Procuremet of Property in Indonesia

1000px-Jakarta-Skyline-from-Bund

 

Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania. The Indonesian national motto “Unity in Diversity” referred to one of the greatest attractions of the archipelago comprising approximately 17,508 islands and 33 provinces with over 238 million people. It is considered as the world’s fourth most populous country since there are around 300 ethnic groups, a result of both the country’s unique geography and history. Many Indonesians may identify themselves first by their ethnicity and cultural group and secondly as Indonesians. The bond that binds the people together is their lingua franca, Bahasa Indonesia and Pancasila, the national philosophy, which stresses the doctrine of unity and universal justice for all Indonesians.

 

It is nearly impossible for a foreigner to purchase a  mortgage from an Indonesian financial institution that falls under the right-of-use category. Generally, these institutions reject to sell a mortgage for property that falls under this category due to their prudent management (despite the fact that there is no law that prohibits banks to provide credit for such purchases). In Indonesia, a mortgage for a house is called ‘kredit pemilikan rumah (KPR)’ while a mortgage for an apartment is called ‘kredit pemilikan apartemen (KPA)’.

On 22 December 2015, the Indonesian President Joko Widodo signed a government regulation (Government Regulation No. 103/2015 on House Ownership of Foreigners Residing in Indonesia) that allows foreigners who reside in Indonesia (legally) to own landed houses in the country for an extended period up to 80 years. In addition, the ownership of the house is inherited by the foreigners’ offspring. Earlier in the year, foreigners had already been allowed to own luxurious apartments. However, the law applies only to luxury residences priced above IDR 10 billion (US$723,000). Foreign ownership of landed houses or apartments falls under the right-of-use category (locally known as ‘hak pakai’), which is weaker than the right-of-ownership category or freehold (locally known as ‘hak milik’) that can be acquired by Indonesian citizens only.。

As mentioned above, after the new regulation has been implemented, foreigners who reside in Indonesia can now purchase property under the ‘right-of-use’ category. However, there are several requirements and rights related that tied to this purchase that foreigners need to take into consideration:

1)  Foreigners can only buy property in Indonesia at a fixed minimum price requirement that is determined per region.In Jakarta, for example, foreigners can only purchase a landed house with a minimum price of IDR 10 billion (approx. USD $752,000).

2)  Foreigners can only purchase property in Indonesia directly from the developer.

3)Foreigners are not allowed to rent out property in Indonesia to a third-party.

4) When the foreigner leaves Indonesia to reside in another country, he/she needs to release or transfer the right-of-use to another person who meets all requirements to own property in Indonesia (this can be another foreigner or an Indonesian citizen) within one year after his/her departure from Indonesia. If ownership is not released within one year after the expat has left Indonesia,then the Indonesian government has the right to confiscate the house.

5)Foreigners can buy a landed house in Indonesia for an initial period of 30 years. This can be extended twice, once by another period of 30 years and then by a 20-year period (hence foreign ownership can reach a total of 80 years).

Recently, the Indonesian Real Estate Developers Association (REI) has expressed their hope for the central government to make it easier for foreigners to obtain a mortgage for the purchase of property in Indonesia. They deduced that this implication will boost the Indonesia property sector. One measure that could be introduced, for example, is that foreigners can obtain a KPR/KPA mortgage with a lower loan-to-value (LTV) ratio as this allows lenders to consider higher-risk borrowers. Moreover, the current gross rental yield is 8.61% per annum which make it an excellent port for the future long-term investment. A view of long-term appeal excellency to investors has taken these assets into account: 1) Gross rental yield, 2) Income tax, 3) Capital gains tax, 4) Round-trip transaction costs, 5) Potential landlord and tenant problems, 6) Long-term GDP growth, 7) Potential over-supply, and 8) Affordability. All Indonesia major cities saw nominal property price rises during the year Q2 2016.Batam led the price hikes with house prices rising by 10.65% (6.9% inflation-adjusted).  Followed by Bandar Lampung (8.46%),  Palembang (7.95%), Medan (6.25%), Bandung  (5.77%), Makassar (5.66%), Banjarmasin  (5.36%), Manado (5.27%), Surabaya (4.28%), and Padang (3.93%).

