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Right of Ownership - Hak Milik

Discussion in 'Owning Property in Bali' started by Alexandre, Dec 25, 2005.

  1. Alexandre

    Alexandre Member

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    Happy Xmas to everybody,

    I just found a property for sale called the Impian Estate located near the center of the Bukit pensinsula in South Bali.
    The website claims that:

    "Ownership of the Bali Impian Estate Villas is based on a "Hak Milik" title (freehold, equivalent to ownership in perpetuity) instead of a lease contract which expires after 20 or 30 years. "

    and

    "This means the capital value of your investment is likely to increase year by year – instead of decreasing gradually down to zero as with a leasehold property. Land prices here on the Bukit have increased over 30% per annum over the past years."

    Can you comment on the first statement regarding the Hak Milik? Is it really freehold? What are the risks of "depossession" for a non Balinese purchaser?

    Regarding the second statement, I just posted it because I found it misleading but please comment.

    Leaving tomorrow for Bali with the family, will be there on the 28th for 3 weeks, Im' happy as a hippo!!! :D :D :D

    Merry Xmas again :D
     
  2. Tony

    Tony Member

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    Hello Alexandre,

    I have just recently entered into an agreement to purchase property in Bali and have spent considerable time and energy with an attorney deciphering the ins & outs of property ownership by foreigners in Indonesia. I strongly recommend that you do the same before deciding to go forward with any property investment in Bali. Most attorneys will provide you with a free initial consultation where they will explain the various contracts and methods of property ownership (Hak Milik, Hak Pakai, etc.) and the pros & cons of each type of contract. It will be time well spent and most informative, I assure you. I will attempt to answer your questions based on the information provided by my attorney. Yet, I am not an attorney and advise you to seek your own legal counsel.

    A Hak Milik is, as I understand it, an ownership certificate (a Title as we call it in the USA) and can only be held by an Indonesian citizen. This requires that you, as a foreign investor, find an Indonesian "nominee" who becomes the actual holder of the Hak Milik or ownership title. Hak Milik is a "freehold" ownership with no time limits or expirations and can be held by the Indonesian national indefinitely. Obviously, this would work out best if you have a nominee with which you have a long term relationship and know and trust well. There are many people in Bali willing to act as nominees for hire and fees for such service begin at around rp5,000,000 up front at the time of purchase and an agreement that the nominee is to receive 1% or more in the event of a future sale of the property.

    Through a series of additional legal contracts, your "ownership" can be protected. One such legal vehicle is a document called Hak Pakai or a right of use/right to build, etc. granted to you by the nominee. A Hak Pakai is a relatively new vehicle introduced into law in 2004. A Hak Pakai is a finite agreement with a time limit of 20 years if I remember correctly, which can be renewed or extended. Again, I encourage you to seek counsel for a clear understanding of the laws in this regard. My attorney has advised foregoing the Hak Pakai route in favor of alternative legal vehicles as follows...

    When you enter into an agreement to purchase property thru a nominee, you thru the Notaris or attorney or both grant a "mortgage" to the nominee, stating in effect that you have lent the nominee the money for the purchase of the property. This "mortgage is then attached to the new Hak Milik and registered with the land office along with documentation and binding agreements that your nominee cannot sell, mortgage or otherwise encumber the property without your acknowledgement in writing proving your satisfaction. In addition to the mortgage, there are binding agreements put in place requiring that your nominee agrees to assist you should you decide sell the property in the future and also allowing you to change your nominee in the future without additional compensation should you and he/she come to a dispute in the future. As I understand it...all of these contracts/documents are registered with the government land office along with the original Hak Milik as protections against your nominee attempting to sell or mortage your property without your knowledge and approval.

    I have been advised by my attorney that this method is extremely safe and defendable in a court of law, however...my 20+ years of experience in dealing with things in Bali, I have learned that when it comes to the rights of foreigners in Indonesia, nothing should be taken for granted.

    On the otherhand, regarding leasehold property, a quick search of leasehold property via the internet will quickly prove that resale prices of these properties are considerably lower than resale prices of comparable freehold properties and as the original lease draws to an end, the value deminishes proportionately. This rule of thumb holds true all around the world.

