Sunday, June 27, 2010
Indonesian National Provincial Architecture
Check out this link for some pictures of Indonesian national architecture at the Taman Mini Indonesia Indah. How would you like to be the property listing agent and selling one of these ? ; )
Saturday, June 12, 2010
Overly Restrictive & Counter-Intuitive
After reading through a summary of the proposed new real property law changes that [supposedly] would allow a foreigner to "own" or buy a property in Indonesia -- I am left with this thought, WHAT IN THE WORLD IS INDONESIA THINKING OR TRYING TO ACCOMPLISH WITH THIS HERE ??!!
I go back to my very first post here where I said the new changes are OVERLY RESTRICTIVE & COUNTER-INTUITIVE on the part of the Indonesian government! There is no way they are going to stimulate the Indonesian economy with this ridiculous move.
Looking at this whole scenario as an outsider, expat, and real estate professional who would be contemplating buying a real estate property in Indonesia; if I was going to invest in the purchase of real estate property in a foreign country, Indonesia would be the LAST place on earth I would consider doing it ! Is this what the Indonesia government is trying to accomplish ? Trying to make it so restrictive and difficult that a foreign investor would run in the other direction ? If that's what the legislature was trying to accomplish, they've done an outstanding job at accomplishing this objective. If, on the other hand, their goal was to find ways to stimulate the Indonesian economy and broaden or foster greater relationships with other countries (particularly the USA and the UK) then they have done an absolutely miserable job of that and this legislation will prove to be a colossal failure.
What's also counter-intuitive is that if I, as a savvy and experienced [expat] real estate professional, do not have any confidence in the new real property law amendments as they relate to foreign investors, how in the world am I expected to convince or "sell" some other expat on the notion of "buying" a property in Indonesia ? Not very intuitive, is it ?
Indonesian government officials ? I hope you're listening and reading this and will reconsider your overly restrictive measures. There's another way to do this that would be a win-win situation for the Indonesian people at large, the Indonesian government and economy which it supports, and foreign investors alike. I would love to have the opportunity to appear before the 550-member People's Representative Council (Dewan Perwakilan Rakyat, DPR) and/or the 128-seat Regional Representatives Council (Dewan Perwakilan Daerah) to make my recommendations or suggestions in support of this new measure.
I go back to my very first post here where I said the new changes are OVERLY RESTRICTIVE & COUNTER-INTUITIVE on the part of the Indonesian government! There is no way they are going to stimulate the Indonesian economy with this ridiculous move.
Looking at this whole scenario as an outsider, expat, and real estate professional who would be contemplating buying a real estate property in Indonesia; if I was going to invest in the purchase of real estate property in a foreign country, Indonesia would be the LAST place on earth I would consider doing it ! Is this what the Indonesia government is trying to accomplish ? Trying to make it so restrictive and difficult that a foreign investor would run in the other direction ? If that's what the legislature was trying to accomplish, they've done an outstanding job at accomplishing this objective. If, on the other hand, their goal was to find ways to stimulate the Indonesian economy and broaden or foster greater relationships with other countries (particularly the USA and the UK) then they have done an absolutely miserable job of that and this legislation will prove to be a colossal failure.
What's also counter-intuitive is that if I, as a savvy and experienced [expat] real estate professional, do not have any confidence in the new real property law amendments as they relate to foreign investors, how in the world am I expected to convince or "sell" some other expat on the notion of "buying" a property in Indonesia ? Not very intuitive, is it ?
Indonesian government officials ? I hope you're listening and reading this and will reconsider your overly restrictive measures. There's another way to do this that would be a win-win situation for the Indonesian people at large, the Indonesian government and economy which it supports, and foreign investors alike. I would love to have the opportunity to appear before the 550-member People's Representative Council (Dewan Perwakilan Rakyat, DPR) and/or the 128-seat Regional Representatives Council (Dewan Perwakilan Daerah) to make my recommendations or suggestions in support of this new measure.
