There are currently four options for foreigners to purchase the real estate in Indonesia:
- Leasehold (Hak Sewa)
- Right to use (Hak Pakai)
- Freehold (Hak Milik)
- Corporate tenure (Hak Guna Bangunan or “HGB”)
A. Hak Sewa (Right to Rent)
This is a simple rent agreement set for 25-30 years with an option of the prolongation for the same term. The later right is set in writing in the initial rental agreement. This option is widely used by foreign investors buying land for a villa construction. The leasehold possible only between two individuals only, and confirmed by a public notary. Most often those leasing agreements are not registered by any Indonesian state authorities as it is not required by the law. The Leasehold is considered to be the most simple, cost effective and secure arrangement.
2. Hak Pakai (right to use)
This is a right to use granted and registered by Indonesian National Land Office for 25 years with an option of prolongation for another 75 years (100 years in total). This land right may not be sold, exchanged or transferred. In order to sell this property in the future one must change the status to a Freehold: Right of Ownership (Hak Milik)
Hak Pakai considered to be the most secure form of the ownership. There are set limitation of maximum 0.5 hectars, that make this form of ownership impossible to use for any large commercial projects, including hotels. It also requires a foreigner to obtain & maintain a work or a living permit (named KITAS). Any sale or purchase transactions subject to five percent tax, calculated on the land value set by the Indonesian Cadastral Survey.
3. Freehold: Right of Ownership (Hak Milik)
This right can only be held by an Indonesian citizen only. This land can be sold, transferred, bequeathed, and mortgaged. Despite the set by law limitation this is the most common in the past way of the real estate purchases by foreigners. Land or property were bought by a foreigner lending the purchase price to an Indonesian citizen, who was acting as a nominee buyer. The lending agreement was registered by an Indonesian notary. After the purchase a foreigner technically was leasing the property from the Indonesian citizen, who was acting as a nominee owner. There was always a risk of a conflict between a lender and a nominee owner that was subject to lengthy and costly court legislation process usually not in favor of the foreign investors. This scheme is no longer widely used and often declined by the Indonesian notaries.
4. Corporate tenure (Hak Guna Bangunan or “HGB”) right to build
This option available to any legal entity set and registered in Indonesia. The right allows to own and sell unlimited properties for the period of up to 30 years with an extension option for another 20 years.
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