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Indonesia Property Law

Buying a property in Southeast Asia is often both an investment and a lifestyle decision, and Bali is one of the foremost destinations in the region to do so.
Let us outline some general aspects that a foreign property buyer should take into consideration when looking to invest in Bali, Indonesia.
Indonesia has a rather complex and strict regime of laws regulating foreign investment in property and land. It is essential for any buyer to be familiar with general legal principles and the acquisition options that are available to foreigners.

Indonesia has a rather complex and strict regime of laws regulating foreign investment in property and land. It is essential for any buyer to be familiar with general legal principles and the acquisition options that are available to foreigners.

General recommendations

When considering investing in a country with a legal framework very different from one’s home jurisdiction, it is crucial to have an impartial and independent legal counsel to conduct due diligence before making any substantial financial commitments beyond a fully refundable reservation deposit. Any deposit payments should be placed in a neutral third party’s account, which should preferably be controlled by the buyer’s advisor or agent.

Furthermore, it is essential to check the legality and title of the property. This will usually require checking: whether the person or agent offering the property for sale is the lawful owner or has full authority to deal with the land, that there is legal access from a public road to the property, that the relevant building permit (Izin Mendirikan Bangunan or IMB) or other local permits are in place to allow development, that there are no outstanding taxes owing, and that there are no restrictions on the usage of land that would prevent the buyer’s intended use.

The above checks should always be conducted by the buyer’s independent legal counsel in advance of any closing of an acquisition. In ordinary circumstances, such checks can be conducted within a period of about 30 days.

Freehold ownership (Hak Milik) of properties in Indonesia

It is important to note that only Indonesian nationals (not Indonesian companies) may own freehold title over land in their own name, such title usually being referred to as Hak Milik.

Having said that, based on current laws and regulations, there are essentially three options available for foreigners to acquire a lawful interest in property in Indonesia, which, from our perspective, are generally recommended to provide adequate legal protection.

Right of Use title (Hak Pakai)

One option for a foreigner who resides in Indonesia and wishes to acquire an interest in property is to acquire a title or usage right known as Hak Pakai (right of use). Foreign individuals who reside in Indonesia are generally eligible to hold Hak Pakai title, which would be acquired over the relevant land for an initial period of 25 years, extendable for up to another 20 years through a sale and purchase deed (Akta Jual Beli). The Hak Pakai right may be acquired from an Indonesian individual holding Hak Milik (freehold title), or from the state, in the event the freehold owner relinquished his freehold title over the land, in which case a standalone Hak Pakai title is created, with the name of the foreigner registered on such title.

It is important to note that under current regulations, the land office will require that the foreigner who wishes to register a Hak Pakai title in his/her name provides proof that the foreigner is residing in Indonesia, which requires that a foreigner holds a permit of stay in Indonesia (KITAS or KITAP). This means that under current laws and regulations, Hak Pakai title is generally not available for foreigners who only come to Indonesia as tourists.

Right to Build title (Hak Guna Bangunan or HGB)

Another option for foreigners looking at acquiring and developing a property in Indonesia is to acquire an interest in land under a title known as Hak Guna Bangunan or HGB (Right to Build) title through corporate ownership. HGB title allows an Indonesian company (not foreign individuals) to hold and develop a property for a period of 30 years, with a possible extension of 20 years and a subsequent renewal of another 30 years.

HGB title as a method of investment is feasible for acquisition and development of high-end properties as well as for structuring development projects, as it generally allows acquiring an interest in land through an investment company established under Indonesian law that, under certain conditions, may be up to 100% foreign owned.

Such a foreign-owned Indonesian limited liability company (commonly referred to as a PMA company) requires compliance with certain setup requirements, including ongoing reporting to the Indonesian Investment Coordinating Board (BKPM) and other Indonesian authorities. The establishment of a PMA company also requires investment of minimum funds as set by the BKPM, which is currently set at 10 Billion IDR, and also the obtaining of numerous licences at the national and regional levels. The process of establishing a PMA company in Jakarta requires about 3 months, and subsequently local licences must be obtained in the region where the property is located. It is important to note that using a PMA company for acquiring an individual property is not a permitted purpose under current foreign investment laws.