Details of New Indonesia Property Law for Foreign Purchasers
Some excerpts are copied below from an article which describes and outlines the proposed new amendments to Indonesia property law to take place: (full source article). I will be summarizing the key or salient points in bullet form in another post which will be much more easier reading than the full text below...
The Government of Indonesia has been trying to find a way to provide more flexibility for a foreigner and foreign entity to own a property in Indonesia. One of the intentions is also to improve the property market in Indonesia. At this moment, the Government has been preparing a draft of new regulation on property ownership for foreigner and foreign entity. The type of regulation is the Government Regulation that will amend or terminate the previous Government Regulation Number 41 of 1996 on the Ownership of Residential House by Foreigner that is domiciled in Indonesia.
A foreigner can only acquire property with the quality or type ranging from middle high to luxury class, with price per unit US$250,000 at the minimum. For a landed house, it may only be built over a land with 600m2 (six hundred meter square) area for every unit. Ownership by foreigner is maximum 6 (six) units within one municipal administrative jurisdiction. A foreign entity can own property in accordance with the necessity by foreigner and/or Indonesian nationality working at the representative office in Indonesia. Foreign entity can own simple type house to provide housing needs to Indonesian employees working at the representative office in Indonesia. If the properties are located within one residential complex, then the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of housing units that are and will be built and (ii) the amount of family head or owner within one complex. For strata title units, the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of strata title units, (ii) the amount of proportional comparative value (nilai perbandingan proporsional), and (iii) the amount of condominium tenant association within one condominium. The limitation of ownership does not apply for a foreign entity that has program to provide housing needs for Indonesian nationality employee working at the representative office in Indonesia.
The Government of Indonesia has been trying to find a way to provide more flexibility for a foreigner and foreign entity to own a property in Indonesia. One of the intentions is also to improve the property market in Indonesia. At this moment, the Government has been preparing a draft of new regulation on property ownership for foreigner and foreign entity. The type of regulation is the Government Regulation that will amend or terminate the previous Government Regulation Number 41 of 1996 on the Ownership of Residential House by Foreigner that is domiciled in Indonesia.
Definition of Foreigner and Foreign Entity
In the draft of regulation, the foreigner is defined as every individual that is not Indonesian nationality that is presence or domiciled in Indonesia. Foreign entity is defined as a private or public foreign legal entity. Private foreign legal entity means a legal entity that is established not based on Indonesian law or association or any other entities, having more than 50% of its members as foreigners. Public foreign legal entity means representative of foreign State or representative of international bodies in Indonesia.
Definition of Property
Property is a landed house and/or strata title unit. Landed house is a residential house or horizontal house that is directly established over the land. A landed house and/or strata title unit may have function as a residence, office, and/or trade, and/or social, cultural, and religion. This means that a foreigner and foreign legal entity may purchase property not only for residential purpose but also for commercial and other various functions.
Requirements to Own Property
Requirements to own property for a foreigner are as follows:
- Having domicile or presence in Indonesia territory, evidenced by the immigration document i.e. visit license or temporary residence license or permanent residence license;
- Employ Indonesian nationality as housemaid and/or house keeper, minimum 2 (two) persons for every landed house or 1 (one) person for every strata title unit, with no double job for another property unit, evidenced by letter of statement on willingness to employ Indonesian nationality;
- For a foreigner with document status of visit license, he or she must be in Indonesia every year for a minimum of 14 (fourteen) days, evidenced by a letter of statement to visit.
Legal Rights of Foreigner and Foreign Entity
Property and right of land owned by a foreigner or foreign entity may be assigned through sale and purchase, bequest, exchange, or inheritance. A property and right of land owned by a foreigner and foreign entity may only be assigned to Indonesian nationality and/or Indonesian legal entity through sale and purchase or bequest.
Limitation of Property Ownership
The developer or individual is not allowed to sell, to bequest and lease land or ready to build land to foreigner or foreign entity in order to build a house. Developer or individual can only sell an already-built house and ready to be occupied. Foreigner or foreign entity may only acquire ownership for new property that is built by developer or individual. The exception to the rule applied if the acquisition is as the result of inheritance, exchange between foreigner in the same State or between foreigner and foreign entity in the same State.
