Indonesia’s tropical landscapes, dynamic economy, and cultural appeal make it a highly desirable place for property investment, especially in Bali and other tourist hotspots. However, purchasing property as a foreigner requires understanding the country’s unique ownership structure and the legal documents involved. Known locally as dokumen kepemilikan, these property ownership documents are crucial in any real estate transaction, particularly for expats who face additional restrictions on direct property ownership. This guide will provide an overview of the primary ownership documents, the transaction process, and key considerations to ensure a safe investment in Indonesia.
1. Types of Property Ownership Documents in Indonesia
Indonesia has several types of property ownership certificates, each providing different levels of ownership rights and usage permissions. Here are the primary ownership documents, or dokumen kepemilikan, that expats need to be aware of when buying property in Indonesia:
Sertifikat Hak Milik (SHM) – Freehold Title: SHM, or the Freehold Title, provides the highest level of ownership available in Indonesia. It grants full rights to the owner, including the ability to transfer, inherit, or modify the property at will. However, SHM is restricted exclusively to Indonesian citizens, meaning that foreigners are not allowed to own property with this certificate. Despite its limitations for expats, SHM remains important in understanding property ownership in Indonesia.
Sertifikat Hak Pakai (SHP) – Right to Use: SHP, or the Right to Use, is one of the main ownership documents available to foreigners. It permits expats to use a property for a set period, often 25 years, with the option to extend the right for another 20 years. SHP does not provide full ownership but allows expats to legally use or lease a property for an extended period.
Sertifikat Hak Guna Bangunan (HGB) – Right to Build: HGB, or the Right to Build, provides the holder with the right to construct and maintain buildings on land for a set period, generally 30 years, which can be renewed for another 20 years. HGB is available to both Indonesians and foreign-owned companies, making it a popular choice for expats who establish a business in Indonesia and want to invest in commercial property.
Hak Sewa (Leasehold): Hak Sewa, or leasehold, is another method for expats to secure long-term use of a property. Expats can lease land or property for extended periods, generally between 25 to 50 years. While Hak Sewa does not grant ownership or permanent rights, it allows expats to occupy and utilize property within the agreed terms.
2. Key Documents in the Property Transaction Process
Beyond these primary ownership documents, additional paperwork is necessary to ensure a legally sound transaction:
Sales and Purchase Agreement (Akta Jual Beli): This is the legally binding document that formalizes the sale and purchase of a property. Notarized by a notary (notaris), the Akta Jual Beli confirms the buyer’s and seller’s consent and agreement on the sale. For expats, this document secures their rights under the Hak Pakai, Hak Guna Bangunan, or Hak Sewa structures, depending on the arrangement. The notary submits the Akta Jual Beli to the National Land Agency (BPN) for registration, which is a critical step in securing legal ownership.
Izin Mendirikan Bangunan (IMB) – Building Permit: For properties that expats wish to build or modify, the IMB is a required permit that grants legal authorization to construct or renovate a building on the land. Issued by local authorities, the IMB confirms compliance with zoning laws and construction regulations.
Endorsement from the National Land Agency (BPN): To complete a property transaction, the BPN must officially recognize the foreigner’s right to use or build on the land. For properties involving Hak Pakai or HGB titles, the BPN’s endorsement ensures that all national property ownership laws are respected, making the ownership legally binding.
3. The Transaction Process for Expats Buying Property in Indonesia
Purchasing property as an expat in Indonesia requires careful attention to each step in the transaction process to align with Indonesian law. Here’s a breakdown of the steps involved:
Preliminary Research and Due Diligence: Before entering into any agreements, expats should conduct thorough research and due diligence on the property. This involves confirming the property’s ownership status, ensuring it’s free of disputes, verifying zoning compliance, and determining whether the property is under an SHM, HGB, or other relevant title. Working with a notary or a property lawyer knowledgeable about local property laws is crucial for identifying any legal red flags.
Signing the Sales and Purchase Agreement (Akta Jual Beli): After due diligence, both the buyer and seller will sign the Akta Jual Beli, which must be completed in the presence of a notary. For expats, the Akta Jual Beli ensures that the transaction aligns with the legal rights available to foreigners, such as Hak Pakai or Hak Guna Bangunan. The notary will then submit this agreement to the BPN for registration, a necessary step in legitimizing the property transfer.
Securing Ownership Title (Hak Pakai or HGB): Once the Akta Jual Beli is registered, the BPN issues the appropriate title based on the agreed ownership structure. If the property is acquired under Hak Pakai or HGB, the BPN will issue the title reflecting the expat’s legal right to use or build on the property. Each title has a fixed duration but can be renewed, ensuring long-term use or building rights.
4. Common Challenges and Important Considerations
The Indonesian property market is nuanced, and foreigners face some unique challenges. Here are a few common risks and points to keep in mind:
Nominee Arrangements: Some foreigners seek to acquire property by using an Indonesian nominee (citizen) to hold an SHM title on their behalf. However, this approach carries significant risks. Nominee arrangements are not legally recognized in Indonesia, meaning that if a dispute arises, the Indonesian courts will favor the official titleholder—putting the foreigner’s investment at risk. Legal experts advise against using nominee structures.
Community and Local Customary Law (Adat): In regions like Bali, adat law, or local customary law, may impose restrictions on property use or ownership that differ from national law. Consulting with local advisors is essential, especially in areas where adat law governs land use and property rights. Some communities require approval for property use changes, such as rentals or commercial ventures, to maintain community harmony and cultural preservation.
Zoning Restrictions and Sacred Areas: In Bali, certain areas near temples or cultural sites are restricted, impacting property use and development. Properties close to religious landmarks may face zoning laws that prevent extensive development, making it essential to understand the area’s zoning regulations before finalizing any purchase.
Conclusion: Navigating Indonesian Property Ownership as an Expat
Purchasing property as an expat in Indonesia can be rewarding, but it requires an understanding of the unique structure of dokumen kepemilikan and the transaction process. While freehold ownership (SHM) is unavailable to foreigners, options like Hak Pakai and HGB provide ways to secure property rights for extended periods. These documents, alongside critical agreements like the Akta Jual Beli and permits like the IMB, offer expats a legal framework for property investment.
By conducting thorough due diligence, engaging local legal experts, and respecting local customs, expats can navigate Indonesia’s property laws effectively. This approach ensures that the investment aligns with both legal requirements and community expectations, providing a solid foundation for property ownership in Indonesia’s unique and vibrant market.