Can I Buy An Apartment or Condo in Jakarta ?

"Hi Brian, I just recently moved to Jakarta and am on a TDY assignment with the State Department, and it looks like I am going to be in country for a number of years.  Rather than flushing the money down the toilet on rent each month or on a yearly basis, I am thinking about buying an apartment or condominium unit in Jakarta as an investment.  I've read differing opinions on whether or not a foreigner can actually own property here and thought I'd contact you for your take on it.  Thanks, Tasha"

When it comes to transactions involving real property it is critical to have a clear and correct understanding of the terminology and legal consequences involved.  Do not rely primarily on secondary sources of information such as on forum sites; READ THE ACTUAL LAW.  However, there are some reasonably accurate elucidations out there.  One good source may be found at:

http://www.expat.or.id/info/buyingproperty.html

People here in Indonesia use the terms "buy", "own", "purchase" incorrectly and all too loosely when referring to a foreign national having an interest in real property.  At the present time, under Indonesian law A FOREIGN NATIONAL CANNOT OWN LAND IN INDONESIA in a absolute or freehold estate form of real property ownership, also known as "fee simple". A freehold estate in Indonesia is called "Hak Milik."  A foreigner cannot own real property in Indonesia in a freehold estate form of ownership; therefore a foreigner simply cannot truly "own" property here in Indonesia.

A foreigner, however, can have only a LEASEHOLD ESTATE interest in real property. A leasehold estate in Indonesia is known as "Hak Pakai" and it is NOT true and absolute ownership of the property as in a freehold estate or fee simple form of property ownership.  It cannot be bequeathed to an heir.  

When it comes to apartments or condominiums (Strata Title) a foreign national can only have a leasehold interest in the unit but cannot truly "own" it or "buy" it.  The foreigner simply does not and cannot truly own it. The leasehold period granted to foreigners is 25 years (initial term), can be extended by another 25 years, then renewed for a second and final time for a period of 20 years; making the tolling of the leasehold estate a total of 70 years (25 + 25 + 20 = 70 years).  There is not true ownership in this arrangement and the leasehold interest cannot be passed on to an heir. The foreigner does NOT own it!

Regarding apartments there is also a "Convertible Lease" Agreement which states that if and when the lessee can legally own the unit (such as if and when Indonesian law allows foreigners to own real property); then the lessee and lessor will be required to sign a Deed of Sale & Purchase, and title shall be transferred to the foreign national when Indonesian laws allow ownership of property by foreigners.  During this interim period however, the person DOES NOT own the unit, and title remains in the name of the builder or developer - which for obvious reasons is highly risky and not advisable.

Regarding the use of an Indonesian "nominee" or intermediary to buy the property in their name, or the use of a "PMA" (Foreign Direct Investment Company) as a way of circumventing the restriction and prohibition of foreigners owning real property in Hak Milik, a summary of these 2 methods can be found at:

http://brianindonesiaexpat.blogspot.com/2010/06/how-can-foreigner-buy-or-acquire-real.html

If a foreigner is married to an Indonesian and tries to buy the property in the Indonesian spouse's sole name to get around holding deed or title to the property in only a leasehold estate, this creates a legal quagmire.   See my previous article with more information and legal citations on this subject:

http://brianindonesiaexpat.blogspot.com/2011/03/transnational-mixed-marriages-property.html

An Indonesian (man or woman spouse) in a transnational marriage may lose their right to possess land because according to the Marriage Law and Law No. 7/1984 on Cedaw ratification, every possession that is purchased by a mixed couple after they are married is considered a collective or joint possession. The couple would lose the right to own land because one of the parties was an expatriate. 
 

Under the Marriage Law No. 1/1974, both the wife and husband, irrespective of their nationality, have equal rights to family assets. But this is contradictory to the Land Law No. 5/1960, which states that foreigners cannot own land in Indonesia.
 

As a result, an Indonesian spouse (husband or wife) who married a foreigner loses their  rights as a citizen to buy land and borrow money from a bank for marrying a foreigner, UNLESS there was an existing prenuptial agreement that was entered into by the couple BEFORE the marriage.  

