Foreign Investment in Indonesian Real Estate

Legal Updates
Foreign Investment in Indonesian Real Estate
28 October 2014
Indonesia's Agrarian Law provides that foreigners can only acquire right to use () title for land if they reside in Indonesia. If foreign investors wish to engage in business in Indonesia, they must establish a foreign capital investment (PMA) company.
A PMA company is able to acquire a right to build (HGB) or a title. The HGB or title may also be placed over the seller's pre-existing right of ownership () or right to manage () titles. Under the applicable regulation, individual foreigners are allowed to own residential property under the title.

  1. vacant land with a title;
  2. apartments with a as its underlying title;
  3. non-subsidized houses with titles; and
  4. any of the foregoing with lease right as evidenced by lease documents entered into with the landowner.

Issues arise if a foreign investor acquires traditional or customary land (known as land). In Indonesia, particularly in rural areas, large areas of land exist that usually are held through a traditional joint community ownership structure and that have not been registered and certificated with the relevant land office under the Agrarian Law.

The rights to these areas are still governed by or customary law. rules vary significantly from one area to another within Indonesia. Possession of uncertificated land is most often evidenced by a letter (either a or ) issued by the head of the relevant sub-district or village to the landowner evidencing the payment of local land taxes. (also known as Letter C) is not evidence of land title ownership (the tax authority stopped using in 1994). These days, Land and Building Tax (PBB) receipts constitute the only evidence of payment of property tax.

In terms of purchasing the land, when uncertificated land is transferred, the buyer must apply for a registered title pursuant to the Agrarian Law and obtain a formal certificate of title. To obtain a land certificate, -based proprietary rights must be relinquished by the original owner to the state by signing a right relinquishment deed in favor of the buyer. With this deed, the buyer can then apply to the state for one of the primary titles to the land.

Another issue affecting the ownership of property by investors (whether local or foreign) is the presence of public areas or amenities. For example, if there is a river, a public cemetery or a public road within the land area, there may be special rules governing the right of use by oThe last relevant legal issue would be the exercise of eminent domain powers and land acquisition. The applicable regulation provides that eminent domain powers may be used for construction undertaken and eventually owned by the Government of Indonesia in the public interest in various areas, including in areas where the land is owned by private investors.

It should be noted that there are also foreign investment incentives for investment projects in the real estate sector approved by the Capital Investment Coordinating Board (BKPM). These include incentives for investment in remote areas of Indonesia and may consist of accelerated depreciation, special tax treatment and exemption or reduction of import duties.

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