Like most of South East Asia, foreigners are not permitted to have outright title to property here. They can however, legally aqcuire property in Indonesia and enjoy full beneficial rights to the property by leasing, entering into legal contract with an Indonesian citizen for the freehold, by establishing a Foreign Investment Company, Right to Build or Right of Use over Freehold Land.

A. Leasing

Acquiring the leasehold of a property is the most straigh forward approach for a foreigner. However at the expiry of the liease, the property would revert back to the Indonesian owner. This method is popular in commercial property situations where a return on investment can be achieved within the lease period, but less popular with individuals who wish to make longer term investments. Lease periods vary and extensions are often agreed in advance; 20 – 30 years is a common lease period in Indonesia.

B. Entering into legal contract with an Indonesian citizen for the freehold

The most popular method is to enter into legal contract with an Indonesian citizen (‘nominee’ as they are referred to), whereby he/she holds freehold title to the property but signs over power of attorney and practical control to the foreign investor.

C. Foreign Investment Company ( PMA )

Forming a foreign investment company (PMA) is the preferred choice of those intending to operate a business in Bali. Here the foreigner can own 100% of a PMA company and the freehold title of the property will be in the company name. However, there are tax implications to be considered and the Department of Trade will review PMA companies after 25 years so it may be necessary to re-apply fo the PMA license.

D. Right to Build (Hak Guna Bangunan)

This is right to control an utilize land for certain period of time to erect and prosses building/installions for personal requirement of for requirement f enterprise of holder of right on land which does not personally belong. Right to build arises with grant by holder of right to own with authentic deed which is made by land conveyance officials (PPAT) between owner of land and party who will obtain right to build with right binding third parties upon registration with Land Affairs Office ( Kantor Pertanahan).
Generaly, period of validity of grant of right to build is 30 years, and may be extended for period of 20 years. Appications or renewal of right to build must be submitted no late than 2 years prior to end of term of right to build or extension thereof.
Right to build may be transferred to other parties. Transfer of right to build arise becouse of : Sale and purchase, exchange, contributing as capital, donation and heritance.

E. Right of Use over Freehold Land ( Hak Pakai atas Tanah Hak Milik )
The following summary outlines the essential steps involves in a foreign investor transacting a Hak Milik (“Freehold Title”) property in Indonesia and creating a Hak Pakai (“Right of Use”) cetificate of title directly in the name of the foreigner investor as an encumbrance on the underlying Hak Milik.

The Notary initially checks all aspects of the Hak Milik property and advises in relation to any impediments to acquisition of the Hak Milik property.

Key areas checked during the due diligence phase are :

• Hak milik certificates of titly authenticity at National Land Agency (“BPN”)
  ensuring no dual /fraudulent certificates exist by comparisaon with origihal title at BPN
  
• Encumbrances, mortgages, Hak Tanggungan, Hipotik, Crediet Verband
  
• IMB (building licence) if a building is contructed on the land
  
• Zoning of the land/property usage
  
• Court actions in respect of the property at the Denpasar District Court
  
• Power, water and other services connection
  
• Secure occess road verification
  
• Disputes with local residents as a result of on-site inspection
  
• Any outstanding PBB rates and taxes payable to the government
  
• Necessary subdivision licenses or indication of governament position on subsidivision if development requires subdivision, and

Hak milik transfer phase :
Should the foreigner decide to proceed on the basis of the favorable outcome of the due diligence, the Indonesian Hak Milik owner oxecutes with the nominee/designee of the foreigner, who must be an Indonesian citizen, either :

• an Akta Jual Beli (Sale and Purchase Agreement) pursuant to which 100% of the purchase price is paid; or
  
• a Perjanjian Pengikatan Jual Beli (Agreement Binding for Sale and Purchase) pursuant to which a deposit is paid subject to payment of the balance of the pruchase price. The deposit is generally not held by a stakeholder but is typically paid the vendor.
  
  Upon registration of the title in the Inodnesian deisgnee’s name, the foreign investor must the proceed to structure his tenure over the property by way of Hak Pakai atas Tanah Hak Milik.

  Hak Pakai atas Tanah Phase :
  Hak Pakai may be held by a foreign citizen contributing to the national development of Indonesia by owning a residential property in Indonesia and by being present the country from time to time. To create the Hak Pakai, the foreigner must be actually present in Indonesia and provide to the Notary executing the transaction with KITAS or passport with a valid entry visa stamped therein.
  The Notary acting in his capacity as a PPAT (Government authorized vonveyancing officer) executes a Deed of Grant of Hak Pakai (“Akta Pemberian Hak Pakai atas Hak Milik”) between the Hak Milik Owner/designee and the foreigner pursuant to which the Hak Milik owner grants the Hak Pakai title to the foreigner.
  Period of validity a Hak Pakai atas Tanah Hak Milik is 25 years and may be extended until 100 years with 3 renewals. Applications for extension or renewal must be submitted at least 2 years before its expiration.
  Incidental documentation uncludes a Power of Attorney (“Surat Kuasa”) for the Hak Pakai owner to represent the Hak Milik owner (or their respective beneficiaries under their wills) upon renewals of each pre-paid 25 year term and a Statement Letter/ Surat Pernyataan from the Hak Milik owner to the effect that the Hak Milik owner will abide by the directions of the Hak Pakai owner in respect of the sale/transfer of the Hak Milik at any time.
  In conclusion, the Hak Pakai atas Tanah Hak Milik represents a secure government sanctioned structured for foreigner investors wishing to take advantage of an investment in one residential property permitted by prevailing Indonesian law, and so the structure should be regarded as a leading investment option for securing freehold property in Bali. The mortgageability of the Hak Pakai gives rise to future financing options for foreign buyers in Indonesia.