Property Ownership in Bali

 Freehold Methods

1: Hak Milik (the term for freehold title in Indonesian language) using Nominee structure

This is a contractual agreement - in this case between a foreigner and an Indonesian national whom he nominates to hold the Hak Milik title (on his/her behalf). This structure typically has several agreements (such as right to use and right to sell) as well as a mortgage agreement which states that the Indonesian nominee has borrowed the money in order to buy the property. This method has been used for many years now and a clear process has now evolved with legal precedents being established.

Simultaneously to acquiring the land, the Indonesian individual completes three additional agreements with the foreigner:

a: A loan agreement acknowledging that the foreigner has lent to the Indonesian citizen the purchase price of the land. This is then registered on the land exactly the same as a first mortgage or caveat. This is then noted on both the title at the Land Department and the copy held by the owner. There can be no dealing in the land until the loan agreement is cleared from the title. With the foreigner's loan details registered on the title, it also prevents the reissuing of new title deeds (due to "lost" title deeds) without the foreigner's consent.

b: An irrevocable power of attorney is signed giving the foreigner complete authority to sell, mortgage, lease or otherwise deal in the land. Without notice to the Indonesian Citizen, the foreigner can sell or otherwise deal in the land.

c: A permanent right of use agreement is completed, giving the foreigner rights to use and occupy the land.

To cover the event of death of the nominee, the Power of Attorney is drafted in such a manner so that the governing conditions are passed on to the heirs. In the event of subsequent dispute with the nominated Indonesian, the Power of Attorney allows the foreigner to sell the land to another Indonesian.

2: Corporate ownership

A foreign investment Limited Liability Company incorporated in Indonesia is commonly known as a PMA. All Indonesian companies whether they are Indonesian-owned or are foreign invested, are allowed to hold a 'Right to Build' title called Hak Guna Bangunan (HGB). In this case the freehold title (Hak Milik) is relinquished to the state and the company is given possession of the property under a right to use title (normally) granted for a period of 30 years with rights of extension (+20 + 30 years) - each extension subject to tax.

3: The 'Right to Use' (Hak Pakai)

Hak Pakai means "Right of Use" and works a little like a lease but is different in that the Hak Pakai certificate of title can actually be issued in the name of the foreign owner and the owner's interest is noted as an encumbrance on the Hak Milik title, unlike a leasehold structure.

The freehold Hak Milik owner grants the purchaser a Hak Pakai title of an initial 25 year term with a pre-determined amount of fixed term renewals. However, this has been a bone of contention with regard to the legalities of issuing such renewals and legal opinions vary on both the amount of renewals promised and the length of term of such renewals. As a result we are hesitant to recommend this variation of ownership.

 

Leasehold (or Hak Sewa)

This is a contractual agreement between the land owner and the foreigner. While leases are often notarized documents they have no official record of existence in the National Lands Department. As such there can be difficulties in enforcement when there are conflicting documents or multiple lease agreements.

A Typical Transaction

The following summary outlines the essential steps involved in a foreign investor transacting a Hak Milik ("Freehold Title") property in Indonesia.

Phase A- Due Diligence

The Notary initially checks all aspects of the Hak Milik property and advises in relation to any impediments to acquisition of the Hak Milik property.

Phase B - Hak Milik Transfer

Should the foreigner decide to proceed on the basis of the favorable outcome of the due diligence, the Indonesia Hak Milik owner executes with the nominee/designee of the foreigner, who must be an Indonesian citizen, either:

(a) an Akte Jual Beli ("AJB" or "Sale and Purchase Agreement") pursuant to which 100% of the purchase price is paid; or
(b) a Perjanjian Pengikatan Jual Beli ("PPJB" or "Agreement Binding for Sale and Purchase") pursuant to which a deposit is paid subject to payment of the balance of the purchase price. The deposit is generally not held by a stakeholder but is typically paid to the vendor.


Phase C - Power of Attorney etc

See  Freehold Methods. 1a, b and c above.

 Note: These laws were in place four or five years ago and some may have changed. Please also note that I did not write the above and so I take no credit for its production. It is in fact an old work document of mine that I found in my computer. Recently somebody asked me for information and I thought it may help anyone thinking of purchasing property in Bali.