I know what you're thinking.... hey, I'll just draft a "prenuptial" agreement after the marriage and back-date it.  This will not work as this type of document would have to be notarized to be legally valid and binding, and Indonesian Notaries Public have been informed of this "scam" and instructed not to witness such a back-dated document.  

I know what you're thinking now, hey I'll just pay someone to do it anyway as Indonesia is a very corrupt country where graft and "bribes" are commonplace.  You could try to do that, but it is not legal or advisable to do so...   

TransNational (Mixed) Marriages & Property Rights

        

There are several laws with overlapping articles concerning transnational marriages and property ownership including:

• the Basic Agrarian Law (UU 5/1960 or "UUPA" - Undang-Undang Pokok Agraria) 
• Article 33 Section 3 of the Indonesian Constitution (Undang-Undang Dasar 1945/UUD 1945)
• the 1974 Marriage Law
• Law No. 7/1984 on the ratification of Convention of Elimination of All Forms of Discrimination against Women (Cedaw)
• the Citizenship Law
• the 1996 Government Regulation on property rights. 

The 1996 Government Regulation on foreign ownership stipulates that only Indonesian citizens can own property. However, that changes if an Indonesian marries an expatriate.

An Indonesian (man or woman) in a transnational marriage may lose their right to possess land because according to the Marriage Law and Law No. 7/1984 on Cedaw ratification every possession that is purchased by a mixed couple after they are married is considered a collective possession. The couple would lose the right to own land because one of the parties was an expatriate. 
 

Under the Marriage Law No. 1/1974, both the wife and husband, irrespective of their nationality, have equal rights to family assets. But this is contradictory to the Land Law No. 5/1960, which states that foreigners cannot own land in Indonesia.

As a result, an Indonesian spouse (husband or wife) who married a foreigner loses their  rights as a citizen to buy land and borrow money from a bank for marrying a foreigner. It is discriminatory and contradictory. 

To circumvent or get around this, if the couple managed to have a prenuptial agreement in place before they got married, then the house that had been bought in the name of the Indonesian wife or husband's name would not be encumbered later in a subsequent sales transaction, inheritance, etc because the house will be considered the Indonesian wife or husband's sole possession and not that of the foreign husband or wife in a joint tenancy, tenants in common or tenants by the entirety form of property ownership.

We'll definitely have to watch for legislation affecting all this, as this issue of transnational or mixed marriages in Indonesia with respect to children, property rights, inheritances, etc is a big issue...

Foreign Property "Ownership" to be Extended from 25 to 75 Years

As posted or reported on the Embassy of the Republic of Indonesia Washington, DC website:

http://www.deplu.go.id/washington/Pages/Embassies.aspx?IDP=51&l=id

"Foreign Property Ownership to be Extended to 70 Years"

Kamis, 28 Januari 2010
TEMPO Interactive, Jakarta:

Foreign property ownership will be extended from 25 years to 70 years. “The regulations formulation is completed. It only waits for the Housing Minister stamp,” said Lucy Rumantir, Jones Lang LaSalle Indonesia Chairman, in a press conference at the Nikko Hotel in Jakarta, yesterday.

Lucy, who is also the Permanent Committee Head of Property Services for the Indonesian Chamber of Commerce and Industry (Kadin), is one member of the team who formulated Government Regulation (PP) No. 41/1996. Under this regulation, foreigners could only own a house for 25 years. According to Lucy, Indonesian properties occupancy rates are not optimal yet because of the government limitation. Under this PP, foreigners can only own a home or flat built on land with a right to use (Hak Pakai) certificate.

Foreigners complained that while Indonesians could easily own houses abroad, but it is difficult for them to get houses in Indonesia. Whereas regulations on property ownership in other big cities in the world was easier.

She cited that in Australia, foreigners could own a house just by having a passport. But they could only buy new houses.