A foreigner can only acquire property with the quality or type ranging from middle high to luxury class, with price per unit US$250,000 at the minimum. For a landed house, it may only be built over a land with 600m2 (six hundred meter square) area for every unit. Ownership by foreigner is maximum 6 (six) units within one municipal administrative jurisdiction. A foreign entity can own property in accordance with the necessity by foreigner and/or Indonesian nationality working at the representative office in Indonesia. Foreign entity can own simple type house to provide housing needs to Indonesian employees working at the representative office in Indonesia. If the properties are located within one residential complex, then the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of housing units that are and will be built and (ii) the amount of family head or owner within one complex. For strata title units, the amount of ownership by foreigner and foreign entity is maximum 30% (thirty percent) of (i) the amount of strata title units, (ii) the amount of proportional comparative value (nilai perbandingan proporsional), and (iii) the amount of condominium tenant association within one condominium. The limitation of ownership does not apply for a foreign entity that has program to provide housing needs for Indonesian nationality employee working at the representative office in Indonesia.
Plan for Enforcement
As mentioned at the beginning of this summary, this summary is based on draft of new Government Regulation. The Government of the Republic of Indonesia has planned to enforce this Government Regulation at the FIABCI World Congress that will be held in Bali, Nusa Dua, between 25 – 28 May 2010. This draft may be changed from time to time. It may be changed materially even at this moment. We cannot provide any guarantee that the contents of the draft will be the same with the enforced Government Regulation. This summary is only to provide hints and preliminary knowledge on the ideas and suggestions by the Government so that the foreigner and foreign entity can have more flexibility to own property in Indonesia.
Indonesia Property Ownership & Use Laws - Course 101
All property matters, except for those pertaining to the mining and forestry sectors, fall under the jurisdiction of the national land agency (Badan Pertanahan Nasional, or BPN for short), which was formed to administer all matters relating to the basic "Agrarian Law of 1960", such as the registration of the use of land.
The Indonesian land legislation is based on the basic Agrarian law number 5 of 1960.
The Basic Agrarian Law recognizes several types of rights over Real Estate, all of which are outlined below. However, to the foreign investor, the following five (5) main rights are relevant:
1. Right of Ownership - (Hak Milik)
2. Right to Rent [or lease] - (Hak Sewa)
3. Right to Build - (Hak Guna Bangunan or HGB)
4. Right of Use - (Hak Pakai)
5. Right of Exploitation [of land] - (Hak Guna Usaha or HGU)
These rights all authorize the use of land. The differences lie in the duration of validity and nature of utilization and the opportunities for obtaining a mortgage. The right of ownership is an inheritable right that can be held only by Indonesian citizens.
Right of Ownership - Hak Milik :
This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as a state bank, agricultural cooperatives, religious bodies, and social right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and mortgaged.
Right to Rent - Hak Sewa :
This is the right to use or lease land owned by another private party for habitation purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents. The law does not stipulate a [maximum] period for such lease agreements and whether or not a lease agreement may be transferred depends on the original lease agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.
Right to Build - Hak Guna Bangunan (HGB) :
Better known by its abbreviation, "HGB", this is the right to construct a building/s on a plot of land for a period of 20 or 30 years, and which can be renewed on the consideration of policy of the regional government. This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA (joint venture) company. If a joint venture company needs land for a factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.
Right of Use - Hak Pakai :
This is the right of use over state-owned (crown land) or property owned by public or private persons/entities for a specific purpose for (generally) a finite period and occasionally for an indefinite period. This land right may not be sold, exchanged or transferred unless explicitly stated in an agreement. Hak Pakai may be held by an Indonesian individual or entity. or foreigner permanently domiciled in Indonesia, or a foreign legal entity with a representative office in Indonesia such as foreign Banks, embassies, etc.
Right of Exploitation - Hak Guna Usaha :
This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for a period of 35 years, which may be extended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individuals/entities as well as government approved PMA (foreign joint venture) companies, and may be mortgaged. Foreign investors who have obtained mining rights from the Minister of Mines and Energy or exploitation rights from the Minister of Agriculture or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the enterprise.
