Housing & Property

When looking for a place to live or work in Indonesia, it is important to know the basic property regulation. Hereby we provide some vital information regarding housing and the ownership system.

Property ownership

Regarding housing and property, it is highly recommended to consult a legal and financial expert like AdvintA before paying or signing anything concerning real estate transactions.

Basically there are 4 types of property related rights you should get acquainted with when residing in Indonesia, being:

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The Right of Ownership (Hak Milik)
  • This refers to full ownership rights of land and property; subject to regulation, the Hak Milik title owner can use the land a/o building for any purpose.
  • The ownership title is valid indefinitely so it does not have to be extended.
  • Only Indonesian citizens and certain Indonesian legal entities are allowed to hold a Hak Milik title.
The Right of Use (Hak Pakai)
  • This refers to usufructuary rights of land or property owned by the state, a private company or an Indonesian citizen. The user rights apply to utilization of the land or reaping the ‘fruits’ of it.
  • The user rights title is valid for a predetermined period, agreed upon by contract between the Hak Milik title holder and the Hak Pakai title holder and may be extended.
  • Besides Indonesian citizens and companies, also foreign nationals who reside in Indonesia and foreign legal entities which are based in Indonesia are allowed to hold a Hak Pakai title.
The Right to Build (Hak Guna Bangunan)
  • This refers to the right to build and use a construction on a land plot owned by another party.
  • A Hak Guna Bangunan (HGB) can be granted for a period of maximal 30 years, with a possible extension of 20 years.
  • Indonesian citizens, companies and (partly) foreign owned companies are allowed to hold a HGB title.
The Right to Cultivate (Hak Guna Usaha)
  • This refers to the right to cultivate state-owned land for agricultural purposes.
  • A Hak Guna Usaha (HGU) can be granted for a period of maximal 35 years, with a possible extension of 25 years.
  • Indonesian citizens, companies and (partly) foreign owned companies are allowed to hold a HGU title.
Each of these land titles are registered at the district office of the national land agency, known as Badan Pertanahan Nasional (BPN).

As illustrated in the HGB rights, Indonesian law recognizes horizontal division, where the ownership title of a land parcel can be separated from the ownership title of the object on it.

Regarding real estate property rights, Indonesian law does not recognize division between legal ownership and beneficial ownership where individuals are concerned. The registered owner on the BPN certificate is considered the full title-holder, being the juridical owner as well as the beneficiary.

The certificate issued by the BPN guarantees the rights of the title holder.
There is a 5 year grace period however after the issuance of the land certificate to contest the respective property rights.
Keep in mind that the concept of land registration was only introduced in 1960 when the agricultural law was passed, so there is still a substantial amount of land which is not properly registered.
Note that in case of ‘development for public interest’ purposes, the state reserves the right to expropriate the land in exchange for compensation to the land owner.

Proof of ownership of a land parcel is evidenced by the land certificate of the BPN. Proof of ownership of a house is usually shown through the building permit (IMB) issued by the spatial planning and settlement department of the local government.

Regarding apartments and representative offices, the Indonesian law indicates relaxation for foreign individuals and companies to purchase an apartment or office unit in storey buildings under a so-called strata title, if built on HGB or Hak Pakai (titled) land.
Note that the land itself must be owned or controlled (Hak Pengelolaan) by the state and that the building block possessor holds a HGB or Hak Pakai title.
This means that you can lease an apartment unit or an office unit in building complex through a lease agreement, but not actually own it.

Real estate transaction

In case of a transaction, the property rights are officially transferred when a deed of sale and purchase (akta jual-beli) is made (in Bahasa Indonesia) and signed in front of an authorized land title registrar (PPAT Notaris).

Besides the buyer and seller, the following parties are usually involved in a real estate transaction:
  • Notary
  • Real estate appraiser
  • Real estate broker
  • Lawyer
The notary must be an authorized land title registrar, known as Pejabat Pembuat Akta Tanah (PPAT) to register real estate transactions and have official jurisdiction over the location of the property. Be aware that not all notaries in Indonesia have the required PPAT qualification.

An appraiser is required to make an accurate and objective estimation of the market value of the property.

The use of a broker is not mandatory but recommended, especially if you are not familiar with the local real estate market or if you want to outsource the promotion and marketing of the real estate to a competent real estate broker.

Due to the lack of public sources and the sometimes deficient title-ship records, it is highly advisable to obtain the services of a lawyer to carry out due diligence or background checks and assess the documentation involved.

AdvintA can assist you in order to avoid any irregularities or illicit transactions when you are planning to buy, sell or rent property in Indonesia.

The seller has no official duty to disclosure towards the buyer, so besides preliminary research it is important to contractually agree the scope of liabilities between the buyer and seller.
Under Indonesian law, the seller can be held liable for any defects unknown by or information undisclosed to the buyer.

Real estate transactions in Indonesia involve a set of laws which go beyond ownership rights.

The following information should be collected before entering into a real estate transaction:
  • Property verification
  • Seller’s information
  • Buyer’s details

The original BPN certificate of ownership must be verified which gives the potential buyer info re the status and title of the property.
Then it must be established whether the property is encumbered with a mortgage or a lease contract and if it is the subject of any dispute.