“Later, step by step, we will formulate a regulation to allow right to use land become
right to build land (Hak Guna Bangunan),” said Lucy.  Besides that, to smooth out foreign property ownership, the revision includes limitations.“For example, foreigners could only own properties above Rp1.5 billion,” she said.

Lucy added that if more foreigners buy properties in Indonesia, state revenues will increase. According to her notes, the number of foreigners in Indonesia is 83,000 people. If just one percent of them buy properties, this translate to 800 people. “800 times Rp1.5 billion, it’s quite a big revenue for Indonesia,” she said.

That does not include other impacts. If demand is higher, property development will also increase. “From there, demand for curtains and furniture will increase,” said Lucy. This means that other industries, such as textile and furniture, will also grow.

TEMPO Interactive - Eka Utami Aprilia | ANTON WILLIAM

----------------------------------------------------------------------------

My Commentary and Analysis:

The recent changes and proposed amendments to the real property laws as they relate to foreign "owners" or investors acquiring real property here in Indonesia remain overly restrictive and counter-intuitive, and fall short of significant changes or measures to stimulate the Indonesian economy for the following reasons: 

1)  a foreigner cannot truly "buy" or "own" a real property here in Indonesia in a freehold estate form of property ownership (Hak Milik); they are only given a leasehold estate or "right to use" (Hak Pakai) and for a finite period, now extended from 25 to 75 years.  And there are other strings attached as well that "Lucy" has not told you about...

2)  The "1.5 Billion Indonesian Rupiah (IDR)" that is the threshold or MINIMUM property sales price that a foreigner can "purchase" a right to use leasehold estate for a number of years (and not true, absolute and unrestricted ownership as in a freehold estate or in fee simple) equates to $168,388 USD as the minimum "purchase" price.

By western standards and US property values, this does not seem like much on its face, or may even sound relatively low; however the operative word here is RELATIVE.  When you look at what single family detached, attached row house or townhouse, or condominium ("Strata Title") properties go for here in Indonesia or in the greater Jakarta metro area,  you will discover that this "1.5 Billion IDR" minimum sales price means that you must actually purchase a property in the upper end of the spectrum.  For example, where I live in Sentul City you can get a decent single family home with 2+ bedrooms, 2+ full baths for anywhere between $30,000 - 100,000 USD.  (See recent active property listing examples below)

3)  By requiring a foreigner to "buy" a property in the upper price range of homes, this eliminates certain investment opportunities and appeal for a foreigner or expat to buy a low to mid priced property (or ideally several of them) which are distressed, foreclosure, auction, tear down and rebuild type of properties; or an economically priced updated, upgraded or remodeled home that is in "turn key" condition and ready to occupy or rent out.   

4)  Additionally, if financing is obtained here in Indonesia, I understand that the lender will require a minimum of 20% down payment AND only finance it for 10-15 years (as opposed to "first time home buyer", FHA, or  30 year mortgages as we have in the U.S.).  The prevailing interest rate is somewhere around 12-15% I believe for real property financing here in the Jakarta area. So, lets' do some math on that 1.5 Billion IDR minimum purchase price home for a foreigner or expat using these parameters.

     a.   1.5 Billion IDR (1,500,000,000) = $168,388 USD

     b.   $168,388 X 20% down payment = $33,677

     c.   $168,388 - $33,677 (down payment) = $134,711 amount financed

     d.   monthly payments (principal and interest) for financing $134,711 for 15 years @ 12% = 

           $1,617 USD

There was also at one point back in June 2010 an article which reported on the proposed intentions of Indonesian government officials to allow or limit foreign ownership to retirees (aged 55 or older) BUT require then to finance no more than 50% of the value of the property AND pay off the mortgage financing within 3 years !  If this ever comes to fruition, then the numbers in my above example SIGNIFICANTLY worsen as LTV (loan to value) ratio down payment amount jumps up and the financing period or term shortens drastically.  See my previous article commentary regarding this. The good news in this scenario is that there would be less risk for any creditor/lender, and that the debtor/borrower will have the mortgage paid off really fast, but the bad news is that for the short duration of the mortgage loan, the debtor/borrower will be cash strapped and cannot use the liquidity of funds otherwise available for other investments as a substantial sum of money has been "parked" into only one investment property or bucket. 