Long-term lease arrangement (Hak Sewa)

Alternatively, in particular for individual properties for private use, a foreigner may acquire a long-term leasehold right known as Hak Sewa. Such right is granted through a private lease agreement made with the registered freehold (Hak Milik) owner of the land. Typically, leasehold rights are granted for a term of 30 years, possibly with pre-agreed extension options. For any extension options, it is important that the rental for the extensions and the method of exercising the option to extend the lease are clearly agreed to in writing in order to avoid having to renegotiate prices at a later stage. A leasehold right (Hak Sewa) is typically transferable by the foreigner and remains valid in the event the landowner or the lessee die, in which case the lease is continued with the respective heirs of the parties until the end of the term.

Nominee arrangements

Even though properties in Indonesia – in particular Bali – are sometimes advertised as freehold, the reality is that foreigners cannot own land under freehold (Hak Milik) title in Indonesia. The practice that foreigners may attempt to use a local Indonesian citizen as a nominee to hold the freehold title on their behalf and for their sole benefit usually involves a number of documents, including a loan agreement and mortgage against the land, powers of attorney to deal with the land in any respect, and other documents theoretically authorising the foreigner to dispose of and deal with the freehold title, without permission or involvement of the Indonesian nominee.

It is important to note that under Indonesian law such nominee arrangements are illegal and void (Art. 26 of Law no. 5 of 1960 regarding the Agrarian Code), and include the consequence of losing the property without any rights for compensation. Therefore, even though it may still be seen that nominee arrangements to acquire an interest in property are advertised, it is not advisable for any foreigner interested in buying property in Indonesia to adopt such practice.  (We not recommended this option)

The different role of notaries (PPAT) and lawyers in relation to a property transaction in Indonesia

Indonesian law provides that any transaction relating to the transfer of ownership rights or registered entitlements over land must be drawn up and processed before a Land Deed Official (Pejabat Pembuat Akta Tanah or PPAT). A PPAT is a public official who is granted the authority to draw up authentic deeds regarding certain legal actions or transactions in relation to land, which are subsequently registered with the appropriate Land Office (Badan Pertanahan Nasional or BPN). The working territory of a PPAT, i.e. the authority to process land transactions, is always limited to a certain district and region.

Prior to concluding any land transaction, the PPAT is obliged under law to conduct general research regarding the land and/or building. The PPAT would verify the documentation provided by a seller with the official records at the Land Office (BPN). Generally, the checks would include confirming the legal status of the land – namely the details contained in the land certificate such as status of title, location, owner, land size or encumbrances – and the PPAT would also check up-to-date payment of certain, but not all, land and building taxes in relation to the property.

Thus at first glance, it seems that the most important aspects in relation to a property transaction would be covered by the PPAT’s work. However, it is important to note that the PPAT is not a legal representative in a property transaction, but that the PPAT’s obligation is to process a transaction as a neutral and public official in accordance with prevailing land laws and regulations. Generally, a PPAT, usually designated by the seller or an agent, would therefore not provide specific legal advice to a buyer. Also, when acquiring property in Indonesia, besides the general mandatory checks conducted by the PPAT, there are numerous additional circumstances that may come up in relation to a property acquisition that should be investigated by a prudent and diligent buyer of a property.

In relation to a property transaction in Indonesia, it is strongly advisable to conduct additional and specific checks beyond the general checks a PPAT would carry out. For example, a litigation check regarding the owner and seller of a property for sale should be conducted to ensure that the property is not at risk of becoming subject to a possible claim by third parties. Legally protected and unhindered access should be checked, as well as proper payment of certain taxes levied on a property, such as construction tax, which could otherwise become an unexpected major liability of a new owner. In emerging markets, compliance of a building with the actual building permit and public zoning plan should also be confirmed prior to executing any property transaction.


It is generally possible and feasible for foreign buyers and investors to lawfully acquire an interest in property in Indonesia. Any person looking at buying a property should seek independent legal advice to determine the most appropriate method of purchase for their personal circumstances or investment purposes.





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