    Regarding the second statement you question...here in the USA, a real estate sales company or person is forbidden to comment on the security or potential appreciation in value of a real estate investment unless they hold a securities trading license issued by a governnment regulatory agency known as the Federal Trade Commission. Though property values seem to be holding up in Bali after the bomb event in October and many of the real estate salespersons I spoke with assured me that interest in investment remains strong and sales continue to be brisk, I have noticed that many of the properties that I began researching 3-6 months ago remain for sale today. A future act of terrorism on Bali soil will indeed inpact the value of real estate, if only temporarily. Any such statements made by any real estate "professional" regarding the appreciating value of any property investment should be, in my opinion, viewed with a good deal of skepticism and considered part of the sales pitch.

    OK...I hope that this helps a bit in clarifying things. Consult an attorney for precise clarifications and good luck!
     
  3. Roy

    Roy Active Member

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    Excellent post Tony, and as far as all the "legal" powers that I know in Bali, there would be NO disagreement with what you posted.
     
  4. Alexandre

    Alexandre Member

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    thanks Tony
     
  5. smusdar

    smusdar Member

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    Hi,

    I am amazed by the explanation of Tony, his lawyer really helps him.
    Just want to add a bit information, yes it is right Ownership Right of land only can be held by Indonesian citizen.


    Foreigner --should be a legal entity such as PT / Limited liability COmpany-- only shall have Building Rights valid for 35 years and can be extended for 25 years.

    So if you desire to buy property with Right of ownership, you should make -- like Tony said-- Nominee agreement; this practice commonly used if foreigner wish to establish a company under Indo Law but not as Foreign Investment Company (the cost/ fee and procedure so high and takes time).

    But You have to be careful, and make sure, the nominee is someone who you know best and you should have that written agreement beforee Notary; one of the clausul is that the nomineee does not have right to sell or lease the property, etc.

    PM me and I will give you the name of notary in Denpasaaar who wil help you.
     
  6. Roy

    Roy Active Member

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    Now, that's interesting that you post this, all the while, I was a "bad boy" when I gave you some grief?

    Pretty funny stuff, and too often, not too funny, eh?

    Jimbo! I hope you are taking notes!
     
  7. Tony

    Tony Member

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    Thank you Roy & Smusdar,

    I suppose the taking of copious notes during the sessions with my attorney paid off, eh?

    Smusdar, not wishing to dispute the information you have added, I received the advise to also forego the PT company route of ownership by my attorney, something I had initialy considered. Both the Hak Pakai & setting up a PT route, indeed, place time restrictions on your right to use/right to build, etc. as you mentioned.

    According to the advice I received, the same legal protections can be put into place thru a series of formal agreements & contracts with your nominee as I mentioned in my previous post, without the time restrictions on right to use/right to build, etc. Again, I caution anyone interested in property investment to seek their own counsel for information and advise in this regard.

    One other caution, as I was advised, regarding the PT route to ownership was that the establishment of a PT can potentially open you up to increased tax liabilities in the long run. On the otherhand, if your plan is to rent your home or villa (or pondok, as Roy might call it) to tourists yourself, a PT will have to be established to act as the rental management company of your property. This route can also be avoided by contracting with existing property rental/management firms who will manage, market, staff and rent your property for you.
     
  8. Roy

    Roy Active Member

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    Yes...indeed it did. All too often expats and foreign investors have learned these lessons the "hard way"...a costly education.

    Smusdar is right in that a notaris can handle virtually any real estate transaction...however, I am a firm believer in using an attorney. The only reason is, that if it ever becomes necessary for your contract to go to court, the attorney can argue it, while that notaris who may have drawn up and processed your documents cannot.

    Tony, I also agree with you that a PT is not the way to go. If a foreigner does not have an Indonesian spouse, most of the expats I know will use their Indonesian attorney as the nominee. The advantage there is that it keeps everything on a professional level and it eliminates the “personal” aspects of using a trusted Indonesian friend to act as your nominee.
     
  9. smusdar

    smusdar Member

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    Re: RE: Right of Ownership - Hak Milik

    Hi Pak Roy (sorry, do you mind if I call you Pak ? Since I respect you )

    Sorry I just could response now, have a hectic days .

