As a foreigner, there are several important points to take into account to make a safe and legal investment in Indonesia. 

The more you anticipate, the better you will be prepared for the launch of your project.

Can foreigners own land in Indonesia?

Under Indonesian law, foreigners are not permitted to own freehold land (“Hak Milik”). 

Foreign buyers have often used local Indonesian nominees to acquire the land (or villa). However, the nominee system is not accepted by Indonesian courts and Indonesian nominees are also less incentivised to cooperate following Indonesia’s 2016/17 tax amnesty. 

This structure is therefore deemed as unnecessarily risky for land buyers and villa owners.

However, foreigners may acquire other forms of entitlements over land:

• Right to build title (Hak Guna Bangunan (HGB))

The first structure is right to build the title and cannot be owned by a foreign individual, but can be owned by a 100% foreign-owned PMA-licensed company, which then has the freedom to construct and develop buildings on the land during the term of the HGB.

This structure therefore can provide a foreign investor with direct legal control over the company and land. The duration of the HGB is for 80 years, split as 30 years + 20 years + 30 years.

• Leasehold rights (Hak Sewa): Foreign individuals may legally enter into leasehold agreements for long-term leases, which are notarized by a public notary (PPAT) and recorded with the Indonesian Ministry of Law. 

Under the Indonesian Civil Code, leasehold rights are protected in the event of death/bankruptcy of the lessor or in the event of a sale of the freehold land. In both cases, the lease will continue for its full duration. Investors own the rights of the lease for the duration that has been paid and they have the right to on-sell the remaining years left of the lease as well as pass the lease title on via inheritance.

What are the chances to lose a property?

If the title is legitimate and legally placed under your name, you cannot lose your property.

If it is a leasehold title, only you will have the right to use the property during the duration of the lease period.

Find a property to buy or a project to develop

Alone or through a company specialising in this type of transaction, you must find the project that seems best suited to your desires. 

Location, possible return on investment, freehold or leasehold, all these elements must be taken into account in your search criteria. 

If you are looking for buying a house, there are a few options:

• Facebook groups 
• Listing website such as Olx.co.id or Rumah123.com
• Contact one of the many real estate agencies in Bali that list a great number of properties and land. 
• If you are in Bali, you can ask around and try to find properties that are for sale and negotiate directly with the owner. Be careful if you are not familiar with Indonesian law! Make sure a notary or lawyer will assist you when formalizing the purchase agreement.
• Work with a company that knows the Indonesian market and will be able to assist you during the entire search, due diligence and purchase processes, like Tropic Invest. 

Ensuring a proper due diligence before buying a property or investing in a project

Without a proper due diligence, the risks are great to make a bad investment or, worse case scenario, to lose all your investment. A few points to take into consideration:

• Who is the real owner of a property or a land? Does his / her name is on the property title?
• Can you build on the land (some areas are protected in Bali)?
• What about the licenses and permits? Is the investment legal? Are you sure you will be able to rent your property?
• Who is managing the project? What are their track records?
• What is the real value of your investment? 
• If you buy a house, did you ensure the good quality of the construction?
• What can you expect in terms of return on investment?

Find out about the taxes you have to pay

Taxation can be very attractive in Indonesia starting at 10% of your property income.

However, it is imperative to double check if there is a tax treaty between your country of residence and Indonesia.

For example, for countries such as France, Belgium or Canada, a tax treaty has been signed to avoid double taxation: taxes paid in Indonesia do not have to be paid again in these countries. There are close to 60 countries that have drawn up a double tax treaty with Indonesia. 

Is financing available?

Unfortunately, mortgages in Indonesia are almost impossible to obtain for foreigners. They are typically over a short time-frame (<5 years) and attract very high-interest rates.

Most of the real estate investments must thus be paid 100% “cash”, i.e. without taking a loan from banks.

For more information or further details, don’t hesitate to ask us your questions in comments, or by private messages.