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.
