Buying property in Jakarta

Jakarta's real estate market

As a country, Indonesia is a dream destination for foreigners. Thanks to its tropical climate, paradise beaches, unique fauna and flora, and thousands of islands to visit, the country attracts many expatriates. According to estimates, there are about 350,000 expatriates throughout the country, most of them in and around Jakarta, the capital of the Indonesian archipelago. This is quite understandable, given that the city is by far the largest, most populous and most dynamic in the country. The labor market in Jakarta, in particular, is much more welcoming towards foreigners than the rest of the country.

The vast majority of expats in Jakarta prefer to rent rather than buy property there. The reason for this lies solely within the Indonesian land ownership laws. If it is possible today for a foreigner to enjoy a property in Jakarta or elsewhere in Indonesia, it remains, in most cases, a very complicated process.

First of all, you should bear in mind that under current legislation, it is not possible for a non-citizen to buy real estate in their own name in Indonesia, regardless of the region. However, there are other options that will allow you to enjoy a property in Indonesia for some time. In essence, foreigners are now allowed to purchase leasehold properties in Indonesia, and there are several ways to do so.

For many years, local legislation prohibited foreigners from buying land or buildings in Indonesia. By the end of the 1990s, things had somewhat improved, with the enactment of laws allowing expatriates to buy a house or an apartment, but only when the land on which the building is located is not included in the sales contract.

Further laws came into force in 2010 and 2015, allowing expatriates to lease land for up to 80 years. However, these laws remain unclear and are subject to many interpretations. Moreover, the conditions attached to the granting of a lease to a foreigner are rather strict, not to mention that the administrative procedures are also long and complex.

Be aware that the law governing property in Indonesia is Law Number 5 of 1960. This law clearly states that only Indonesian citizens can acquire a Hak Milik, the local term for freehold land title. The severity of this prohibition is such that paragraph 5 of this law states that even Indonesian citizens who hold another citizenship are treated the same as foreigners and must renounce their other citizenship in order to become property owners in their own country.

Laws and regulations for buying property in Jakarta

First, be aware that Indonesia has two types of property rights, namely the "right to own" (Hak Milik), which we have already mentioned, and the "right to build" (Hak Guna Bangunan).

Today, expatriates residing in Indonesia are allowed to rent land or a residence on a long-term basis, but subject to certain conditions. The government has amended the legislation to further encourage foreign investment and promote national growth.

Therefore, while the Hak Milik remains inaccessible to those without Indonesian citizenship, two other legal terms have been added to the existing legislation: Hak Guna Bangunan and Hak Pakai. Here are the meanings of these two terms:

• Hak Guna Bangunan allows you to build and enjoy your property for up to 80 years.
• Hak Pakai gives you the right to buy and use your property for 30 years, with an option to renew up to 50 years, to live in it, or to turn it into a rental property, either through leasing or subleasing. As the lease is long-term, you can use it as an office, transfer it to a family member, or sell it to an Indonesian citizen. However, this type of lease requires an initial investment, which includes all the rents, payable in advance.

Under this law, expatriates can purchase land or a house under the Right of Use category for a period not exceeding 30 years. After the initial period expires, the right-of-use contract can be renewed twice: the first time for the same 30-year period, and the second time for 20 years. If you opt for this solution, you will rent a property in Indonesia for up to 80 years.

While you could consider appointing a local representative to act as your partner in your land transactions, this is an illegal arrangement under Indonesian law. Such illegal partnerships can also quickly turn against the expatriate. There are many cases in which the Indonesian partner incurred debts, leading to the seizure of the respective assets. There have also been reports of outright extortion.

Another way for an expatriate to become a property owner in Jakarta is to set up a company in Indonesia. As a foreigner, you will need to set up a company called PT PMA. This is, simply put, a limited liability company founded by foreign capital. The requirements for establishing a PT PMA in Jakarta are as follows:

• The company must have a minimum capital investment plan of IDR 10 billion, with paid-up capital of at least IDR 2.5 billion.
• The company's shares must be owned by at least two persons or legal entities.
• Founders must first sign a deed of establishment before a notary. The deed of establishment must contain all the required identity information for the founders, as well as for the members of the board of directors and the shareholders, whether individuals or companies.

Such a procedure may seem cumbersome at first glance, but it is a safer solution than partnering with a local citizen. In this particular case, the property will be placed under the company's ownership.

The types of land available to foreigners through the acquisition by a PT PMA company are, however, limited to certain categories. It is therefore recommended that you find out what type of classification the local legislation places on the land you are interested in before you proceed.

Foreigners married in Indonesia to Indonesian citizens may also be eligible to own property in Indonesia. It is important for you to know that, in any case, there are strict conditions attached to the purchase of real estate by a foreigner in this country. For example, you will need to be a compulsory owner of a Kitas (a limited residence permit in Indonesia), and you can only purchase individual houses or apartments.

Moreover, the Indonesian government has set a minimum local property value that expatriates can purchase. This minimum amount varies by region. In the Jakarta area, for example, the value of the property you wish to purchase cannot be less than IDR 10 billion (USD 589,000).

Requirements and policies for expatriates who wish to purchase property in Indonesia via the standard Hak Pakai route :

• As an individual, you must reside in Indonesia and apply for a KITAP (permanent residence permit) or KITAS (temporary/limited residence permit) to purchase and hold the property.
• The minimum property price in Jakarta is IDR 10 billion (about USD 589,000) for a house and IDR 5 billion (about USD 294,000) for an apartment.
• You and your family are allowed to own only one property. The maximum area of the property is 2,000 square meters. The property must be paid for in cash or financed by a bank loan or issued by an Indonesian financial institution.
• If you leave Indonesia, you must transfer the right to use the property to another person entitled to own property in Indonesia within one year of your departure.
• Initially, the right of use is set at 30 years, but it can then be extended for up to 80 years.

Financing a property purchase in Jakarta

As mentioned earlier, you have two financing options when buying real estate in Jakarta: paying cash or getting a loan.

Even though paying in cash can save you from all the administrative hassle, it is still a tough job to pay USD 700,000 in cash for a house! To avoid this kind of problem, you can turn to banks like BTN, CIMB, BNI and Bank Permata, and financial institutions in Indonesia to apply for a home loan:

• "Kredit Pemilikan Rumah" for a house or KPR.
• "Kredit Pemilikan Apartemen" for an apartment or KPA.

For more information on loans and the purchase process, talk to your real estate agent, developer, or local notary. Anyways, you will need a notary to oversee the transfer of ownership.

Alternatives to buying property in Jakarta

While real estate may seem particularly attractive in Jakarta, buying property there can be expensive and complicated for expatriates. However, there are other alternatives to explore, such as going through a local citizen to buy property as part of an official relationship (engagement), evidenced by a pre-marriage or marriage agreement.

In this case, it will be your Indonesian wife or husband who will buy the property in full property right (Hak Milik), which will also facilitate the obtaining of the loan (KPR / KPA) from local banks. Be careful, though, as you are not the owner! You will have no rights to the property, even if you both live there.

It is highly advised to consult a local lawyer specializing in real estate and expatriates in Indonesia to know the best way to proceed.

Useful links:

Rumah123

Dot Property

Brighton