Clarity on owning property in Republic of Indonesia.

davita

There are many threads on the above subject but, imo, have been unclear and sometimes too complex for newcomers to the forum to absorb. I'll attempt a minimal explanation from my experience...no authority implied. 1. I believe it is well known that foreigners (WNA) cannot own land in Indonesia...not even if their Indonesian (WNI) spouse/spouses own. There is a legal provision that, prior to marriage, a pre-nup can be written denying the foreigner any title to Indonesian land...and that seems to be acceptable. 2. A plot of land may be converted by a WNI owner to a Hak Pakai 'right to use' from the Minister of Land. A foreigner may then purchase a Hak Pakai, for a maximum term of 25 years (I may be corrected), and thereafter can be extended by the interested parties for extensions up to 75 years. This Hak Pakai 'right to use' is recorded in the Ministry files and therefore is subject to law which includes ability to sell, transfer, mortgage and provide in a will of inheritance. 3. Rent or lease are contracts between interested parties but are NOT part of the Ministry of Lands record in their files. They are legal constructs between lessor and lessee and are conditioned by the lease contract as written by the Notary. This lease/rental agreement needs careful scrutiny to avoid future pitfalls. A rental agreement is usual for minimum 12 months whereas a lease is for the full term of the lease. Either way it is normal that payment for the term is paid up-front unless negotiated otherwise. A long-term lease usually permits selling of the outstanding lease to a third party...just make sure it is in the contract. 4. A nominee 'arrangement' is currently in dispute. This is because some believe it circumvents the law and allows the foreigner to own land....it does NOT. A nominee is a WNI...hopefully trustworthy, that actuallly holds Hak Milik title to the land....end of story. Many have tried to create contracts stating the 'nominee' owns a mortgage or has an allegiance to deliver the property at the foreigners request but...it is doubtful if any of those 'arrangements' will even be heard by any judge, given any dispute, when he is instructed about Constitutional law. The title to the Hak Milik land is owned by the person whose name is on the title deed....any contract/agreement is secondary to the outright ownership. There maybe some variances to my above...I kept it concise until more difficult questions may be asked..... which hopefully others will answer.

werecoming

So option 2 is the way to go for a foreigner not married to a WNI?

davita

werecoming wroteSo option 2 is the way to go for a foreigner not married to a WNI?

According to Susi Johnston and her K3NI 'club'...this is the way but I don't have any more information that any of her posts, here and elsewhere, can provide. If anyone has done this conversion from Hak Milik to Hak Pakai and wishes to post I'm sure all members would appreciate that info. On the face of it I'd think it does give some legal title to the lease, which is probably more solid than a simple lease contract between a lessor and lessee, but I haven't investigated the cost to transfer and possibly transfer back to a Hak Milik.... given it would be sold to a WNI in the future.

ronb

I think your first 3 points are fine. But then in 4 you say "nominee 'arrangement' is currently in dispute". Who are the parties to this dispute? Can you articulate the dispute as a question we could debate? You just say "some believe it circumvents the law" etc etc - and yes of course people believe many things, but I don't think there are any court decisions that support these fears. You give your opinion on the legality of the "mortgage" arrangements that some use, but again this seems to be pure speculation with no court decisions to help us. The current minister is going to crack down on foreigners who illegally own land - but I have not seen anything to suggest that he is thinking of nominee arrangements when he says this. Maybe he is just a politician who likes headlines. So, might I humbly suggest that your attempt to bring some clarity to nominee arrangements has failed.

davita

ronb wroteSo, might I humbly suggest that your attempt to bring some clarity to nominee arrangements has failed.

