An Overview of Property and Land Ownership in Indonesia
Why is property investment in Indonesia is a smart and profitable choice?
In the middle of a global crisis, Indonesia’s economy is surviving, and the local property industry keeps growing. Land ownership in Indonesia is thriving, with the property credit is getting 15% higher than in 2015. It is also strengthened by the new regulation No. 103/2015 about property ownership for foreigners residing in Indonesia, which has been signed by president Jokowi Widodo by last year. This new regulation should have many positive impacts on foreigners (find out the detail about land and apartment ownership in Indonesia).
Foreign Direct Investment in 2015 grew by 19.2% compared to the preceding year with investment realization of IDR 365.9 trillion. 18.9% to IDR 66.7 trillion in the second quarter of 2013. Domestic investment also increased 15.0% of IDR 179.5 trillion (Source: BKPM. 2015. Press Release: Investment Realization 2015 Exceeded Target).
Indonesia offers you many opportunities for beneficial investment in land and property. But there are characteristics that can frustrate investors and harm the investment climate, such as complicated bureaucracy. But don’t worry Cekindo can assist you to own the property and also help you to make the most suitable investment plan in Indonesia. Based on Government Regulation No 5 of 1960 about Basic Agrarian Principles, there are several rights over lands and properties. What kind of rights could be applied to foreigners or legal entities owned by foreigners in Indonesia? Find out below:
1. Cultivation Right On Land (Hak Guna Usaha)
According to article 28 of Act No. 5/1960, the right to cultivate the land is directly controlled by the government for farming and agriculture purposes. The right is valid up to 25 years and extendable up to 35 years and it should be registered under the National Land Agency (Badan Pertahanan Nasional) that covers land measurement, registration of the scope of the rights over land, and also certificate issuance to the lender. Those who may have cultivation right on land includes Indonesian citizen and legal entity registered in Indonesia.
2. Building Right On Land (Hak Guna Bangunan)
Building right on Land means that one could have rights to establish and have buildings on the land that is not under his ownership and prevails up to 30 years period, based on article 35 of Act No. 5/1960. The right is extendable for 20 years and can be shifted to another party. It can be legalized either by government resolution or authentic agreement between the landowner and renter. Similar to cultivation rights, building right on land should also be registered to National Land Agency to keep the rights prevailing.
3. Right Of Use (Hak Pakai)
In order to use and exploit the land yielding, one is required to have the right of use. In this regard, the land is owned by the government or other private parties. The obligations and rights are specified under government resolution or agreement with the owner, as long as it is not contrary to the act’s provision. The rights period follows the latest government regulation no.103/2015 which allows the foreigners who legally stay in Indonesia to own the landed house for 80 years maximum period.
4. Right Of Lease Building (Hak Sewa Bangunan/SHGB)
One person or a legal entity in Indonesia could possess the right to lease of land and use the land for purposes of the building by paying the owner sum amount of money as leased, based on Article 44 Act 5/1960. The right belongs to Indonesian citizens, foreigners, as well as legal entities registered in Indonesia.
5. Right of Freehold (Hak Milik / SHM)
This right is given to the rightful owner of a plot of land or property. This type of certificate can only be granted to the Indonesian citizen only, foreigners can not own an SHM.
6. Right to Manage (Hak Pengelolaan / SHPL)
This type of right gives an authority to manage the land owned by the state for certain reasons which already got approval from the government. The builder usually works together with the government to attain an SHGB over SHPL for some specific time.
7. Rights of Strata Title Ownership on Multi-storey Building Units (Hak Milik atas Satuan Rumah Susun)
This type of right is given to the owner of a private, business or entity in a multi-story building, for example, apartment suites, offices, etc. The time validity relies upon the land or building is located.
You can rent and use your land and property for business matters. Find out how to set up a company in Indonesia.
With so many limitations on property and land ownership for foreigners, there is an alternative way to safely own real estate or land in Indonesia
To own property, foreign investors are required to buy it through a business entity. Cekindo can help you to set up a company in Indonesia.
How Foreigners Can Own Property In Indonesia?
If the government wants to run a program of land investment in Indonesia open to foreign investors, it requires a clear master plan. Things that need to be determined are the location of the investment, the minimum investment, and the limit of minimum land area. The latest regulation allows foreigners to own landed houses and apartments not only in Jakarta, Bali, and Batam but other regions in Indonesia. When foreigners buy property in Indonesia, the certificate is a used right certificate with a time period of 30 years. This can be extended by 30 years, and a final extension of 30 years, with a total of 80 years
Using the right certificate for foreign investors requires your KITAS and passport. Find out how to get a visa and work permit in Indonesia.
If the foreign investors invest in Indonesia under a local limited company, the certificate is a land right certificate (called HGB) that has a maximum period of 30 years, which can be extended for a maximum of 20 years. For all property purchased by foreign investors, the certificate name is a land rights certificate (HGB) issued by the national land agency. It is valid based on the time periods explained above.
What are the benefits of the government running a program for land and property ownership in Indonesia for foreign investors?
Some of the benefits gained by the government program include:
- Ownership of property by foreign investors has the potential to increase tax revenue by Rp. 24 trillion. The value of tax revenue derived from the result of multiplying the minimum house price for foreigners amounted to US$500,000. Over 10,000 units are sold per year with a 40 percent property tax component.
This tax component consists of
- 10 percent VAT, PPH 5 percent (the 5% tax applied for the seller, not the buyer).
- 5 percent BPHTB (BPHTB is imposed on the acquisition of land and buildings or the amount of 5% of the price of the land after acquisition value reduced object is tax. You can contact a local notary to obtain more detailed information.)
- Sales Tax on Luxury Goods 20 percent (luxury goods are goods that do not staple goods generally consumed by high-income people, such as Luxury Residential Property Group as Luxury Homes, Apartments, condominiums, townhouses, etc)
- There are many types of jobs that could grow if the domestic property could be owned by foreigners, such as engineering, architecture, transportation business, and building raw material suppliers. The tourism sector will also grow due to the influence of an increase in foreigners coming to Indonesia and having a place to stay.
- Other than that, the tax may vary depending on the type of property.
Cekindo can help you to obtain the certificate after the purchase and provide you with expert assistance in determining the most suitable ownership plan. Contact us now!