Indonesian Real Estate Practices
Overview Indonesia, the world’s largest archipelagic state, is a nation of approximately 1,7500 islands around 6,000 of which are inhabited. With a population of over 200 million, it is the world’s fourth most populous country.
In Indonesia, real estate salespeople are not required to hold a licence in order to conduct a real estate transaction.
The usual commission on a residential real estate sale in Indonesia is 5%. For a commercial sale, the commission is generally 3%. The commission is either paid by the buyer or the seller but not both.
Business agreements between foreign and Indonesian real estate salespeople are made in writing.
Land rights / Usage
Culturally, land has been a traditional focus of investment for Indonesians and is a symbol of one’s social position and economic success.
Indonesia does not have a progressive tax system, which some see as having been a source of significant encouragement to the private accumulation of land. In Indonesia, there are two general types of land ownership rights:
1. Primary Titles: These are titles derived directly from the State, consisting of:
a. Right of Ownership ("Hak Milik");
b. Right to Cultivate ("Hak Guna Usaha"):
c. Right to Build ("Hak Guna Bangunan");
d. Right of Use ("Hak Pakai");
e. Right of Management ("Hak Pengelolaan").
2. Secondary Titles: These are titles granted by holders of Primary Titles on the basis of mutual agreement, such as:
a. Right of Lease for Building (Hak Sewa untuk Bangunan);
b. Right of Share Cropping (Hak Usaha Bagi Hasil);
c. Right of Pledge (Hak Gadai);
d. Right of Lodging (Hak Menumpang).
Foreign ownership For many years, it has been decreed by law that land in Indonesia can only be owned by citizens of the country.
These laws changed in the late 90’s and new laws were enacted enabling non-citizens permission to purchase some forms of Real Estate. Apartments and office space were able to be purchased if the building had a strata title status. Hence, non-citizens are allowed to own the apartment or office space, but not the land on which it stands.
By Indonesian law, a non-citizen can not own land in Indonesia, however they can control land ‘indirectly’. To do this, there needs to be an agreement between the non-citizen and an Indonesian citizen. This agreement must be signed by a witness who is a notary public. The agreement outlines that the Indonesian citizen is the ‘legal owner’ while acknowledging that the non-citizen is the ‘rightful owner’ of the land. Under this agreement, the Indonesian owner would carry out instructions from the non-citizen owner regarding the land, such as selling the land at a certain price with the funds to be paid to the rightful owner.
It is unclear whether these types of agreements are enforceable under Indonesian law. In any case, the non-citizen is at risk in regards to the true ownership of their investment.
All land titles within Greater Jakarta (DKI) are subject to the conditions of Presidential or Governor’s decrees. Essentially, this affects the provisions for Hak Milik* titles in the Jakarta DKI area.
*This title is the most complete form of ownership of land in Indonesia. The holder can use the land for any purpose whatsoever, including housing. The title may only be held by individuals of Indonesian nationality and special legal bodies stipulated in Government Regulation.
