New Regulation on Foreigners Owning Property in Indonesia
On 19 September, the Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency issued Regulation No. 29 of 2016 on Procedure for Granting, Releasing, or Transferring Land Rights over Residential Houses to Foreign Nationals in Indonesia (Regulation 29), which revoked the previous regulation issued in March 2016 on the same matter.
Regulation 29 is meant to provide more practical solutions and detailed explanations than those of the previous regulation. It sets out, among others things, criteria for houses and apartments that can be owned by resident foreigners and how long the resident foreigners can own them, and procedures for registration of Right to Use (in Indonesia known as Hak Pakai) for resident foreigners.
We set out below the key points of Regulation 29.
- Like the previous regulation, Regulation 29 explains that a foreigner having an appropriate stay permit (Resident Foreigner) may own a house or an apartment with Hak Pakai. If the Resident Foreigner dies, the house or apartment can be inherited as long as the heir is a Resident Foreigner if he or she is a foreigner. However, some of the key differences are that the house or apartment:
- does not need to be in a new condition (primary sale) and Resident Foreigners can purchase existing residential property; and
- can also be transferred to another party (not only Indonesians) or encumbered under a mortgage (Hak Tanggungan) - although note that the encumbrance must comply with the prevailing regulations.
- Regulation 29 emphasizes an existing concept whereby a land title follows the status of the holder of the land (i.e., a foreigner or an Indonesian). So, if a house or apartment is purchased by a Resident Foreigner, the conversion of the title will automatically happen, and if the house or apartment is then transferred to an Indonesian, the title can be re-converted to a Right to Own (in Indonesia known as Hak Milik) or a Right to Build (in Indonesia known as Hak Guna Bangunan or HGB). However, the concept under Regulation 29 is technically incorrect given that the underlying title should have been converted before the sale and purchase occurs (we suspect this technicality will be ignored in practice given Regulation 29 is a work around to remedy prior regulatory inadequacies in opening up residential property to Resident Foreigners).
- If a Resident Foreigner buys a residential property (built on a HGB land title), the title of the residential property will be deemed to be converted into a Hak Pakai upon the signing of the sale and purchase document before a land deed officer. The relevant land deed officer will then register the transaction at the Land Office so that the Land Office can manually update the title certificate to reflect the change of the residential property from HGB to become Hak Pakai.
- For strata title apartments (in Indonesia known as Hak Milik Atas Satuan Rumah Susun or HMSRS), the title of the underlying land will remain HGB title. So upon a purchase by a Resident Foreigner only that particular unit will be converted into a Hak Pakai strata title (in Indonesia known as Hak Pakai Atas Satuan Rumah Susun or HPSRS). Only if all apartment units are owned by Resident Foreigners can the underlying land be converted to Hak Pakai title.
- Regulation 29 sets the minimum prices for houses or apartments purchased by Resident Foreigners as follows:
- Regulation 29 also includes additional requirements for houses owned by Resident Foreigners (except for foreign country representatives or international agency representatives) as follows:
- One plot of land per person/family.
- The maximum land area is 2,000 square meters, though it can be more with prior approval from the Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency.
- Time periods for underlying titles owned by Resident Foreigners would depend on the type of the rights as follows:
Despite the technical argument that the underlying title should be converted into a Hak Pakai before a Resident Foreigner can obtain title to a residential property, Regulation 29 should be a welcome practical solution for developers hoping to sell to Resident Foreigners.
It remains to be seen whether there will be further changes given that Regulation 29 was issued only 6 months after the previous regulation. We will issue another alert if there are any updates on this matter.