LEGALS
Overview of
Indonesian Land Laws
Hak Milik
The term for freehold title in Indonesian language is Hak Milik. Although there have a number of legislative committees formed since the early 1990’s to discuss liberalizing foreign ownership rules, Indonesian law does not yet permit foreigners to hold this form of title.
Within this context foreigners who wished to secure a property in Indonesia have been obliged to take one of the following courses of action:
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 Lands Department. As such there can be difficulties in enforcement when there are conflicting documents or multiple lease agreements (not so uncommon given Balinese land is often owned by extended families).
Nominee Structure
Similar to the above 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 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. A mortgage is legally recognised in Indonesia however in a market of quickly strengthening property prices such as Bali, care should be taken that the mortgage amount does not become out-of-date.
Corporate ownership
A foreign investment, limited liability Company incorporated in Indonesia is commonly known as a PT 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.
While this title is more than suitable for the Indonesian operation of a multinational company there are some drawbacks for those seeking it as a method to hold Indonesian property. The first of these is the actual process of company formation as well the establishment cost - both of which are not insignificant. Another is that this is a foreign-investment company and therefore will have ongoing reporting requirement to the tax department among others. In most cases this requires the foreigner to engage the services of a professional accounting firm.
The Wabi - Preferred Ownership Structure
The Wabi development comprises Freehold Hak Milik land titles which will be issued in respect of each lot in the project and the common areas in the Wabi estate.
These individual Hak Milik titles are made available to purchasers giving complete flexibility to the purchasers to structure their ownership into whatever secure form they require.
These titles will be sold in a sales package which includes:
- Full service management package
- Right to use common areas in the estate
It is recommended that purchasers take advantage of the leading ownership structure now permitted by the National Land Agency in Bali known as the Hak Pakai over Hak Milik title.
The Hak Pakai title is the government sanctioned method for foreign purchasers to acquire exclusive rights of use over freehold land which is registered in a separate certificate of title issued in the name of the foreigner. At the election of the purchaser, the freehold Hak Milik owner will grant the purchaser a Hak Pakai title of an initial 25 year term with three prepaid twenty-five year renewals thus providing one hundred years of secure ownership tenure to the Wabi villa and land package (4 x 25 year terms = 100 years).
If purchasers wish to use a different legal structure permitted by Indonesian law for their acquisition, then the Hak Milik owner will facilitate that to the utmost. For instance, purchasers wishing to secure multiple blocks of land in Indonesia or secure their ownership through a corporate structure may opt for a PMA Company (foreign capital investment company) structure with an Hak Guna Bangunan (HGB – Right to Build) title.
The common areas in the estate will be secured by PT Wabi (a PMA company) which will grant purchasers of individual lots the permanent right (tied to the ownership of the lots) to utilize the common facilities as part of the management scheme for the estate.
If for any reason purchasers would prefer to use another form of ownership the Developers and their legal counsel will facilitate that to the utmost. For instance, citizens of the Republic of Indonesia can purchase the freehold Hak Milik title directly from the Developer's designee. Purchasers wishing to own multiple blocks of land in Indonesia or guard their ownership behind the shell of an offshore company might opt for a PT PMA structure with an HGB title.
The developers intend to form one or several PT PMA(s) (foreign investment limited liability company) to own the remaining Estate land and common facilities in an HGB (right to build) title. In any case, it will grant purchasers of individual lots the permanent right (tied to the ownership of the lots) to utilize the common facilities as part of the sale contract (certain conditions apply). They will also provide licenses enabling the individual villas and common areas to be used for the purposes of commercial rental.
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NOTICE: The above explanation is for information purposes only and the developers of the wabi recommend that potential purchasers seek independent legal advice in indonesia with regard to the proposed purchase. Subsequent to the purchase, legal advice should be taken in the home jurisdiction of the purchaser with regard to wills and succession planning for indonesian property.