Hak Guna Bangunan vs Hak Milik

Hak Guna Bangunan is only the right to use a building for a certain period of time and then has to be extended. The owner of HGB land is the Indonesian government.

Only with Hak Milik do you actually own the land or building. Hak Milik does not need to be extended.

Freehold Land Title for Foreigners

Foreigners trying to obtain a freehold title on land in Indonesia should note that current law is clear in both its letter and intent: namely, foreigners cannot directly hold freehold title on Indonesian land. “freehold title”, or in Indonesian “hak milik”, does not exist for foreign property buyers.

To conclude a property sale a local nominee is generally used, with a notary creating a multi-party, multi-document legal constructs that:

Puts the “hak milik” or “freehold title” in the hand of an Indonesian nominee. It is, in fact, the Indonesian nominee whose name is on the property title and who freeholds the parcel, not the foreign purchaser fronting the money for the land.

The notary will also usually create an irrevocable power of attorney in which the nominee owner surrenders all rights to use, sell and lease the subject property to the foreign purchaser. Is such an irrevocable “power of attorney” legally iron clad? The most truthful answer is that there is very little in Indonesian law that should be considered “iron clad” and should the foreigner eventually wish to transfer or sell his “title” to a new party, the transfer transaction will be heavily dependent on the good grace and continued docility of the Indonesian nominee who will need to attend the notary and sign over the deed to the new owner or his nominee.

In such transactions the notary also typically draws up a loan agreement for a large sum of money that is theoretically on loan from the foreign purchaser to the Indonesian nominee. In principle, this creates a lien on the property held by the Indonesian nominee. The purpose of the loan agreements is to “legally compel” the Indonesian nominee stay tame and cooperative.

While such agreements are often superficially attractive to a foreigner eager to own a home here, these loan agreements may not have much force if legally challenged and may be extremely vulnerable to any future vagaries of the “personal bond” between the foreign owner and his Indonesia nominee.

There are at least two other legal pitfalls may befall such loan agreement arrangements. First, because the loan is fictional, if legally challenged the foreign owner may be hard pressed to demonstrate to a court that the “loan” was ever transacted. No less legally problematic is the prohibition under current Indonesian for any foreign borrowings not approved by the Foreign Investment Coordinating Board.

Buying Property in Indonesia

For many years Indonesia has decreed that land in Indonesia can only be owned by Indonesian citizens. Thus, if you want to buy a house (as a foreigner), this would have been legally impossible.

In the late 90s, new laws were enacted so that foreigners are now permitted to purchase apartments and office space in Indonesia if the building has a strata title status. This enables the foreigner to own the apartment or office space but not the land on which it stands.
Purchasing an apartment or office under Strata Title

Ownership of offices and apartments is possible through strata title deeds, but the set of laws and regulations that were enacted in 1996 are clear and clearly allow ownership of an apartment in a high rise building.

The 1996 regulation (No. 41/1966) states that foreigners who reside in Indonesia, or visit the country regularly for business purposes, can purchase a home, apartment or condominium as long as it isn’t a part of a government-subsidized housing development. However, foreigners can only hold land-use deeds, and most developments hold right-to-build deeds. As it stands now, it’s not possible for someone to have a land-use deed for a sub-unit of a right-to-build deed. The length of these titles varies as well. Therein lies some of the difficulties and unclear ownership issues.