I tried in my humble way to bring clarity....if you have a better explanation I'm sure it would help if it was offered. I've no information of any court action regarding the nominee 'arrangement'.... that is the problem, it hasn't been tested. If it were we would have clarity. It is how I interpret the Minister's threat on how he will deal with any foreigner/notary attempts to circumvent the law. I don't know any foreigner who [B]actually[/B] owns Hak Milik property....so what else could he be referring to? The thrust of the Minister's comment was also the subject of the seminar, hosted by the K3NI and Susi Johnston, that I attended recently. My point is that there shouldn't be any dispute about Hak Milik and the function of 'nominee'. I'm contending that anyone can use a WNI nominee but the owner is the nominee. It is the sideline 'arrangements' that some notaries/realtors dream-up to allay fears of title that, I believe, is being viewed as an attempt to circumvent law. This 'dispute' has been debated endlessly here, and other forums, and the press....with failed clarity.

ronb

Well I appreciate your attempt to bring clarity, but on point 4 this is difficult. If I was trying, I would make the following points: * "Nominee Arrangement" is a generic term covering a range of contractual setups used when an expat investor funds an Indonesian owner to buy property. The contracts aim to protect the investment by the expat, and may sometimes include a mortgage contract as one of the protections. * many newspaper articles and blog posts generate fear, uncertainty and doubt (FUD) about these various contracts. We are unaware of court decisions that have given substance to these fears. * the current Minister of Agrarian and Spatial Planning talks of a crackdown on foreigners who illegally "own" land but has not provided any examples of such illegal ownership. * my belief is that the many expats using some form of nominee arrangement can rest easy because the fear uncertainty and doubt merchants do not seem to have any evidence

davita

Ronb I think you and I are saying the same thing....only in a different way. We cannot dispute the nominee IS the righful owner as his/her name is on the Hak Milik title deeds. The 'contractual arrangements' are what can be disputed as some believe the contract gives 'title' and this is wrong...but that doesn't seem to stop buyers, or even Ministers, from thinking otherwise. The 'contractual arrangements' may be disputed in court but the Hak Milik title cannot. Laws are not equal...they have a heirarchy and Constitutional Law of Agrarian Land trumps any contract between persons....notarized, receipted or handshaken. Another example is you have said some contracts can include a mortgage between the foreigner and nominee to secure the investment.....however, there is an RI law that says a lender or mortgagee requires to be registered. I don't know any foreigner registered as such unless working for a bank. You are correct that, so far, nothing has been done about those 'contracts'....only threats by uppity Ministers and FUD. However, if proved by the Government to be seen as an attempt to circumvent law the property could be in peril......as someone on another thread cogently said, '[I]being forewarned is being forearmed'[/I]....and that is why I tried to provide some clarity.

spicyayam

Another point that I would like to raise is the legality of nominee agreements. Many people are saying they are illegal. I am not suggesting or recommending people to use them, but would like to know if they are in fact illegal. I can think of some cases where someone might want to use one. For example an Indonesian who lost their citizenship but wants to buy property, or an Indonesian citizen marries a foreigner and they don't have a pre-nup. Or maybe a foreigner goes into partnership with an Indonesian into some kind of property deal.

ronb

The word "illegal" is thrown around in Indonesia very freely (I was almost going to say with gay abandon). The notarized contracts signed as part of the nominee arrangement are almost certainly not illegal. Whether they provide all the security the expat investor is hoping for is another question.

Markit

Ronb isn't "gay abandon" your maiden name?

davita

ronb wroteThe word "illegal" is thrown around in Indonesia very freely (I was almost going to say with gay abandon). The notarized contracts signed as part of the nominee arrangement are almost certainly not illegal. Whether they provide all the security the expat investor is hoping for is another question.

You are absolutely correct ronb... The contracts in themselves are legal and can be a claim in court if not abided by....but they cannot be used to claim title as [B]that[/B] would be illegal. Similarly, giving money to a WNI to sign as owner of title to property is not illegal. Maybe foolish....and I confess....I've done it twice. But you and I understand Indonesia well enough to note that courts very often interpret differently to that logic. That is why I wrote item 4 that way in my first post...to alert any newcomer to this 'dispute'. I was alerted at the Susi Johnston meeting about the 'interpretation' some Indonesian court may apply....and it [B]is [/B]scary.