How to Invest in Property in Indonesia

Information for foreigners wishing to invest in Indonesian property…

There are a number of ways for a foreigner to invest in property in Indonesia:

Investing through an Indonesian nominee

An Indonesian citizen can hold the land title as a nominee on behalf of a foreigner. To do this a number of documents are signed in front of a notary including:

  1. The contract (rental or purchase) transferring the rights for the property to the nominee.
  2. A Loan Agreement for the rental or purchase price between the nominee and the investor. This acknowledges that the nominee has been loaned the purchase price by the investor.
  3. A "Right of Use" agreement which enables the foreign investor to use the land.
  4. A statement letter in which the nominee acknowledges the loan from the investor and their intention to own and use the land.
  5. A power of attorney. This allows the investor the authority to sell, transfer or dispose of the property as well as to represent the nominee in any dispute regarding it.

The notary requests that the nominee gives all the original land titles to the investor. Investing in property in this way, although not against the law, is considered to be not strictly in the spirit of it. The law encourages foreigners to invest directly via leases. This "Right to Rent" (Hak Sewa Bangunan) cannot be mortgaged or registered at an Indonesian land office and therefore does not exist in certificate form. There are no laws defining how long such agreements can last, and the transfer of the property depends on the terms of the original agreement drawn up between the nominee and the investor.

Investing through a PMA company

Foreigners can invest directly in Indonesian property if it is owned by a Penanaman Modal Asing (PMA), or foreign investment company which is under their control. The difficulty with this approach is that the property can only be used for the purpose specified in the original application to form the PMA company. PMA companies cannot hold freehold properties. When freehold land or property is sold to a corporate entity the title is changed to a Hak Guna Bangunan, or HGB. This "Right to Build" status allows the owner to construct a building on the land for a period of 20 or 30 years. The lease can be extended for a further 20 years.

Setting up a PMA company can take several months.

 

Disclaimer

Property law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of Indonesian property law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.