As a country, Indonesia is a dream destination for foreigners. Thanks to its tropical climate,聽paradise beaches, unique fauna and flora, and thousands of islands to visit, the country attracts聽many expatriates. According to estimates, there are about 350,000 expatriates throughout the聽country, but mostly around Jakarta, the capital of the Indonesian archipelago. This is quite聽understandable, given that the city is by far the largest, most populous and most dynamic in the聽country. The labor market in Jakarta, in particular, is much more welcoming towards foreigners聽than the rest of the country.
Simply put, there are many reasons for an expatriate to buy a small piece of land, a house or an聽apartment in Jakarta or its surrounding area. However, the vast majority of expats present in聽Jakarta prefer to rent a residence rather than buy a property there. The reason for this lies聽solely within the Indonesian land ownership laws. If it is possible today for a foreigner to enjoy聽a property in Jakarta or elsewhere in Indonesia, it remains, in most cases, a very complicated聽process.
First of all, you should bear in mind that, according to the current legislation, it is not possible聽for a non-citizen to buy a real estate property in their own name in Indonesia, regardless of the聽region. However, there are other options that will allow you to enjoy a property in Indonesia for聽some time. In essence, foreigners are now allowed to buy leaseholds in Indonesia, and there聽are various ways to do so.
For many years, local legislation prohibited foreigners from buying land or buildings in聽Indonesia. By the end of the 1990s, things have somewhat improved, with the enactment of聽new laws that allow expatriates to buy a house or an apartment but only in cases where the聽land on which the purchased building is located is not part of the sales contract.
Further laws came into force in 2010 and 2015, allowing expatriates to lease land for a period聽not exceeding 80 years. However, these new laws remain unclear and are subject to many聽interpretations. Moreover, the conditions attached to the granting of a lease to a foreigner are聽rather strict, not to mention that the administrative procedures are also long and complex.
Be aware that the law governing property in Indonesia is Law Number 5 of 1960. This law聽clearly states that only Indonesian citizens can acquire a Hak Milik, the local term for freehold聽land title. The severity of this prohibition is such that paragraph 5 of this law states that even聽Indonesian citizens who hold another citizenship are treated the same as foreigners and must聽renounce their other citizenship in order to become property owners in their own country.
Jakarta's real estate market
The Indonesian real estate market is still largely underestimated compared to its neighbor聽countries, Malaysia and Singapore. However, it is in fact very promising, especially since the聽country is opening up to foreign investment, which was until recently very restrictive.
Indonesia is, after all, one of the richest countries in Southeast Asia, with one of the most聽dynamic economies in the world. For these reasons, and especially if you are planning to settle聽in the country for a long time, buying real estate is definitely an option. Moreover, as explained聽earlier, the Indonesian government has launched several initiatives to boost the economic聽recovery following the Covid-19 pandemic in the country. It is now easier than ever for expats聽to settle in Indonesia, even if it remains quite complicated in terms of administrative聽procedures.
Laws and regulations for buying property in Jakarta聽
First, be aware that Indonesia has two types of property rights, namely the "right to own" (Hak聽Milik), which we have already mentioned, and the "right to build" (Hak Guna Bangunan). Like聽the Hak Milik, the Hak Guna Bangunan is prohibited to foreigners.
As of 2015, expatriates residing in Indonesia are allowed to rent land or a residence on a long-term basis but subject to certain conditions. The government has changed the legislation in this聽regard in order to further encourage foreign investment and promote national growth.
Therefore, while the Hak Milik remains inaccessible to those who do not have Balinese聽citizenship, two other legal terms have been added to the existing legislation, the Hak Guna聽Bangunan and the Hak Pakai. Here are the meanings of these two terms:
- Hak Guna Bangunan allows you to build and enjoy your property for up to 80 years.
- Hak Pakai gives you the right to buy and use your property for 25 years, with an option to renew up聽to 70 years, to live in it, or to turn it into a rental property, either through leasing or subleasing. As聽the lease is long-term, you can use it as an office, transfer it to a family member or sell it to an聽Indonesian citizen. However, this type of lease requires an initial investment which includes all the聽rents, payable in advance.
Under the new law, expatriates can purchase land or a house under the Right of Use category聽for a period not exceeding 30 years. After the expiration of the initial period, it is possible to聽renew the right of use contract twice, the first time for the same period of 30 years and the聽聽second time for 20 years. If you opt for this solution, you will be renting a property in Bali for a聽maximum of 80 years.