The Indonesian land legislation is based on the basic Agrarian law number 5 of 1960.
The Basic Agrarian Law recognizes several types of rights over Real Estate, all of which are outlined below. However, to the foreign investor, the following five (5) main rights are relevant:
1. Right of Ownership - (Hak Milik)
2. Right to Rent [or lease] - (Hak Sewa)
3. Right to Build - (Hak Guna Bangunan or HGB)
4. Right of Use - (Hak Pakai)
5. Right of Exploitation [of land] - (Hak Guna Usaha or HGU)
These rights all authorize the use of land. The differences lie in the duration of validity and nature of utilization and the opportunities for obtaining a mortgage. The right of ownership is an inheritable right that can be held only by Indonesian citizens.
Right of Ownership - Hak Milik :
This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as a state bank, agricultural cooperatives, religious bodies, and social right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and mortgaged.
Right to Rent - Hak Sewa :
This is the right to use or lease land owned by another private party for habitation purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents. The law does not stipulate a [maximum] period for such lease agreements and whether or not a lease agreement may be transferred depends on the original lease agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.
Right to Build - Hak Guna Bangunan (HGB) :
Better known by its abbreviation, "HGB", this is the right to construct a building/s on a plot of land for a period of 20 or 30 years, and which can be renewed on the consideration of policy of the regional government. This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA (joint venture) company. If a joint venture company needs land for a factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.
Right of Use - Hak Pakai :
This is the right of use over state-owned (crown land) or property owned by public or private persons/entities for a specific purpose for (generally) a finite period and occasionally for an indefinite period. This land right may not be sold, exchanged or transferred unless explicitly stated in an agreement. Hak Pakai may be held by an Indonesian individual or entity. or foreigner permanently domiciled in Indonesia, or a foreign legal entity with a representative office in Indonesia such as foreign Banks, embassies, etc.
Right of Exploitation - Hak Guna Usaha :
This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for a period of 35 years, which may be extended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individuals/entities as well as government approved PMA (foreign joint venture) companies, and may be mortgaged. Foreign investors who have obtained mining rights from the Minister of Mines and Energy or exploitation rights from the Minister of Agriculture or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the enterprise.
Are Real Estate Agents Required to be Licensed in Indo ??
"Brian, are real estate sales people in Indonesia required to be licensed?" - Mark
Mark, great question !! Thanks for asking this one.
In Indonesia, real estate salespeople are not required to hold a license in order to conduct a real estate transaction. Real estate salespeople represent either the buyer or the seller, but not both. Here is a link wihich explains a bit more about the Indonesia real estate scene
The usual commission on a residential real estate sale in Indonesia is 5%. For a commercial sale, the commission is generally 3%. The commission is paid by either the buyer or the seller but not both.
Business agreements between foreign and Indonesian real estate salespeople are made in writing.
The usual commission on a residential real estate sale in Indonesia is 5%. For a commercial sale, the commission is generally 3%. The commission is paid by either the buyer or the seller but not both.
Business agreements between foreign and Indonesian real estate salespeople are made in writing.
How Can a Foreigner Buy or Acquire Real Property in Indonesia ? - Course 201
"Brian, I am thinking about buying an investment property in Bali or somewhere in or around Jakarta or Bogor. What would I need to do and what are the legalities or limitations on a foreigner buying a property in Indonesia?" -- David
Without using an Indonesian national/citizen as the "nominee" (or the person who actually takes title or deed the property), the foreigner who try's to "buy" the property is not really buying it (with the "full bundle" of property rights; i.e. transfer to their heirs, sell it later, own it for indeterminate amount of time, etc); but they are only given a "leasehold estate" to the property or what is called "Hak Pakai" (right of use) in Indonesian Bahasa and do not really own it in "fee simple" or as a "freehold estate" form of ownership known as "Hak Milik" (right of ownership) which does have all the "bundle of rights" associated with it or a fee simple form of absolute ownership.
(See my other blog post entitled "Indonesian Property Ownership & Use Laws 101" for a further outline of these principles).
