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  September 22, 2014

Buying property in Bali

property laws and ownership

PROPERTY LAWS AND CONTRACTS
The most frequently asked questions, concerning property and ownership rights in Bali.
As the legal situation changes with every government, we give you an overview of the legal situation, and the most used regulations by foreigners, as of today, the year 2003. As there are national elections in 2004 (spring), it remains to be seen, whether the today applied laws stay the same, or –what one would expect from a modern government, trading with western countries- opens further up to the possibility of foreigners owning land (up to a certain size) in their OWN NAME.
Can a foreign person or other foreign entity legally purchase property in Indonesia? The Indonesian government issued Law 5 of 1960 on the "Basic Regulation Of Land in Indonesia" ,which came into force on 24 September 1960. This law explicitly and implicitly revoked many older laws. As a result, it can be said that UU 5/1960 established revolutionary new rules and principles concerning rights in land. This law recognized and regulated several rights over land and houses, including the:
Right of Ownership (Hak Milik),
Right to Cultivate (Hak Guna Usaha),
Right of Building (Hak Guna Bangunan),
Right of Use (Hak Pakai),
Right of Building Lease (Hak Sewa Atas Bangunan).


HERE THE IMPORTANT LAW, THAT APPLIES TO YOU AS A POTENTIAL LAND OWNER :
Documents drawn up at the Notary.
There are four documents needed:
One describes that the foreigner gives money to the Indonesian name holder to buy land and property and the Indonesian gives this land and property to the foreigner to use it, out of his free will. The document also describes that the name holder gives the foreigner permission to sell, to rent it out or rebuild the house or property. It states that the agreement, if necessary, passes automatically to the heirs, as well of the foreigner as the name holders. It states that all of the property costs (electricity, water and taxes) have to be paid by the foreigner. The official land titleor 'Sertipikat' will be in the foreigners possession as well as the statement of cession, signed by the name holder. Only with this 'Sertipikat Hak Milik' it is possible to sell the land. In the second document , selling of the property is granted to the foreigner. The name holder gives his explicit permission to do so.
In the third document the name holder gives permission to rent out the house or property.
The fourth document commits the name holder to co-operate, if the time ever comes that foreigners can own land and property in Indonesia, in making the foreigner being the new name holder on the 'Sertipikat'. In case the law changes in the disadvantage of foreigners, the name holder will co-operate in changing the agreement into a lease-contract of 50 years with option for another term. We have such contracts running, and we can help you to draw them up. We can also translate existing contracts and help you to find the right partner, a trustworthy Indonesian, for you.
Choose the right Indonesian Partner to "own" your property or land. This may take some time and asking around. Talk with foreigners in your area, TO GET ADVICE (AND PEOPLE RECOMMENDED). Properties can be owned by companies, like a PT or a PMA. A PT is an Indonesian "Limited", a PMA is a foreign investment company which can be owned 100% by foreigners. The PMA property license has to be renewed every 20 or 30 years. Setting up a PT costs about 10 million Rp, a PMA around 40 million Rp. The foreign PMA members are entitled for work permits and residents permit in Indonesisa. In order to FOUND a PMA, you (or the company) has to deposit at one given point in time 150 000 USD on a bank account in Indoesia. This money can be used to purchase land, or to build, or to buy equipment, and DOES NOT have to stay on the account.
Right of Ownership is the most comprehensive and complete form of individual rights over land. There is no time limit, and the holder has the right to use the land, including the earth underneath and the water and air above. It does not, however, include the right to obtain wealth from resources underneath the earth. Right of Ownership can be held only by Indonesian citizens. The Right to Cultivate is the right to cultivate State-owned land or to use it for other agricultural purposes for a certain period of time. There are two kinds of Right to Cultivate: for farming enterprises that are smaller than 25 hectares and for enterprises that are 25 hectares or more. Government Regulation 40 of 1996 on the Right to Cultivate, Right of Building, and Right of Use ("PP 40/1997") states that the period for Right to Cultivate is not to exceed 35 years initially but can be extended for another 25 years. When the extension period expires, the Right To Cultivate shall be renewed over the same land. The Right to Cultivate may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.
Right of Building is a right over land, either State-owned or private, with which the holder may erect and possess buildings for a certain period of time not to exceed thirty years (extendable for another twenty years). When the extension period expires, Right of Building shall be renewed. There are no limitations on the size of the holding. Right of Building may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.
Right of Use is a right over land, either State-owned or private, which gives the holder the right to use and obtain the product of a certain piece of land. The land to which Right of Use is applied may be used as a building site or for agricultural purposes. PP 40/1997 states that the initial period for Right of Use is not to exceed 25 years but can be extended for another twenty years or even indefinitely if the land is still in use for a certain reason. Right of Use may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia.
Right of Building Lease is a right to lease land, either State-owned or private, which gives the holder the right to use the land in return for compensation. The payment could be one-time or periodical as determined by mutual understanding between the parties. Right of Building Lease may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia.
Property Rights of Foreigners The above mentioned law ( UU 5/1960) only allows foreigners to obtain Right of Use or Right of Building Lease. However, UU 5/1960 only provides very general information on how to obtain either of these rights, the maximum time period, or the legal assurances provided. As a result, many foreigners in Indonesia are not willing to engage in such transactions because they do not know the regulations or feel insecure with the regulations.
Renewal of rights on expiry of the initial term is via an application to the National Land Agency and is subject to payment of a fee. An application must be submitted one year before expiry of the term. Although the law is silent in regard to the period after the expiry of the extended terms, the consensus is that a land right can be extended if there has been no infringement of the conditions attached to its usage.
Procedures for Property Acquisition. All transactions of land rights must be via deeds executed before a land deed official at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located and must be registered in the regional office of the National Land Agency. The PPATs are privately managed offices (usually run by a notary) authorised by the National Land Agency to handle land acquisition matters. Although there is no regulation that contracts have to be in Indonesian language, it is recommended having contracts and agreements always drawn up and executed in Bahasa Indonesia (or two languages) to prevent later arguments that the local partner did not fully understand the content.
”Pipil” is land owned by Balinese families by inheritage and never has been formally registered with the Land Registration office. Before acquiring this type of land it has to be registered first with the PPAT. This takes usually 4 to 6 months.

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