There are also other options for those who wish to acquire land in Indonesia. For examp聽 e, you聽can choose to appoint a local representative to act as your partner in your land transactions.聽This can be an interesting solution, as only Indonesian citizens can legally own property in聽Indonesia. However, such partnerships can quickly turn against the expatriate. There are many聽cases where the Indonesian partner incurred debts leading to the seizure of the respective聽asset. There have also been reports of outright extortion.
Another way for an expatriate to become a property owner in Jakarta is to set up a company in聽Indonesia. As a foreigner, you will need to set up a company called PT PMA. This is, simply put,聽a limited liability company founded by foreign capital. The requirements for establishing a PT聽PMA in Jakarta are as follows:
- The company must have a minimum capital of IDR 10 billion, with paid-up capital of at least 25% of聽this amount.
- The company's shares must be owned by a minimum of two persons or legal entities.
- Founders must first sign a deed of establishment before a notary. The deed of establishment must聽contain all the required identity information about the founders, but also about the members of the聽board of directors and the shareholders, whether they are individuals or companies.聽
Such a procedure may seem cumbersome at first glance, but it is a safer solution than聽partnering with a local citizen. In this particular case, the property in question will be placed聽under the company's ownership.
The types of land available to foreigners through the acquisition by a PT PMA company are,聽however, limited to certain categories. It is therefore recommended that you find out what聽type of classification the local legislation places the land you are interested in before you聽proceed.
Foreigners married in Indonesia to Indonesian citizens may also be eligible to own property in聽Indonesia. It is important for you to know that, in any case, there are strict conditions attached聽to the purchase of real estate by a foreigner in this country. For example, you will need to be a聽compulsory owner of a Kitas (a limited residence permit in Indonesia), and that you can only聽purchase individual houses or apartments.
In addition, the Indonesian government has established a minimum amount of local property聽value that can be purchased by expatriates. This minimum amount varies by region and by聽different geographical areas. In the Jakarta area, for example, the value of the property you聽wish to purchase cannot be less than IDR 10 billion (673,000 USD).
Requirements and policies for expatriates who wish to purchase property in Indonesia:
- As an individual, you must reside in Indonesia and apply for a KITAP (permanent residence permit)聽or KITAS (temporary/limited residence permit) to purchase and hold the property.
- The minimum property price in Jakarta is IDR 10 billion (about $673,000) for a house and IDR 5聽billion (about $340,000) for an apartment.
- You and your family are allowed to own only one property.聽The maximum area of the property is 2000 square meters.聽The property must be paid for in cash or financed by a bank loan or issued by an Indonesian financial聽institution.
- If you leave Indonesia, you must transfer the right to use the property to another person entitled to聽own property in Indonesia within one year of your聽departure.
- Initially, the right of use is set at 30 years, but it can then be extended for up to 80 years.
Financing a property purchase in Jakarta
As mentioned earlier, you have two financing options when buying real estate in Jakarta: paying聽cash or getting a loan.
Even though paying in cash can save you from all the administrative hassle, it is still a tough job聽to pay $700,000 in cash for a house! To avoid this kind of problem, you can turn to banks like聽BTN, CIMB, BNI and Bank Permata, and financial institutions in Indonesia to apply for a home聽loan:
- "Kredit Pemilikan Rumah" for a house or KPR
- "Kredit Pemilikan Apartemen" for an apartment or KPA.
For more information on loans and the purchase process, talk to your real estate agent,聽developer, or local notary. Anyways, you will need a notary to oversee the transfer of聽ownership.
The alternatives
While real estate may seem particularly attractive in Jakarta, it is true to say that buying聽property there can be expensive, not to mention complicated for expatriates. However, there聽are other alternatives that can be explored, such as going through a local citizen to buy聽property as part of an official relationship (engagement) evidenced by a pre-marriage or聽marriage agreement.
In this case, it will be your Indonesian wife who will buy the property in full property right (Hak聽Milik), which will also facilitate the obtaining of the loan (KPR / KPA) from local banks. Be聽careful, though, as you are not the owner! You will have no rights on the property, even if you聽both live there.
It is highly advised to consult a local lawyer specializing in real estate and expatriates in聽ndonesia to know the best way to proceed.
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