To circumvent or get around the aforementioned laws, or as a "loophole"; a foreign investor can buy a property using an intermediary or "nominee" who then gives a power-of-attorney to the investor so that the investor can have all the rights as if he/she was the actual owner, and could re-sell the property, rent it out, etc, etc. By virtue of a contract agreement, monetary consideration, and an irrevocable power-of-attorney document between the foreign investor and the intermediary or Indonesian "nominee"; the foreign investor is in essence the actual and true owner of the property and is free to do with it as he deems fit, such as re-sell it later, sell off shares or interests in the property as sub tenants-in-common, or rent or lease out the property. My wife is Indonesian and we can arrange for her to be the "nominee" or intermediary if you wish to proceed with consummation of a contract on a property.
On the topic of contracts or documents, UU 5/1960 stipulates that real estate contracts and agreements be typically drawn up in the language of Indonesian Bahasa (or both Bahasa and English) or the language of the principal foreign Buyer or Seller so there is no confusion or so that neither party can later assert or claim contract misunderstandings or ambiguity.
Here is a summary of using a "nominee":
In Indonesia, however, nothing with regard to the law is unambiguous or is strictly followed according to intent and purpose, nor the spirit or letter of the law as written. Graft and corruption is ubiquitous as well as "administrative interpretation and application of the law." While property title or deed conveyed through the use of a "nominee" may not be technically legal, it is in fact done nevertheless.
Should a Land Title Issue Officer (or PPAT) refuse or question the transaction they can be "persuaded" to reconsider their administrative or enforcement position with an "incentive." Should the issue of the use of a "nominee" with an irrevocable Power-of-Attorney ever become a "cloud on the tile" in a subsequent transfer or conveyance of the property by the foreign "owner", then this too can likewise be overcome through "persuasive" dialogue or discourse with a land agency official.
David, thanks for your inquiry. The following is not intended as giving "legal advice" but based on my personal knowledge and research here's how it all basically works. As in any business venture or enterprise in a foreign country GREAT CARE and CAUTION should be exercised to know what the law actually is (Undang Undang No. 5 Tahun 1960 or UU 5/1960), what local prevailing practices or customs are, and to use only HIGHLY reputable professionals in all aspects of the transaction. One should be EXTREMELY VIGILANT against people who may appear professional but are actually perpetrators of fraud, con or Ponzi schemes. Therefore, you should only being working with a licensed professional, such as myself, who has years of experience, professional ethics and a proven track record of successes (not in cons or fraud schemes!) Ok, now that I have given you that "disclaimer" or words of caution, here's some information which should help you make an informed decision about "owning" or buying a property in Indonesia.
Without using an Indonesian national/citizen as the "nominee" (or the person who actually takes title or deed the property), the foreigner who try's to "buy" the property is not really buying it (with the "full bundle" of property rights; i.e. transfer to their heirs, sell it later, own it for indeterminate amount of time, etc); but they are only given a "leasehold estate" to the property or what is called "Hak Pakai" (right of use) in Indonesian Bahasa and do not really own it in "fee simple" or as a "freehold estate" form of ownership known as "Hak Milik" (right of ownership) which does have all the "bundle of rights" associated with it or a fee simple form of absolute ownership.
(See my other blog post entitled "Indonesian Property Ownership & Use Laws 101" for a further outline of these principles).
To circumvent or get around the aforementioned laws, or as a "loophole"; a foreign investor can buy a property using an intermediary or "nominee" who then gives a power-of-attorney to the investor so that the investor can have all the rights as if he/she was the actual owner, and could re-sell the property, rent it out, etc, etc. By virtue of a contract agreement, monetary consideration, and an irrevocable power-of-attorney document between the foreign investor and the intermediary or Indonesian "nominee"; the foreign investor is in essence the actual and true owner of the property and is free to do with it as he deems fit, such as re-sell it later, sell off shares or interests in the property as sub tenants-in-common, or rent or lease out the property. My wife is Indonesian and we can arrange for her to be the "nominee" or intermediary if you wish to proceed with consummation of a contract on a property.
