Property Ownership for Foreigner and Foreign Entity Based on Draft of New Government Regulation

The Government of Indonesia has been trying to find a way to provide more flexibility for a foreigner and foreign entity to own a property in Indonesia. One of the intentions is also to improve the property market in Indonesia. At this moment, the Government has been preparing a draft of new regulation on property ownership for foreigner and foreign entity. The type of regulation is the Government Regulation that will amend or terminate the previous Government Regulation Number 41 of 1996 on the Ownership of Residential House by Foreigner that is domiciled in Indonesia.

Definition of Foreigner and Foreign Entity

In the draft of regulation, the foreigner is defined as every individual that is not Indonesian nationality that is presence or domiciled in Indonesia. Foreign entity is defined as a private or public foreign legal entity. Private foreign legal entity means a legal entity that is established not based on Indonesian law or association or any other entities, having more than 50% of its members as foreigners. Public foreign legal entity means representative of foreign State or representative of international bodies in Indonesia.

Definition of Property

Property is a landed house and/or strata title unit. Landed house is a residential house or horizontal house that is directly established over the land. A landed house and/or strata title unit may have function as a residence, office, and/or trade, and/or social, cultural, and religion. This means that a foreigner and foreign legal entity may purchase property not only for residential purpose but also for commercial and other various functions.

Type of Rights of Land

A property for foreigner and foreign legal entity can only be built over the Right to Use (Hak Pakai) or Right to Rent (Hak Sewa). The Right to Use may be issued (i) over the free State land, or over a State land that is previously used as the Right to Manage (Hak Pengelolaan) and (ii) over the Right to Own (Hak Milik). The Right to Rent may be issued (i) over the Right to Own and (ii) over the Right to Manage.

The granting of the Right to Use over the Right to Own must be evidenced by the deed of granting of Right to Use made before Land Deed Official (Pejabat Pembuat Akta Tanah). The granting of Right to Use must be registered in the District Land Office in accordance with the Government Regulation Number 24 of 1997 on Land Registration. The granting of the Right to Rent over the Right to Own or over the Right to Manage must be evidenced by the deed of lease of land, made before Notary or Land Deed Official.

Period of Rights

The period of the Right to Use is maximum for 25 (twenty five) years and may be maximally extended for another 20 (twenty) years. The Right to Use may also be granted indefinitely for government representative office, representative office of foreign State, and for the use of social and religious entities.

The period of the Right to Rent over the Right to Own is maximum for 50 (fifty) years and may be maximally extended for another 25 (twenty five) years. The period of the Right to Rent over the Right to Manage is maximum for 75 (seventy five) years and cannot be extended.

The table below will clearly describe the period of rights:

Type of Rights Period Extendable Total
Right to Use 25 years or indefinitely 20 years 45 years or indefinitely
Right to Rent (over the Right to Own) 50 years 25 years 75 years
Right to Rent (over the Right to Manage) 75 years - 75 years

Requirements to Own Property

Requirements to own property for a foreigner are as follows:

  1. Having domicile or presence in Indonesia territory, evidenced by the immigration document i.e. visit license or temporary residence license or permanent residence license;
  2. Employ Indonesian nationality as housemaid and/or house keeper, minimum 2 (two) persons for every landed house or 1 (one) person for every strata title unit, with no double job for another property unit, evidenced by letter of statement on willingness to employ Indonesian nationality;
  3. For a foreigner with document status of visit license, he or she must be in Indonesia every year for a minimum of 14 (fourteen) days, evidenced by a letter of statement to visit.

The form of letter of statement on point 2 and 3 set out above will be determined by the Minister Regulation.

Requirements to own property for foreign entity are as follows:

  1. Having a representative office in Indonesia territory, evidenced by related document necessary for that purpose that is published by authorized official;
  2. Having a program to prepare residence for foreign and Indonesian nationality employees working at representative office in Indonesia, evidenced by a letter of statement on having a program;
  3. Employ Indonesian nationality as housemaid and/or house keeper for foreign employees, minimum 2 (two) person for every landed house or 1 (one) person for every strata title unit, with no double job for another property unit, evidenced by letter of statement on willingness to employ Indonesian nationality.