 

● Prices of Indonesia Property

Prices of strata title apartments in Jakarta range from US$ 3,645 per square metre (sq. m.) in Jakarta CBD, US$ 2,746 in South Jakarta, and US$ 1,764 in the capital’s non-prime areas, according to Colliers International. However, in Q1 2016, Jakarta apartment price rises by 8.4%y-o-y to IDR 30.84 million (USD 2,351) per sq. m. though its market still remain strong. The South Jakarta has recorded the highest annual increase in apartment prices of 10.1% in Q1 2016(approximately around IDR 36 million [USD 2,746]), followed by non-prime areas(8.8%) and Jakarta’s central business district (8.3%).

On the other hand, Bali is one of Indonesia wealthiest regions since both Indonesians and foreigners are keen to invest here. Almost 80% of Bali’s economy depends on tourism. Based on Global Property Guide survey in April 2016, the villas on Bali are priced at around US$ 1,100 to US$ 2,300 per sq. m.About 6 years ago, a four-bedroom villa was built in a freehold land in Berawa. The price was between USD 600,000 to US$ 700,000. Nowadays, the same villa is worth USD 1.65 million!

● Buying Property in Indonesia

 With all the knotty formal laws of the country, the buying procedures of  the property for the foreigners might be considered as quite difficult.  However, once you have set your sights on something, there is nothing  that could stop you from achieving it. Now, let’s get back to business.  After much consideration, these are the line of least resistance available to foreigners for buying property in Indonesia.

 

1. Purchasing Apartment/ Office underStrata Title

Government Regulation No 41 of June 1996 stated that foreigners who  reside in Indonesia, or visit the country regularly for business purposes,  can purchase a home, apartment or condominium as long as it isn’t a part  of government-subsidized housing development. However, foreigners can  effectively lease (not fully own) an apartment for up to 80 years under the  right-of-use deed, but not a free standing house.

 

2. Buying Property Through an Indonesian Nominee/Friend to Hold Your Title

 Foreigners could acquire land through an Indonesian  representative or Indonesian friends. This means that foreigners  could purchase the property but the ownership of the land is  transferred from the previous owner to the subjected Indonesian  representative or nominee. It is a common practice amongst the foreigners however, for their security purposes, since according to law, this person would be the legal owner, three agreements must be closed in with the nominee:

i. Loan Agreement –A statement claimed that the foreign buyer lent the purchase

ii.  Irrevocable Power of Attorney –Gives the foreign buyer a full authority over the land related to sell, lease, mortgage, etc.

iii. Permanent Right of Use Agreement –Gives the foreign buyer the full rights to the use and occupancy of the land.

 

3.Purchase Property by an Foreign/Indonesian Couple

Another easier way to purchase the property is by marrying with  the local. However, the key in purchasing property availability is  whether the Indonesian spouse and the foreign spouse have a  prenuptial agreement for separation of the property. The couple  could legally purchase the property if and only if they have this  agreement. The agreement must be signed before the couple is  married. According to the Indonesian law, property is considered as jointly owned after marriage. However, according to Agrarian Law, unless there is a prenuptial agreement, the property owned by the Indonesian spouse also becomes the foreign spouse’ property. Therefore the property must be sold within one year of marriage to a foreigner or converted from “hak milik” (right of ownership) to “hak pakai” (right of use) which would decrease the value of the property. (Pasal 26 ayat 2).

 

4. Buying Through a Penanaman ModelAsing (PMA) Company (Foreign Company)

 PMA stands for “Status of doing Business” in Indonesia.  A PMA  company has 30 years to operate after the start-  up if the company  is recognized by the  Indonesian government as a legal entity. It  can grant an  additional of 30 years and another 30 years if they  could  expand their project through additional investment. This  sanction can be controlled by foreigner 100%.

The privilege to the PMA company is either the Right-to-Build (Hak Guna Bangunan –HGB) or Right-to-Cultivate (Hak Guna Usaha -HGU). HGB permitted the right to build or construct on this land and it is valid for 30years, can be extended for an additional 20 years and even for another 30 years after that. On the other hand, HGU permitted the company for the farming,fisheries or animal husbandry for 35 year with an extension of another 20 years. The cost for setting up is approximately US$5000. The process will take almost 3 to 4 months and once completed, the company can apply for the foreign directors’ work permits -3 permits in the first year of operation. These are the requirements to set up a PMA company:

i.  A detailed business plan to be submitted.

ii. Operating in a business environment that adds value to the country in terms of foreign skills, employment and environmental benefit.

iii. Make an appropriate cash deposit in Indonesian based bank –The amount varies and is calculated based on the business capital employed.

iv. The property investment must be shown as an asset of the company.