    Seemingly now I am in big trouble :?
    I beg your pardon..if i Mention that I know notary in Denpasar, cause I have dealt with her in land sale purchase deed. But of course I am still can be classified as outsider, cause I never live in Bali more than 3 days.



    Smusdar is right in that a notaris can handle virtually any real estate transaction...however, I am a firm believer in using an attorney. The only reason is, that if it ever becomes necessary for your contract to go to court, the attorney can argue it, while that notaris who may have drawn up and processed your documents cannot.

    yes you can say that again. But in Indonesia, we have to make any land transaction and make the Deed before Notary/ PPAT (Land Deed Maker)
    But, I guess for this case, the perfect choice to perform virtual real estate transaction under your name is Lawyer.


    Tony, I also agree with you that a PT is not the way to go. If a foreigner does not have an Indonesian spouse, most of the expats I know will use their Indonesian attorney as the nominee. The advantage there is that it keeps everything on a professional level and it eliminates the “personal” aspects of using a trusted Indonesian friend to act as your nominee.[/quote]

    I cited / mentioned that, only to inform that Nominee agreement also used if foreigners who desire establish their business here but mind with Foreign Investment Law and its procedures.

    Happy New Year :)
     
  10. smusdar

    smusdar Member

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    Re: RE: Right of Ownership - Hak Milik

    Hi Tony,

    Well, here it is my reply :

    According to Land LAw of 1960, there are some right related to land/ property :
    1. Right of ownership ---> you have right to contruct or build upon, or use for agricultural and breeding purpose
    ---> no time limit
    --> the owner is entitled to use of his land to another party, by granting 'secondary right' on the land, may transfer his right to another party, in teh event of death his land can be inherited by his legal heirs, can also be conveyed as security for debt
    --> must be registered (certificate)

    subject : Indonesian national
    (foreigner ONLY has right of use (hak pakai)

    Foreigner who have obtained right of ownership on land by way of non-testamentary succesion or joint-property based on marriage are permited to possess right of ownership, BUT they are obliged to release his right of ownership within one year (LAnd law of 1960 article 21 par. (3)

    2. Right to cultivate (Hak guna usaha)
    use for plantations and farming
    subject : Indo national & corporation under Indo LAw

    3. Right of Building
    right to build and posses a building
    the validity : 30 years, can be extended for 20 years.
    subject : indonesian and coporation establish under Indo law

    4. Right of use (hak pakai)
    applied may be used as a building site or agricultural purpose
    subject :
    - indo nationality
    - resident foreigners
    -foreign corporations which have representatives in Indonesia who require the possesion of certain state land for a special purpose (generally for teh contruction of buildings
    - corporations established under indo law and has domicile in Indo

    That's all from me today Tony, i hope it can help you somehow.

    Happy new year :)
     
  11. Roy

    Roy Active Member

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    Smusdar writes:

    I totally agree. It will be a notaris who files the green land certificate, BUT, it is NOT the notaris who will argue the agreement surrounding this land certificate in court.

    The bottom line is simply this. The land certificate, which is in essence, THE DEED is totally worthless to the foreigner UNLESS the agreement that legally binds the land certificate is written by a lawyer. That is plain and simple, and I hate to admit that too many expats have NOT taken that VERY important point into consideration with their supposed “land deals.”
     
  12. Tony

    Tony Member

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    Smusdar,again, my thanks to you for the additional information. It has indeed been helpfull. Hopefully, this thread will also help Alexandre and others interested in property investment in Bali. As Roy points out and other threads in this forum confirm, the various methods to property investment for the foreigner can be most confusing and many a starry-eyed bule has taken leave of their senses when entering these transactions only to learn the hard way the many pitfalls that await them without proper counsel.

    My best to you all...
     
  13. smusdar

    smusdar Member

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    Re: RE: Right of Ownership - Hak Milik

    Hi Tony,




    Iam glad that my info is bit usefull for you.
    If there is any question, you know how to find me :)
    Actually there is a good book in english written by outstanding Indonesian Lawyer (Soedargo Gautama), for first stage get intouch with Indonesia Commercial Law, that book is really helpfull ( a kinda "Holly Book" for Indo Lawyers :D )

    cheers,
     
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