Besides the BPN certificate, the potential buyer should verify the following info from the seller:
  • ID card (KTP) & Family booklet (KK)
  • Marriage, divorce a/o death certificate (if applicable)
  • Tax number (NPWP) & real estate tax settlement (PBB)
You should verify that the seller is who he/she says he is and that the land and building tax, called Pajak Bumi dan Bangunan (PBB) has been fully paid by the seller.
As the buyer, you should prepare the following information of yourself:
  • ID card (KTP) & Family booklet (if applicable)
  • Marriage certificate (if applicable) & prenuptial or postnuptial agreement
  • Tax number (NPWP)

To prevent any unpleasant surprises, do contact us before getting into a real estate transaction.

The following information should be collected before entering into a real estate transaction:

  • Property verification
  • Seller’s information
  • Buyer’s details

The original BPN certificate of ownership must be verified which gives the potential buyer info re the status and title of the property.
Then it must be established whether the property is encumbered with a mortgage or a lease contract and if it is the subject of any dispute.

Besides the BPN certificate, the potential buyer should verify the following info from the seller:

  • ID card (KTP) & Family booklet (KK)
  • Marriage, divorce a/o death certificate (if applicable)
  • Tax number (NPWP) & real estate tax settlement (PBB)

As the buyer, you should prepare the following information of yourself:

  • ID card (KTP) & Family booklet (if applicable)
  • Marriage certificate (if applicable) & prenuptial or postnuptial agreement
  • Tax number (NPWP)

To prevent any unpleasant surprises, do contact us before getting into a real estate transaction.

Property tax

Real estate transactions are subject to a real estate tax:
  • For the seller, an income tax of 2.5% of the sales price is due.
  • For the buyer, a land & building acquisition duty is due with a maximum of 5% of the purchase price, depending on the region.

The transfer of the ownership title takes place after these taxes are paid.

Mortgage

There are 2 basic types of real estate financing in Indonesia:
  • With government subsidy
  • Without government subsidy

Only Indonesian citizens categorized as ‘low income’ and meeting certain criteria are eligible for government subsidy for purchasing real estate. Without government subsidy, the bank loan is subject to the applicable financing regulations.

In general the loan is a type of mortgage (hak tanggungan), in which the property serves as collateral.
In that manner, the lender/bank (mortgagee) is protected in case of default of the borrower/homeowner (mortgagor).Indonesian banks will not accept property with a Hak Pakai title as collateral and therefore will not lend money based on Hak Pakai rights.
This applies to foreigners as well as Indonesians; the property title for a house in order to get a mortgage must be Hak Milik.
As foreigners legally cannot hold a Hak Milik title, expats in Indonesia are not able to mortgage Hak Milik property or get a loan to purchase such property in Indonesia.The mortgagee and mortgagor must sign the mortgage agreement, authorize it by the PPAT notary and register it at the BPN office.
After registration, the real estate encumbered with a mortgage is evidenced by a mortgage certificate.

If the mortgagor remains in default for a period of 90 days regarding loan repayments and/or interest payments, the borrower can be declared insolvent and the mortgagee can exercise its mortgage rights within 2 months after the insolvency decision.

In such an event the mortgagee cannot seize and keep the property, but must sell it by public auction after which it can keep the sale proceeds.
Ranking rules apply to determine the priority of claims if there is more then one creditor, based on the order of mortgage registration.

In case of a dispute about the insolvency condition, the mortgagor my raise a substantiated claim against the mortgagee.

Housing

Home ownership vs. User rights:
  • A Hak Milik title (right of ownership) represents a higher market value then a Hak Pakai title (right of use).
  • If you got married in community of property with an Indonesian who owns a house under Hak Milik title, that property will become jointly owned according to family law. However, (shared) Hak Milik with a foreigner is not permitted according to the property law.
  • To solve this state of conflicting legislation, the property must be sold within one year of marriage or converted from Hak Milik to Hak Pakai or a legally acknowledged post-nuptial agreement must be made.

So if a foreigner wishes to finance the purchase of a property with retention of the Hak Milik title, the new legal owner must be an Indonesian.
If that Indonesian is your spouse, you need a prenuptial agreement to retain the Hak Milik title, because as we have stated, a mixed-marriage in community of property, prohibits the Indonesian spouse from holding a Hak Milik title.

For a foreigner to protect your property investment, it is highly advisable to arrange mortgage protection.
In that case, your Indonesian spouse is not able to sell the property without first reimbursing your investment amount; thereafter the capital gains can be divided.
Your name as the mortgagor should be printed on the BPN certificate, together with the name of your Indonesian spouse as the property holder. This gives you financial protection re your property investment in case of a divorce.

Nominee ship agreements between individuals regarding property, in which the foreign financier is cited as the beneficial owner and the Indonesian citizen as the legal owner, are prohibited and therefore not legally binding.

Regardless of what is agreed in writing, the legal owner can sell the property and keep the proceeds.
Moreover, using an Indonesian friend as nominee to shelter or hide foreign ownership of property is illegal in Indonesia. If noticed by the government, they have the right to seize the property and revert the ownership back to the state.

Summary

Advinta can inform and assist you with all legal matters and documentation if you (and your spouse) wish to buy, sell or rent property in Indonesia. It is highly advisable to contact us before you engage in any property transaction.

Presenting outdated, invalid or even fictitious documentation is far from uncommon in Indonesia. Property background checks and document authenticity verification are therefore essential in these matters.

Also if you have any financial or legal issues regarding your current property, please contact us so we may represent you in solving the issue.