When investing in a property in Bali you have two choices with regards to legal ownership:

a) Lease Hold Ownership

 The perceived benefit of this option is that you own the property in your own name (usually for a 25year period). However the downside is that while land prices and your asset increase in value, by opting for a lease hold you put yourself in a position where you may not profit from the assets appreciation. As a result of this, we at Asset Opportunities would suggest you do not choose this option.

b) Freehold Ownership (through a nominee)
This works through a series of simple contracts and transactions that act to secure your interest in land. It is based on the nominee system. In order to understand this process clearly, below is a summary given by an experienced Australian real estate lawyer in Bali.

1. Title

There are a number of different types of title in Indonesia. Hak Milik (the type of title that resembles freehold title in Australia) can only be held by an Indonesian citizen. Hak Pakai (essentially leasehold title) and other forms of title can be held by a P.T. Company or a P.M.A. Company (Foreign owned investment company).

A non-Indonesian citizen cannot own land in Indonesia. However a foreigner can acquire a leasehold title to a building - almost the same as a strata title except that the title lasts only for 25 years with an extension of 30 years for a maximum of 55 years and then reverts to the original owner (lessor).

2. Solution

For a foreigner to own land in Indonesia they must acquire the land in the name of an Indonesian citizen as their nominee.

The Indonesian citizen signs four documents with the foreigner:

i)

A Loan Agreement that acknowledges that the foreigner has lent to the Indonesian Citizen the purchase price of the land.
   
ii) A Right of Use Agreement - allows the foreigner to use the land.
   
iii)

A Statement Letter where the nominee acknowledges the foreigner's loan and intention to “own” the land.
   
iv)

Power of Attorney. The Indonesian nominee signs an irrevocable Power of Attorney giving the foreigner the complete authority to sell, mortgage, lease or otherwise deal in the land.

We also then recommend that the foreigner register a Hypotec or Mortgage on the land to protect their interests even further. This is then registered on the land exactly the same as a first mortgage or caveat. This is then noted on both the title at the Land Department and the copy held by the owner. There can be no dealing in the land until the loan agreement is cleared from the title.

3.Comment

It can be seen from the above solution that firstly the Indonesian Citizen cannot deal in the land without the interest of the foreigner being noted and cleared, and secondly the foreigner without notice to the Indonesian Citizen can sell or otherwise deal with the land.

 

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