On the topic of contracts or documents, UU 5/1960 stipulates that real estate contracts and agreements be typically drawn up in the language of Indonesian Bahasa (or both Bahasa and English) or the language of the principal foreign Buyer or Seller so there is no confusion or so that neither party can later assert or claim contract misunderstandings or ambiguity.
Here is a summary of using a "nominee":
The nominee will sign four (4) documents with the foreigner investor as follow:
- A Loan Agreement: acknowledges that the foreigner has lent the nominee the purchase price of the land or transferred funds to the nominee so that the nominee can purchase the property.
- A Right of Use Agreement: allows the foreigner to use the land, and establishes a foundation of basic property rights.
- A Statement Letter: where the nominee acknowledges or ratifies the foreigners loan and his intention to own the land.
- Power-of-Attorney: the nominee signs an irrevocable Power-of-Attorney giving the foreigner the complete authority to sell, mortgage, lease or otherwise manage the property. This document, in essence, transfers "ownership" of the property from the nominee back to the nominator (foreign investor). Although the nominee is on the deed, the nominator now has all the rights as if they were the true and actual owner on the deed. This allows the foreign investor to in essence "own" the property and do with it as they please; hold it long term as an investment to sell or exchange later, live there as "owner occupied", or rent/lease it out, or flip it for a quick profit depending on market conditions and value of course.
In Indonesia, however, nothing with regard to the law is unambiguous or is strictly followed according to intent and purpose, nor the spirit or letter of the law as written. Graft and corruption is ubiquitous as well as "administrative interpretation and application of the law." While property title or deed conveyed through the use of a "nominee" may not be technically legal, it is in fact done nevertheless.
Should a Land Title Issue Officer (or PPAT) refuse or question the transaction they can be "persuaded" to reconsider their administrative or enforcement position with an "incentive." Should the issue of the use of a "nominee" with an irrevocable Power-of-Attorney ever become a "cloud on the tile" in a subsequent transfer or conveyance of the property by the foreign "owner", then this too can likewise be overcome through "persuasive" dialogue or discourse with a land agency official.
There is also another way to [legally] circumvent the Indonesian property law restrictions for allowing a foreigner to buy real property. The most significant change in Indonesian investment law came in 1997 when the government introduced the "PMA" (Penanaman Modal Asing or "FDI" - Foreign Direct Investment Company). This allows foreign investors to set up a company or "corporation" in Indonesia, without having to have Indonesian principals or partners. The PMA can be 100% owned by the foreign investor. PMA or FDI companies are allowed to own the title of the property for a period 25 years and have to be renewed by the government.
Here is a summary of using a PMA, in which you will be required to:
Here is a summary of using a PMA, in which you will be required to:
- Submit a detailed "corporate" or business entity business plan which shows structure, organization and some information on the financial structure of the business entity or "PMA."
- Demonstrate by your business plan that your PMA will operate in an environment or way that adds value to Indonesia in terms of foreign skills, employment and environmental benefit. (the mere fact that you are investing in all this business entity enterprise and will be spending $$$ in Indoor hiring local nationals to any repairs, maintenance, etc on the property can demonstrate how your PMA owning and holding property in Indonesia is beneficial to its economy and to its people)
- Make an appropriate cash deposit in an Indonesian based Bank. The amount varies and is calculated from the capital employed in the business.
- Show the property investment as an asset of the company.
The process takes approximately 3 to 4 months and once its completed; the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up the PMA is approximately between 30 to 40 Million IDR or $4,500 USD. Of course this method is very involved and is not intended for your first time investor and involves many other legal and tax consequences and you would need to be a very savvy business owner with either a great deal of experience of have your team of professional lawyers, financial or investment advisers, CPA's etc to set this all up correctly and legally so you do not run into problems with the Indonesian authorities, which regrettable to say can be corrupt. I just mention it here as another possible or viable option to make you aware of.
