Just went to Indonesia last week and realized that protective rules are more general than I previously had thought.
So the origin – Indonesian Agrarian Law, Law No. 5 of 1960, governs the property ownership in Indonesia in regards to lands.
Article 21.
(4) As long as person possesses a foreign nationality in addition to his Indonesian nationality he/she may not possess any land with ownership right…
Land ownership is called Hak Milik (Right of Ownership) (“HM”), the most complete land title available under Indonesian law. Only Indonesian citizens are allowed to hold HM
Also stated in this law, foreigners are permitted to purchase land or homes under the “Hak Pakai” or “Right to Use” title.
Article 41.
(1) The right of use is the right to use and/or to collect the product, from land directly controlled by the State, or land owned by other persons which gives the rights and obligations stipulated in the decision upon grating this right by the authorized official, or in the agreement to work the land, as far as it not conflict with the spirit and the provision of this law.
Article 42.
Those who may obtain the right of use are:
a. Indonesian citizen;
b. Foreigner residing in Indonesia;
c. Corporation which have been established according to Indonesian Law and having they seat in Indonesia;
d. Foreign corporations having a representation in Indonesia.
There is also the “right to lease”
Those who may become holders of the right to lease are:
a. Indonesian citizens;
b. Foreigner residing in Indonesia;
c. Corporation which has been established according to Indonesia law and having their seats in Indonesia;
d. Foreign corporation having a representative in Indonesia;
In practise, there are usually 3 ways:
1. Hak Pakai (right to use),
for a period up to 80 years (an initial period of 30 years and can be extended twice by 20 years and a further 30 years).
The Indonesian banks will NOT lend money to property owners that only have Hak Pakai status for their property.
2. PT PMA (Perseroan Terbatas Penanaman Modal Asing)
In short, PT PMA = foreign limited liability company
PMA is a legal entity through which a foreign person, foreign company, or foreign government body can obtain the property ownership in Indonesia (meaning generating revenue streams and profit). The establishment of a PT PMA is regulated by Law No. 40/2007 regarding Limited Liability Companies.
PMA can acquire “Hak Guna Bangunana” (“HGB” ) titles, which is the “right to build”
HGB can later easily be converted back to Hak Milik, for example, if the property is sold to an Indonesian or if the foreign investor decides to use the Nominee method.
HGB has a maximum initial period of 30 years and can be extended for a maximum period of 20 years.
HBG can be mortgaged for credit applications to financial institutions.
3. Nominee method
Essentially, it is purchasing a property with its title in the name of an Indonesian citizen. Not allowed.