The form of letter of statement on point 2 and 3 set out above will be determined by the Minister Regulation.

Location of Legal Action

The location to acquire property and or right of land for foreigner and foreign entity is in Indonesia territory. For a sale and purchase legal action, if the foreigner or foreign entity as buyer cannot be present in Indonesia, the signing of sale and purchase may be authorized through proxy to other foreigner with the same nationality or foreign entity, evidenced by a power of attorney. The preparation of power of attorney is made before Head of Indonesia Representative Office at foreigner’s or foreign entity’s State. If the purchase of property is made through the promotion by the Indonesian government overseas, then the sale and purchase can be made before the Head of Indonesia Representative Office at the location of promotion.

Legal Rights of Foreigner and Foreign Entity

Property and right of land owned by a foreigner or foreign entity may be assigned through sale and purchase, bequest, exchange, or inheritance. A property and right of land owned by a foreigner and foreign entity may only be assigned to Indonesian nationality and/or Indonesian legal entity through sale and purchase or bequest.

Conditions Precedent Prior to Assignment

The table below will describe the conditions precedent prior to assignment of property by the foreigner or foreign entity:

Type of Right Must be Approved by
Property built at the Right to Use issued over a State land Head of District Land Office
Property built at the Right to Use issued over the Right to Manage Head of District Land Office and must be approved by the holder of the Right to Manage
Property built at the Right to Use issued over the Right to Own Holder of the Right to Own
Property built based on the Right to Rent over the Right to Manage Holder of the Right to Manage
Property built based on the Right to Rent over the Right to Own Holder of the Right to Own

Limitation of Property Ownership

The developer or individual is not allowed to sell, to bequest and lease land or ready to build land to foreigner or foreign entity in order to build a house. Developer or individual can only sell an already-built house and ready to be occupied. Foreigner or foreign entity may only acquire ownership for new property that is built by developer or individual. The exception to the rule applied if the acquisition is as the result of inheritance, exchange between foreigner in the same State or between foreigner and foreign entity in the same State.

A foreigner can only acquire property with the quality or type ranging from middle high to luxury class, with price per unit US$250,000 at the minimum. For a landed house, it may only be built over a land with 600m2 (six hundred meter square) area for every unit. Ownership by foreigner is maximum 6 (six) units within one municipal administrative jurisdiction.

A foreign entity can own property in accordance with the necessity by foreigner and/or Indonesian nationality working at the representative office in Indonesia. Foreign entity can own simple type house to provide housing needs to Indonesian employees working at the representative office in Indonesia. If the properties are located within one residential complex, then the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of housing units that are and will be built and (ii) the amount of family head or owner within one complex. For strata title units, the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of strata title units, (ii) the amount of proportional comparative value (nilai perbandingan proporsional), and (iii) the amount of condominium tenant association within one condominium. The limitation of ownership does not apply for a foreign entity that has program to provide housing needs for Indonesian nationality employee working at the representative office in Indonesia.

Plan for Enforcement

As mentioned at the beginning of this summary, this summary is based on draft of new Government Regulation. The Government of the Republic of Indonesia has planned to enforce this Government Regulation at the FIABCI World Congress that will be held in Bali, Nusa Dua, between 25 – 28 May 2010. This draft may be changed from time to time. It may be changed materially even at this moment. We cannot provide any guarantee that the contents of the draft will be the same with the enforced Government Regulation. This summary is only to provide hints and preliminary knowledge on the ideas and suggestions by the Government so that the foreigner and foreign entity can have more flexibility to own property in Indonesia.

Eddy Leks

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Property Ownership for Foreigner and Foreign Entity Based on Draft of New Government Regulation
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