How to Buy Properties in Indonesia

Review by : Yuli SE., MM

If you are thinking about what should I buy in Indonesia property might be the answer. The process of buying property in Indonesia was a little bit tricky in the past.

However in this modern era, buying properties in Indonesia gets so much easier compared to the past.

The term tricky and easier refers to any expat who want to posses ones in Indonesia. Even though the process is pretty much simplified, there are still some process that need to be passed. Read more about Facts of Islam in Indonesia

In the late of 2015, the foreign citizens who reside legally in Indonesia is permitted to have land or houses possession for eighty years period.

Meanwhile it was so hard for expats to own properties in Indonesia back then. Now, the expats can buy properties in Indonesia under the ‘right-of-use’agreement.

The right of use agreement or hak pakai is a law concerning House Ownership of Foreigners Residing in Indonesia.

The right allows the foreign citizens reside in Indonesia to purchase housings under certain terms and conditions, such as:

The landed house can be bought for 30 years period, and the period can be extended twice. The first extension will add another 30 years period meanwhile the last extension will allow the expats to extend the ownership for 20 years long. So it will be 80 years of possession in total. Read more about Islamic Boarding School in Indonesia
The property that is desired by expats must be purchased directly from the property’s developers.
Regarding the price, the price of the property must be purchased at a minimum price which is determined by the region.
Expats can not sublet the property to the third-party under any circumstances.
When the expats are desired to leave the country and reside elsewhere outside Indonesia, they must relinquish the right of use.In addition, the expats can also transfer the right of use to someone who meets the requirements to hold the property ownership. And those process must take place within one year of the expat’s departure from Indonesia.

It is true that the right of use is beneficial for the expats. However, the right of use is still weaker compared to the right of ownership obtained by ordinary Indonesian citizens.

This condition will make it difficult for non-citizens to get a mortgage from a state financial institution. Read more about Natural Things in Bali Indonesia

Actually there is no law which allows the purchase of credit from Indonesian banks for this purpose, but still, the purchase of properties by expats remain a sensitive topics.

The pricing itself is higher than the normal rate. As stated above, the xpat must purchase the properties at a minimum price determined by the regional government, so for example in Jakarta expats have to pay a minimum of 10 billion IDR.

And it must be obeyed by the expats who wants to buy properties under the right of use in Indonesia.

Anyway worry not, if the right of used does not satisfy you, there are three other options available for you.

So you can buy properties in Indonesia and not abide by the right of use. Those three options are as this follow: Penanaman Modal Asing (PMA)

1. Penanaman Modal Asing (PMA)

PMA is a status of doing business in Indonesia or also known as foreign investment.

When expats doing business in Indonesia, the PMA company has 30 years period to operate in Indonesia after it is established and legally formed. After that, the mentioned company can extend the ownership for another 30 years period. Read more about Common Phrases in Bahasa Indonesia

Not only until that scale, a PMA company can do another 30 years extension if its company is enough to obtain additional financial investment.

Moreover, this company can be owned fully by the expats or foreigners.

We talked much about the right of used and the right of ownership, there is another right called as the right to build (Hak Guna Bangunan) which is available for PMA companies.

The right to build or construct on land is valid for 30 years, which can be extended for an additional 20 years, and then for a further 30 years thereafter.

In order to find a PMA company, you will have to do this following steps:

Submit a detailed business plan.
Operate in a business environment that adds value to Indonesia, specifically in terms of foreign skills, employment and environmental benefit.
Make an appropriate cash deposit in an Indonesian based bank. (The amount varies and is calculated from the capital employed in the business).
Show the property investment as an asset of the company.

It will take about 3 to 4 months for the whole applications to be processed. After it is fully processed, the company may begin to apply for work permits for foreign directors. Read more about How to Apply for Indonesian KITAS

In the first year the company can apply for three permits. The cost of setting up a PMA company is roughly US $3,000.

2. Leasehold Title

This option is suitable for foreigners who is working in Indonesia or having residency visa.

The lease has 25 years period and then can be extended for another 25 years period.

Take a note that it is important to contact and discuss with Indonesian Notary’s Local Office (PPAT) if you wanted to do transaction and monetary exchange.

Western buyers may be used to giving a deposit but it is not advisable as there is no code of conduct for estate agent companies in Indonesia and they have no legal reason to protect the best interests of the buyer.

There are two types of land in Indonesia which is the registered land and the unregistered land. Read more about How to Live Healthy in Indonesia

Registered land is certified and registered at the local land office meanwhile unregistered land is owned by a community (Tanah Adat).

Therefore if an expat wants to purchase and, it must be analyzes first whether it belongs to community or government ownership.

3. Indonesian Representative

This is the last option for you and it is common for an Indonesian representative to serve as an intermediary and acquire land for the purchaser.

Ownership of the land therefore passes from the previous owner to your representative. For the buyer’s safety, three agreements must be met with the Indonesian representative. The three agreements such as:

Loan agreement: this agreement stated that the foreign buyer lent the purchase price to the Indonesian representative.
Irrevocable Power of Attorney – this gives the foreign buyer full authority to sell, lease, mortgage, etc. the land.
Permanent Right of Use Agreement – this gives the foreign buyer full rights to the use and occupancy of the land.