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Buying Property

Indonesia - Buying Property

The cost of housing in Indonesia has steadily risen over the years, unaffected by the global financial crisis. Nevertheless, there are plenty of affordable opportunities for buying property in Indonesia as a foreigner. In addition, the strict rules of land ownership imposed on expats have been relaxed after the major land ownership reforms that happened in 2015.

When purchasing property in Indonesia, it is important to take the time and do your research. Find out about the area you want to invest in and compare prices with other towns or cities. Previously, native Indonesians could own the rights to land, but now this privilege is shared with eligible foreigners as well. However, expats own land for a specified period, which can be further extended by the Indonesian land office.

As an expat relocating to Indonesia, the housing options you can purchase include family houses, apartments, and condominiums. Only foreigners living in Indonesia on temporary or permanent permits are allowed to buy houses to live in or sublet. In addition, if an expat investor can prove that their business will bring value to the Indonesian people and the environment they live in, they will be allowed to own land or property.

Indonesian land ownership agreement for foreigners

Foreigners in Indonesia can buy property under the ‘Right of Use’ agreement or the Hak Pakai. The Hak Pakai has a number of regulations to be followed if an expat is to legally buy or lease property for their own interests.

The ‘Right of Use’ act stipulates that foreigners can own land only for a period of 30 years. However, this period can be extended twice; for an additional 30 years and thereafter for 20 years. Foreigners can only own land for a period of 80 years, after which they pass land rights to an Indonesian native or the Indonesian government.

Secondly, the property must be purchased directly from the landowner or developer. Expats can only buy land at a minimum fixed price and this figure will vary with respect to the region the property is located in. Once the expat has successfully acquired the land or property, they are not allowed to sublet the land or property to other individuals.

When an expat relocates to another country, their legal land ownership privileges are revoked. The expat is then required to pass the Right of Use to another expat who is equally qualified to buy property in Indonesia. If the foreigner cannot find anyone eligible, then the state will automatically reclaim the land.

Owning land through a foreign company

Expats can buy property through a property development company owned by foreigners. This is made possible through the legal act known as the Penanaman Model Asing, or PMA. The PMA act provides a couple of land ownership privileges to the foreign owned real estate company.

The PMA company will be allowed to be in business for a period of 30 years managing land. This contract is extendable for another 30 years as the company grows its assets and net worth. If the PMA business exudes direct value to Indonesia and is need of more investor capital to continue doing that, the contract can be extended for another 30 years.

Expats can choose to work with an existing PMA company or form their own to buy and manage property in Indonesia. To form a PMA company, one must draft a detailed business proposal outlining the core reasons why they want to buy, build, or manage property in Indonesia.

The PMA company must ensure it creates value in three ways. First, the foreigners must ensure that the skill they are bringing to the table is invaluable and cannot be hired locally. Secondly, the PMA company must aim to create employment opportunities for Indonesian natives. Thirdly, the PMA company has to ensure all its business dealings have a positive impact on the environment.

On the other hand, an existing foreign-owned company that wants to venture into real estate businesses in Indonesia can do so under certain conditions. To acquire the PMA permit, the company will have to prove that real estate investment will be a profitable asset to the company’s business portfolio. You will also be required to make a deposit to an Indonesian bank, which is a percentage of the total capital that will be invested in the real estate business.

It should take three to four months to complete the whole application process and get your PMA license approved. A company that is just starting out can apply for a maximum of three PMA permits. A PMA agreement should not cost more than $3,000 to set up.

What you should know before buying land

Land in Indonesia is sold as either registered or unregistered land. Registered land is state-owned while unregistered land is mostly sold by a local Indonesian community. The rules for both cases are quite different and it is important to familiarize yourself with them before signing any contracts.

It is possible to acquire rights to land through an Indonesian sponsor or representative. In most cases, expats consider their Indonesian spouses as the chief representative. Whether you choose a spouse or friend to represent you, it is important to draft legal agreements that protect either party and puts everyone's interests into consideration.

There are three kinds of agreements to make with your representative. One is a loan agreement that outlines the foreign buyer as the sole funder of the whole purchase. Secondly, the irrevocable power of an attorney is necessary to give the expat full rights to lease, sell, or mortgage the land at will. Thirdly, a permanent right of use agreement is crucial to give the expat rights to use or occupy the property for the period in which the contract is valid.

Cost of owning property in Indonesia

Besides the actual value of the property itself, there are additional costs to be aware of as an expat buying property in Indonesia. There is property tax, which is usually 0.5% of the property value. A second additional cost is property sales tax, which is paid by both the seller and buyer of the property; this is normally 5% of the property value paid by both parties.

You also have to consider property insurance, especially in Indonesia where natural disasters are common. There are certain regions in Indonesia that are frequently hit by earthquakes, tsunamis, and tropical storms. Conduct research about the area to determine the kind of insurance policy you need to get for your property.

Lastly, there are the stamp duty payments to get the blue seal of approval known as ‘meterai’. The meterai gives official notice that all signed land ownership documents are legal and valid. The blue stamp costs Rp 6000 and can be found in any Indonesian Post Office or ‘Kantor Por’.

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