.: a) A Loan Agreement that acknowledges the foreigner has lent to the nominee the purchase price of the property; b) A Right of Use Agreement that allows the foreigner to use the property; c) A Statement Letter stating that the nominee acknowledges the loan from foreigner and intention to own the land; d) Power of Attorney. This is an irrevocable power of attorney giving the foreigner complete authority to sell, mortgage, lease or otherwise deal in the property.
Using the Foreign Company (so called PMA)
Under the new investment law number 25 of 2007, simplified services and/or permission of land titles may be granted and extended all at once in advance, and is renewable at the investor's request for the following:
- Right to Cultivate (Hak Guna Usaha) may be granted for a period of 95 (ninety-five) years by being granted and extended all at once in advance for a period of 60 (sixty) years, and renewable for a period of 35 (thirty-five) years;
- Right to Buld (Hak Guna Bangunan) may be granted for a period of 80 (eighty) years by being granted and extended all at once in advance for a period of 50 (fifty) years, and renewable for a period of 30 (thirty) years;
- Right to Use (Hak Pakai) may be granted for a period of 70 (seventy) years by being granted and extended all at once in advance for a period of 45 (forty-five) years, and renewable for a period of 25 (twenty-five) years;
Land titles as intended above may be granted and extended all at one in advance for the following investment activities, inter alia:
- an investment that is made for a long term and linked to structured changes in the Indonesian economy aimed at improving competitiveness;
- an investment with an investment risk level that requires a long-term return on capital based on the types activities carried out;
- investments that need no large areas;
- investments with the state land titles; and
- investment that do not undermine a sense of public justice and does not harm the public interest.
A land title is renewable upon evaluation that the land remains in good use and cultivation conforming to the conditions, nature, and purpose the title is granted.