Bali Property in Law
A foreigner navigating Indonesian property law for the first time may well feel overwhelmed – ownership laws in Indonesia will almost certainly differ immensely from the foreigner’s home country. With the right advice however the process does not have to be stressful and we are happy to advise on the most suitable and secure form of ownership for you.
Below is a very basic overview of the most common forms of ownership.
Freehold Title (SHM or Hak Milik)
Freehold title is the strongest form of ownership. The Freehold title may only be held by Indonesian citizens, or by Indonesian legal entities controlled by Indonesian citizens. A foreign individual cannot hold a freehold title in their name.
All Indonesian companies, including foreign investment companies, cannot hold a Hak Milik title over land and so use other titles such as Hak Guna Bangunan.
Leasehold (Hak Sewa)
The purchase of a leasehold property is very straightforward with the lease being in the name of the foreigner or Lessee. Lease periods vary in length however it is common for an option to extend for a designated period of time to be agreed in advance.
Right to Build Title (HGB or Hak Guna Bangunan)
The Right to Build title (HGB) gives the right to construct and own buildings on a piece of land that is owned by a separate entity. Such title is granted for a maximum period of 30 years, and can be extended for another 20 years. HGB title is granted to Indonesian citizens or legal entities (including PMA companies).
Right to Use Title (Hak Pakai) – Freehold Title for Foreigners
The Hak Pakai title is a legally recognized ownership, enabling foreigners to purchase the exclusive use of a Hak Milik certificated piece of land. This is registered in a separate certificate in the name of the foreigner.
Hak Pakai title is granted for an initial term of 25 years, which can then be extended up to total tenure of 80 years.
The major benefit of a Hak Pakai title is that it can be converted to a Hak Milik title should the foreigner sell his property to a Indonesian citizen, because of this any capital appreciation is unaffected. Similarly the Hak Pakai title is transferable or renewable if sold to another foreigner.
The one potential drawback of a Hak Pakai title is that the property should be used for residential use only, this form of ownership does not allow the owner to operate the property on a commercial basis.
A foreigner is permitted to hold only one Hak Pakai title in Indonesia at any time.