Friday, June 11, 2010
Indonesia Considers Allowing Foreign Investors to Buy/Own Real Estate
"Proposed changes to property ownership laws for foreigners: Mixed messages are still coming in regarding the government’s intentions with possible changes to the property ownership laws for foreigners. One recent report indicated that the government wants to make Indonesia more attractive for foreigners to retire and are therefore considering allowing foreigners aged 55 years or older [retirees] to be able to purchase property here. However because with every ‘pro’ there needs to be a ‘con’, the eligible foreigners will only be able to borrow up to 50% of the properties [sic] value and the loan must mature in a maximum of three years. Hmmm.. " -- Article from What's New Jakarta
This seems very and overly restrictive and also raises the following questions:
1) What is the definition of an "eligible" foreigner ?
2) The 50% Loan to Value (LTV) ratio applies where the property land records reflect a "deed of trust" loan or mortgage on the property. What if the financing is obtained outside of Indonesia ?
To require that the mortgage loan term be a maximum of three years means that if financed in Indonesia, the banks will make far less money in interest than if the mortgage loan was for the typical 15 year (180 months) or 30 year (360 months) loan period typical of real estate financing in the US. Furthermore, mortgage interest can generally be an itemized Federal income tax deduction on IRS Schedule A, so by only having a 3 year loan period this also makes the prospects for a [US] foreigner less likely to buy property in Indonesia since they cannot "write off" or deduct mortgage interest from their gross income thereby lowering their final or overall net taxable income. This will definitely not serve to stimulate the Indonesia economy by making it overly restrictive and financially burdensome for a retired person [over 55 years of age] on a pension or fixed income to take out a 3 years mortgage loan on a second or vacation home or investment property; not unless of course the elderly retired person was very wealthy. This would be a highly counter-intuitive move by the Indonesian Government to even consider such a measure.
The US imposes a "FIRPTA" (Foreign Investment Real Property Tax Act) which basically works like this. A foreigner can own US real property; however, if they ever sell it or plan on "cashing out" on the appreciation of an investment property; not only will they be subject to Capital Gains taxes (unless a "1031 tax exchange" is done), but will also be subject to the FIRPTA tax at closing or settlement on the sale of the property as well. The underlying philosophy behind this is the US says, "sure you can come here and buy and own property here, but if you plan on "cashing out" and running back to your country with the money you made here in the US, then "Uncle Sam" and the IRS is going to take their cut first. Indo could do something similar...
This seems very and overly restrictive and also raises the following questions:
1) What is the definition of an "eligible" foreigner ?
2) The 50% Loan to Value (LTV) ratio applies where the property land records reflect a "deed of trust" loan or mortgage on the property. What if the financing is obtained outside of Indonesia ?
To require that the mortgage loan term be a maximum of three years means that if financed in Indonesia, the banks will make far less money in interest than if the mortgage loan was for the typical 15 year (180 months) or 30 year (360 months) loan period typical of real estate financing in the US. Furthermore, mortgage interest can generally be an itemized Federal income tax deduction on IRS Schedule A, so by only having a 3 year loan period this also makes the prospects for a [US] foreigner less likely to buy property in Indonesia since they cannot "write off" or deduct mortgage interest from their gross income thereby lowering their final or overall net taxable income. This will definitely not serve to stimulate the Indonesia economy by making it overly restrictive and financially burdensome for a retired person [over 55 years of age] on a pension or fixed income to take out a 3 years mortgage loan on a second or vacation home or investment property; not unless of course the elderly retired person was very wealthy. This would be a highly counter-intuitive move by the Indonesian Government to even consider such a measure.
The US imposes a "FIRPTA" (Foreign Investment Real Property Tax Act) which basically works like this. A foreigner can own US real property; however, if they ever sell it or plan on "cashing out" on the appreciation of an investment property; not only will they be subject to Capital Gains taxes (unless a "1031 tax exchange" is done), but will also be subject to the FIRPTA tax at closing or settlement on the sale of the property as well. The underlying philosophy behind this is the US says, "sure you can come here and buy and own property here, but if you plan on "cashing out" and running back to your country with the money you made here in the US, then "Uncle Sam" and the IRS is going to take their cut first. Indo could do something similar...
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