The different land / property titles
There are a number of different types of title in Indonesia:
1. Hak Milik (Freehold) is the type of title that can only be held by an Indonesian citizen.
2. Hak Pakai (Right to Use) can be held by an Individual, a P.T. or a PMA Company.
3. Hak Guna Bangunan or HGB (which means the Right to Build).
A foreigner cannot own land in Indonesia. However a foreigner can acquire a leasehold title for a property. This title lasts for 25 years with a possible extension of 30 years for a maximum of 55 years and then reverts to the original owner (lessor).
Owning Freehold land (Hak Milik) is a benefit available only to Indonesian citizens.
The Right of Use (Hak Pakai) is a certificate which is granted by the National Land Agency BPN over a freehold land.
This is a secure way to control a property for a foreigner, as the foreigner’s name is actually stated as title owner in the Hak Pakai Certificate. The Hak Pakai is granted for an initial 25 years and can be extended by two more consecutive terms to up to 70 years.
Foreign individuals have the opportunity to invest in Indonesia through or into a PT PMA (Penanaman Modal Asing), which is a Foreign Investment Company.
This allows foreign investors to establish a company in Indonesia without Indonesian partners. The PMA can be owned by the foreign investor by 100%. PMA companies are allowed to hold the ownership title HGB (Hak Guna Bangunan), translated the Right to Build. The HGB title runs over 30 years with extensions for 20 or 30 years at a time. An extension means paying an administration fee which is currently approx. 2000 USD for a 20 years extension.
Banks accept HGB properties for mortgage and securitization purposes because they are subject to the same planning and land use regulations as freehold properties. The HGB title is a safe and recommendable way for foreign citizens to invest in Indonesia.
All above mentioned information is not intended to replace advice from legal and taxation professionals.