Due Diligence Part IV: get to know your legal options – freehold and right of use
In the last part on Due Diligence I talked about acquiring a property as leasehold and I stressed the importance of properly structuring the extension of the leasehold term. Today, we are talking about acquiring a freehold property and I will introduce a title that is available to resident foreigners and quasi equivalent to freehold.
Having said that, let me make this very clear: the acquisition of freehold property is reserved to Indonesian citizens only. Full stop. Not even Indonesian companies can acquire freehold. If you are a foreigner, the law* offers you the possibility to own one so-called right of use title (hak pakai, in Bahasa Indonesia). This title works very much like the right to build title (hak guna bangunan), which is the title reserved for Indonesian companies, both domestic and foreign owned.
Here is how this works. In order to qualify to buy a property with a right of use title, you need a resident stay permit. This can be a retirement visa or a so-called Kitas or stay permit. If you are above 55 years old, a simple retirement visa will do. If you are below that tender age, you need a company to sponsor you. It will take about a month to get the paperwork done. So plan accordingly.
Once you have the appropriate stay permit, you can appear in front of a notary and sign the sale and purchase deed. Thereby, the current status of the freehold property you are acquiring will be replaced by a right of use title and yes, it will be bearing your name and you can pass it on to your heirs. There are limitations with regard to the price of a property that qualifies for hak pakai. In Bali it is a minimum of IDR 2 billion for an apartment and IDR 5 billion for a house or villa. Note that this title is for land with an apartment or a house built on it. You can’t buy just bare land as hak pakai. Also, there are restrictions on size, which stipulates that you cannot buy more than 2 ha unless you have a special permission from the Ministry of Agrarian Affairs and Spatial Planning.
Once the title conversion is done from freehold to right of use, your title will be issued for a first term of 30 years. Before the end of the term, you are entitled to extend the title for a second term of 20 years and after that you can renew it again for another 30 years. The extension is granted by paying a small tax to the government.
Now, here is the good news: if sold and transferred back to an Indonesian citizen, a hak pakai title can be converted back to freehold (hak milik). Thereby, as a foreigner you enjoy the same appreciation of a freehold title as an Indonesian citizen. Unfortunately, this option is little known among foreigners. We at Exotiq have had numerous such transactions and the process was smooth and simple.
(*) On 19 September, the Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency issued Regulation No. 29 of 2016 on Procedure for Granting, Releasing, or Transferring Land Rights over Residential Houses to Foreign Nationals in Indonesia (Regulation 29), which revoked the previous regulation issued in March 2016 on the same matter.