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

Whitepaper #1 “Foreign Land Purchase and Ownership in Indonesia”

April 2014

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)

3. Sample Purchase Process for Indonesian Property Appendix: Sample Deed of Sale and Purchase (English Translation)
3. Sample Purchase Process for Indonesian Property Appendix: Sample Deed of Sale and Purchase (English Translation)
3. Sample Purchase Process for Indonesian Property Appendix: Sample Deed of Sale and Purchase (English Translation)
3. Sample Purchase Process for Indonesian Property Appendix: Sample Deed of Sale and Purchase (English Translation)
3. Sample Purchase Process for Indonesian Property Appendix: Sample Deed of Sale and Purchase (English Translation)
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.

foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be
foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be
foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be
foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be
foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be
foreigner wishes to sell the Hak Pakai titled property to an Indonesian, the title may be

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.

Titles may be applied for and given over these properties following due process and payment of
Titles may be applied for and given over these properties following due process and payment of
Titles may be applied for and given over these properties following due process and payment of
Titles may be applied for and given over these properties following due process and payment of
Titles may be applied for and given over these properties following due process and payment of
Titles may be applied for and given over these properties following due process and payment of

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 individual’s 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.

A foreign individual may only own one Hak Pakai title at a time, and the size
A foreign individual may only own one Hak Pakai title at a time, and the size
A foreign individual may only own one Hak Pakai title at a time, and the size
A foreign individual may only own one Hak Pakai title at a time, and the size
A foreign individual may only own one Hak Pakai title at a time, and the size
A foreign individual may only own one Hak Pakai title at a time, and the size
Foreign Corporate Ownership Partial or fully foreign owned companies registered in Indonesia are given many

Foreign Corporate Ownership

Foreign Corporate Ownership Partial or fully foreign owned companies registered in Indonesia are given many of

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.

A HGU is given for an initial period of 35 years, with the possibility of a
A HGU is given for an initial period of 35 years, with the possibility of a
A HGU is given for an initial period of 35 years, with the possibility of a
A HGU is given for an initial period of 35 years, with the possibility of a
A HGU is given for an initial period of 35 years, with the possibility of a
A HGU is given for an initial period of 35 years, with the possibility of a

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. Buyer’s tax is added to final amount as well as sellers half of notarial fees. Seller’s 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.

investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat
investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat
investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat
investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat
investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat
investment company (PMA) must be created, no nominee will be used, and a new HGB Sertifikat

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

On this day

mentioned at the end of this deed:

the

of

The Parties Involved

at the end of this deed: the of The Parties Involved , , I DEED OF

,

, I

at the end of this deed: the of The Parties Involved , , I DEED OF
at the end of this deed: the of The Parties Involved , , I DEED OF

DEED OF SALE AND PURCHASE

,

in the presence of the witnesses which are recognized by me and will be

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

and numbered Land Parcel Identification Number (NIB) Number

on a plot of land recorded in Document of Measurement / Situational Drawing dated

, recording the size of the land as

square meters, with

and Land and Building Tax Return (SPPT PBB)

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.

and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the
and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the
and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the
and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the
and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the
and losses stemming from the Object of Sale and Purchase have become the right/responsibility of the

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

enacted by this Deed. This Deed has been drawn up in the presence of the parties
enacted by this Deed. This Deed has been drawn up in the presence of the parties
enacted by this Deed. This Deed has been drawn up in the presence of the parties
enacted by this Deed. This Deed has been drawn up in the presence of the parties
enacted by this Deed. This Deed has been drawn up in the presence of the parties
enacted by this Deed. This Deed has been drawn up in the presence of the parties

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.

Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase
Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase
Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase
Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase
Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase
Lombok for the purpose of registering the transfer of rights resulting from the Sale and Purchase