Tips on Buying Property in Indonesia

Once you’ve located a piece of property you’re interested in buying, don’t put down any major cash until you’ve had an independent third party do a thorough land due diligence research. Do not give a salesperson any money as a down payment; always do it through the company’s official channels and get a receipt. It is recommended that even a small deposit payment to the notaris or agency managing the transaction be made through an English escrow arrangement. You must verify the existence of an IMB if a villa or other building has been constructed on the land you intend to buy. A home construction permit. If a structure is constructed without the proper permits, it may need to be torn down or the procedure of obtaining a permit after the fact may be extremely difficult.

For vacant, undeveloped property, the vendor must provide proof that it has been approved for an IMB by the local kepala desa (village head). Although it does not happen often, there have been cases where the individual selling a property does not actually own it, hence proof of ownership is required. Never settle for a photocopy of your certificate of ownership; demand to see the original. If the vendor cannot provide the original, it should raise red flags. That suggests the bank probably has it. Define areas of responsibility with absolute certainty. The survey drawing on an ownership certificate that’s older than four years is likely to be outdated and erroneous. The old method of measuring using a transit and strings was far less exact than the modern one of using GPS devices. As soon as the survey either re-defines or verifies the boundaries, BPN is to dig concrete posts at each corner. To avoid having to replace them in the future, invest in the more expensive variety that features re-bar feet spreading out from the bottom of the post and concrete poured all around those feet. Inquire about the seller’s ability to provide documentation showing that they are current on property taxes. You should also verify that there are no easements or setbacks that might affect your plans.

Laws Regarding Real Estate

Similar to the rest of Southeast Asia, foreigners in Bali are not allowed to own land outright. Only a naturalised Indonesian citizen can own property with a Hak Milik (Freehold) title. However, foreigners are permitted under the law to acquire property interests in Indonesia. When purchasing real estate in Bali, we still advise customers to consult with top-notch legal counsel. Details about buying property in Bali and the rest of Indonesia are provided here. In Indonesia, there are essentially three ways for a foreigner to acquire legal title to land:
Investment in Real Estate as a Long-Term Source of Capital

It is also possible to exercise control and/or ownership of an Indonesian P.T. (limited liability domestic or foreign investment Company) that holds a Hak Guna Bangunan.

Method 1: Invest in the Long-Term Growth of Land Value.

The most typical strategy for “acquiring” real estate in Bali has been to do so in the name of an Indonesian person, i.e., through the formation of a joint venture with an Indonesian citizen. Real estate purchases with a partner have the usual dangers, but this strategy has been employed for so long that a clear procedure has emerged, with corresponding legal precedents. You may need to work with the Notary as a partner. Following successful completion of land due diligence (LDD), the partner will acquire title to the selected property from the seller. Any transfer of land ownership should be recorded on the official title document.

There is no clear transition of ownership, hence we advise against the original landowner becoming the foreigner’s selected individual. Previous cases of this kind have been challenged and won by the families involved, who claimed that the transfer never ever occurred. Three more agreements are made between the Indonesian partner and the foreign investor at the same time as the land is purchased.

Generally speaking, there are four main contracts that the local partner should sign with the foreign investor:
A loan agreement recognising the foreigner’s loan to the partner for the acquisition of the property. This is then recorded at the Land Department (we termed it “HAK AKTA TANGGUNGAN” – registration at the Land Department is 0.5 percent of the loan) and on the copy of the title owned by the owner, much as a first mortgage or caveat. Until the loan agreement is released from the title paperwork, no transactions may occur regarding the property (Or if you wish the property sold only by you, you can state that on the agreement). When a foreigner’s loan information is recorded on the title, no fresh title deeds can be issued without the foreigner’s permission.

The second step is for the foreigner to sign an irrevocable power of attorney that gives them full rights to the property, including the ability to sell, mortgage, lease, construct, improve, and otherwise deal with it. The foreign partner is free to sell or otherwise deal with the property without informing the domestic partner. Include the authority to freely replace the partner at any moment.

Third, the non-native acquires the legal right to use and occupy the property by signing a permanent right of use agreement.
The Power of Attorney is written in such a way that the governing conditions will be handed on to the foreigner’s heirs in the case of the partner’s death. This Power of Attorney also gives the foreigner the right to sell the property to another Indonesian in the case of a future disagreement with the partner.

Another option is to hire a professional service.
To attract foreign investment, the Indonesian government established the PMA programme (Penanaman Modal Asing, or Foreign Investment Company) in 1997. With the use of a PMA, foreigners can establish a business in Indonesia that is 99.8 percent owned by the foreigner and which can then own real estate as an asset. In order to start a PMA business, you must:
First, please present a thorough business strategy.

Deposit a sufficient amount of money in a bank in Indonesia to use as operating capital. Deposits are determined by the entire amount of working capital.
Third, include the real estate investment as an asset on the company’s balance sheet.

To begin operations, step four is to pay the PMA’s first charge, which was, at the time of printing, around Rp 50-100 million (around Au$5,000-10,000).
Although a non-Indonesian investor can theoretically own 100% of a PMA, they should be aware that the only accessible form of title is HGB, which is valid for 20 years plus a further 20-year extension and another 20-year extension (for a total of 80 years). To renew for another 20 years, you’ll have to fork up around $2,000. Also, keep in mind that the central governing authority for PMA firms in Indonesia, BKPM, requires all PMA entities to provide semi-annual complete reports on the state of the company, including tax payment, all asset acquisitions, and changes in ownership. One major failure of foreign investors using the PMA Company structure is failing to file tax filings. Maintaining PMA compliance may be handled by a local accountant at a low cost, and if you have collected rent, your tax obligation will be little.

Method 3: A Non-Indonesian Resident Is Granted Leasehold Title to Real Estate in Indonesia.
A non-Indonesian resident who meets certain requirements can sign a lease for 25 or 40 years with the option to extend it for another 25 or 40 years in Indonesia. During that time, the Lessee has the right to utilise the property and the structure (if any) on the property. This is a typical practise in areas where it is difficult to acquire land outright, or in cases where the property will be utilised for commercial purposes, such as the rental of villas, warehouse space, retail space, etc. The acquisition process might be streamlined if the property you want to buy already has a certificate. A binding sale agreement, or “akte jual beli,” is the initial stage in the purchase of any property. This paper will bind the parties together until the certifications are ready.

 

Contracts for the acquisition of land in Indonesia are typically written in Indonesian and must be attested by a government-approved Notary. On the other hand, if necessary, translation services can be provided. The Notarise will handle paying any applicable property transfer tax to the government prior to closing. This tax is calculated as 10% of the Land Registry Office’s assessed value of the property, which is typically much lower than the purchase price. Both the buyer and the seller both pay 5%. Buy or sell property in Indonesia fast with our expert advice.

 

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