PROPERTY OWNERSHIP OPTIONS
for Non-Indonesian Nationals
Overview of Indonesian land laws
Terms and structures…. our recommendation Hak Pakai

Hak Milik
The term for freehold title in Indonesian language is Hak Milik. Although there have a number
of legislative committees formed since the early 1990’s to discuss liberalizing foreign
ownership rules, Indonesian law does not yet permit foreigners to hold this form of title.
Within this context foreigners who wished to secure a property in Indonesia have been
obliged to take one of the following courses of action:

Leasehold (or Hak Sewa)
This is a contractual agreement between the land owner and the foreigner. While leases are
often notarized documents they have no official record of existence in the Lands Department.
As such there can be difficulties in enforcement when there are conflicting documents or
multiple lease agreements (not so uncommon given Balinese land is often owned by
extended families).

Nominee structure
Similar to the above this is a contractual agreement – in this case between a foreigner and an
Indonesian national whom he nominates to hold the Hak Milik title (on his behalf). This
structure typically has several agreements (such as right to use and right to sell) as well as a
mortgage agreement which states that the Indonesian nominee has borrowed the money in
order to buy the property. A mortgage is legally recognised in Indonesia however in a market
of quickly strengthening property prices such as Bali, care should be taken that the mortgage
amount does not become out-of-date.

Corporate ownership
A foreign investment, limited liability Company incorporated in Indonesia is commonly known
as a PT PMA. All Indonesian companies whether they are Indonesian-owned or are foreign
invested, are allowed to hold a ‘Right to Build’ title called Hak Guna Bangunan (HGB). In this
case the freehold title (Hak Milik) is relinquished to the state and the company is given
possession of the property under a right to use title (normally) granted for a period of 30
years with rights of extension (+20 + 30 years) – each extension subject to tax.
While this title is more than suitable for the Indonesian operation of a multinational company
there are some drawbacks for those seeking it as a method to hold Indonesian property. The
first of these is the actual process of company formation as well the establishment cost – both
of which are not insignificant. Another is that this is a foreign-investment company and
therefore will have ongoing reporting requirement to the tax department among others. In
most cases this requires the foreigner to engage the services of a professional accounting
firm.

Recommended Ownership Option – The ‘Right to Use’ (Hak Pakai)
A leading investment option for individual foreign purchasers is an exclusive right of use of
the underlying Hak Milik land which rights are contained in a Certificate of Title known in
Indonesia as Hak Pakai.
Hak Pakai means “Right of Use” and is the only certificate of title to land, recognized and
sanctioned by Indonesian law, which can be held personally in the name of a foreign
purchaser. The Hak Pakai certificate of title is reserved exclusively for foreign individuals, so
foreign companies cannot obtain this title except in situations where they are on selling to
foreigners.
A special variation to the Hak Pakai title is known as “Hak Pakai atas Tanah Hak Milik”
which means “Right of Use over Freehold Land”. This form of Hak Pakai title effectively
“floats” above and charges the underlying freehold Hak Milik title, which as noted above is
reserved exclusively for Indonesian nationals.
In order to create this form of Hak Pakai title, the owner of the Hak Milik (freehold) title
executes with the foreign purchaser, before an Indonesian Notary, various Notarial Deeds
and Official Land Deeds which vest the exclusive right of use of the property in the foreign
purchaser for an initial 25 year term and successive pre-paid 25 year renewals to the initial
term as agreed between the freehold owner and the foreign purchaser.

It is recommended that purchasers take advantage of the leading ownership
structure now permitted by the National Land Agency in Bali known as the Hak
Pakai over Hak Milik title.
The Hak Pakai title is the government sanctioned method for foreign purchasers to acquire
exclusive rights of use over freehold land which is registered in a separate certificate of title
issued in the name of the foreigner. At the election of the purchaser, the freehold Hak Milik
owner will grant the purchaser a Hak Pakai title of an initial 25 year term with three prepaid
twenty-five year renewals thus providing one hundred years of secure ownership tenure to
the villa/land (4 x 25 year terms = 100 years).
It should be noted that:
• Hak Pakai titles are transferable between foreigners on condition that the
foreigners actually appear in Indonesia before a Notary with valid entry permits.
Standard Notarial fees and government transfer taxes apply to transfers and
extensions of the Hak Pakai title.
• The Hak Pakai title is technically capable of being mortgaged, subject to
implementing regulations being passed by the Indonesian government, which
may give rise to future re-financing options with Indonesian banks although it
should be noted that Indonesian banks in general are not presently lending
against the security of a Hak Pakai title.
• A foreigner may only hold one Hak Pakai title in Indonesia at any given time and
the maximum amount of land that can be held in this title is 50 Are or 5000sqm.
• The Hak Pakai title is not a lease as the Hak Pakai certificate of title actually
issues in the name of the foreign owner and the owner’s interest is noted as an
encumbrance on the Hak Milik title unlike a leasehold structure.
• From an investment and asset protection aspect, while providing a legal and clear
direct title to the foreign owner, this structure also offers the benefit of
preserving the underlying Hak Milik title. Among all the other forms of ownership
title (Hak Sewa, HGB – Hak Guna Bangunan, Hak Pakai – Right of Use with
underlying Hak Milik extinguished), the Hak Milik is considered the valuable and
easily transferable and mortageable by all financial institutions. Thus the usage
of this ownership structure protects the underlying strength of the asset.
In light of the legal security offered by the Hak Pakai atas Tanah Hak Milik title, this legal
structure should be regarded as the leading option for foreign property acquisition in Bali.
However, each purchaser should make their own informed decisions after consultation with
an independent legal advisor.

NOTICE: THE ABOVE EXPLANATION IS FOR INFORMATION PURPOSES ONLY AND IT IS
RECOMMENDED THAT POTENTIAL PURCHASERS SEEK INDEPENDENT LEGAL ADVICE IN INDONESIA
WITH REGARD TO THE PROPOSED PURCHASE. SUBSEQUENT TO THE PURCHASE, LEGAL ADVICE
SHOULD BE TAKEN IN THE HOME JURISDICTION OF THE PURCHASER WITH REGARD TO WILLS AND
SUCCESSION PLANNING FOR INDONESIAN PROPERTY.