One way a foreign national can purchase freehold land in Indonesia is through a nominee. This means that ownership of the land is officially held by the Indonesian nominee and they will have the Land Title Deeds in their name. The nominee can be an Indonesian citizen or legal entity (like a Penanaman Model Asing or PMA Company).
It may sound risky and daunting to give title to your property to a third party, but this is a fairly common practice in Indonesia, and has been tried through the legal system. However, it is imperative to protect your investment by having three agreements in place with the nominee:
1. A loan agreement that must be signed with the Indonesian nominee and should state that you loaned them money to purchase the property. This creates a lien over the property and is evidence of why the nominee has given up other rights to the land.
2. You must be given Full and Irrevocable Power of Attorney over the land, so that you can do whatever you wish with it. This should be done simultaneously with the land sale and transfer. This means that even though you are foreigner you will have authority to use, sell, transfer, or lease the land without any reference whatsoever from the nominee. It should also give you full beneficial rights over the property and waive all rights of the nominee over the land. Even as a foreigner, you will be able to build on the land, sell or lease the property and even transfer the title to your next of kin.
It is important to ensure that the Power of Attorney also deals with what happens in the event of the death of the nominee, and also if there is a dispute with the nominee. In the event of a dispute, it is important that you have the right to sell the land or appoint another nominee.
3. A Permanent Right of Use Agreement must be signed by both you and your nominee, giving you full rights to occupancy and use of the land.
Generally, a nominee will expect to receive a fee for undertaking their responsibilities as the title holder, but the amount is usually nominal.
Advantages of Nominee Ownership
This transaction enables a foreigner to have rights that are close to freehold ownership over the property. Of course your name will not be on the title of the property, but your right to use the property are unfettered provided the agreements with the nominee are well written.
Disadvantages of Nominee Ownership
As you do not have title to the property, purchasing through a nominee is not as secure as purchasing through a company. The transaction is dependent on the nominee acting in good faith.
Whilst this is a common way for a foreigner to purchase property in Indonesia, there are still legal risks in such a transaction. For example the “loan” that is provided to the nominee to purchase the land doesn’t really exist and may be difficult to prove if challenged in court.
As with all legal transactions, it is important to ensure that you obtain legal advice whilst establishing the agreements, and select your nominee well, as you will need to trust them throughout the transaction and afterwards.