5)  As you can see in my example above, this is not necessarily an attractive way to encourage foreigners or expats to invest in Indonesia by "purchasing" or "buying" a leasehold estate (Hak Pakai) on a second home, vacation property, or investment property that is priced in the relative mid to high end of the housing market price bracket in Indonesia. 

6)  Furthermore, if the Indonesian property laws only allow an expat who is "domicled" in Indonesia or who has a PR or other immigration status to "own" only one owner-occupied principle residence; then this does not allow for multiple or concurrent "ownership" of 2 or more investment properties - thus stifling a potential investment portfolio in real estate properties in Indonesia.  


7)  If the goal or objective of the Indonesian land and property laws is to govern or restrict foreigners' property rights only where a foreigner is deemed to be "beneficial to national development"- how can you achieve this objective by tying the foreign investors hands behind his back where he cannot reach into his pockets either at all, or further, and spend money here in Indonesia on "national development" ??!!  As Mr. Spok from Star Trek would say, "that is highly illogical"

8)  Conclusion:  

Legislation must be adopted which allows a foreigner to:

a) Truly OWN a real estate property here in Indonesia in fee simple or a freehold estate (Hak 
     Milik), and not merely a right to use leasehold estate for a number of years which cannot be 
     passed or transferred to an heir.

b)  Lower the minimum purchase price to attract a larger pool of buyers or investors, 

c)  Not impose restrictions on financing such as huge down payment requirements and very 
     short financing term, which all make the proposition of acquiring real property in Indonesia 
     cost prohibitive and financially unattractive, let alone the mortgage payments excessively 
     high.  Banks or financial institutions make money by lending money; the longer the terms, the 
     more money financed - the more the banks can make.  Once again, requiring huge down 
     payments and short financing terms is in essence the banks or government regulators 
     "cutting their noses off to spite their faces" -  Mr. Spok would once again opine, "that is highly 
     illogical..."

d)  Not limit property ownership (in Hak Milik) to only retirees (age 55 or older) or only someone 
     with a "PR" (permanent resident) immigration status, nor require an absentee owner/investor 
     to come back to Indonesia each year for 2 weeks. 

e)  For Indonesian government officials to not have xenophobia (fear of foreigners).  Don't worry, 
     foreigners will not take over Indonesia or invade your country; and if they do, it will only bring 
     positive change or influence and not worsen the economic, political or social conditions that 
     currently exist. 

     1.   There has been a proliferation of fraud and corruption in the dubious expat real estate 
            business in Bali due to the ubiquitous circumvention of Indonesian land laws and the 
            capitalization or predatory practices of unethical and highly unscrupulous expat tourism 
            trade businesses.  Also, I am told that Bali seems to attract a certain "criminal element" 
            of people who are fugitives from justice in their own countries and "on the lam" and seem 
            to find a safe haven in Bali because of local law enforcement officials failure to check  
            INTERPOL or conduct "due diligence" in the immigration process which is also known to 
            be corrupt.  Regrettably, this has given the expat real estate trade a bad name or image.  
            Easing the restrictions on foreigners or expats being able to legally buy real property in 
            Indonesia will also serve to mitigate the propagation of corruption and fraud in real   
            property sales and lease transactions.  (see this link for an example of what I am 
            referring  to here, http://www.nasty-bali.org/expatriates.html)

Absent such measures, and a more investor-friendly and simplified approach, as I propose above; Indonesia will NOT see any notable stimulation in their economy brought about by foreigners legally "buying" real property here and there will be no "beneficial national development."  As I have said in previous blog articles, Indonesia's property laws as they relate to foreign investors [remain] OVERLY RESTRICTIVE AND COUNTER-INTUITIVE ! 

(Sentul City / England Park subdivision - asking price $63,888 USD)

(Sentul City / Taman Andalusia subdivision - asking price $77,222 USD)