Indonesian Land Law is quite different to the laws that apply in most Western or developed countries. Foreigners wishing to purchase land in Indonesia need to be aware of these differences, as the legal conventions that apply in their home country don’t necessarily apply in Indonesia.
First and foremost, there are foreign ownership rules and regulations and we strongly suggest that you familiarize yourself with them as much as possible.
Indonesia’s Agrarian Law known as Undang-Undang No.5 Tahun 1960 article 16 (1) is based on the Indonesian Constitution. It covers seven kinds of ownership structures, yet for our purposes only four of them apply. These include:
1. Hak Milik or Freehold
2. Hak Pakai or Right to Use
3. Hak Guna Bangunan (HGB) or Right to Build
4. Hak Sewa or Leasehold
An Indonesian citizen is entitled to use any of these structures, however a foreigner is not.
The government recently updated the property ownership laws, making it easier for foreigners to possess or own land and property under Hak Pakai (Right to Use) and Hak Sewa (Leasehold) for residential properties, and Hak Guna Bangunan (Right to Build) for commercial purposes. Using a nominee (Indonesian citizen) to get a Hak Milik (freehold) title may seem like a viable option at first, however, it is not a legal structure of ownership for foreigners. While the practice is commonplace, there is a certain level of inherent risk involved. It is therefore best to get proper advice so one can choose the correct form of legal ownership.
Freehold Title (Hak Milik)
Hak milik (Freehold) is the most secure and complete title that can be obtained. Freehold titles may only be held by Indonesian Citizens or Indonesian legal entities (those which are entirely owned and operated by Indonesian citizens). It is impossible for a foreign individual to have direct freehold ownership of land in Indonesia.
All Indonesian companies, whether PMA foreign investment companies) or other, are unable to possess a freehold title over land and are compelled to use other titles such as Hak Guna Usaha (HGU) and Hak Guna Bangunan (HGB)
Right to Use Title (Hak Pakai) – Closest Option to a “Freehold Title” for Foreigners
The Hak Pakai title is the government-approved method for foreigners to purchase the exclusive use over a Hak Milik land, which is legally registered in the name of foreigner.
Hak Pakai is granted for an initial term of 30 years and can then be extended up to 80 years in total (initial 30 years + 20 years extension + 30 years extension)
A foreigner is permitted to hold only one Hak Pakai title in Indonesia at any time and it must be for residential purposes only.
Hak Pakai is transferable or renewable if sold to another foreign purchaser and can be also upgraded to Hak Milik (Freehold) if sold to an Indonesian citizen.
Not to be confused with the Leasehold title (Hak Sewa), Hak Pakai is a registered proprietary interest in the Hak Milik land rather than an unregistered interest.
Building Rights Title (HGB or Hak Guna Bangunan)
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. Building Rights Titles are granted to Indonesian citizens or legal entities (including PMA companies) and can also be used as collateral or transferred to a third party.
If you’re not comfortable with either Hak Pakai or Hak Sewa, another option is to create a foreign owned company, called a PMA (Penanaman Modal Asing). This type of company can legally obtain a Right to Build (HGB) certificate. You own the company and the company owns the property.
Leasehold (Hak Sewa)
Right of Lease (Hak Sewa) is effectively known and referred to as Leasehold. Leasehold rights are normally granted to tenants of both residential and commercial premises. Acquiring the leasehold of a property is relatively straightforward, with the name of the foreigner/Lessee appearing on the lease. Lease periods vary but durations of between 20 to 50 years are common in Indonesia, with extensions normally agreed upon in advance. Leasehold (Hak Sewa) certificates can range from one year up to the same maximum length as Hak Pakai of 80 years.
If you’re not comfortable with either Hak Pakai or Hak Sewa, another option is to create a foreign owned company, called a PMA (Penanaman Modal Asing). This type of company can legally obtain a Right to Build (HGB) certificate. You own the company and the company owns the property.
