Whilst foreigners cannot purchase freehold land in Indonesia, it is possible to own an interest in an apartment or condominium. Under Government Regulation No 41 of June 1996, it is possible for a foreigner who resides in Indonesia, or visits regularly for business, to purchase an apartment or condominium provided it is not part of a government subsidised housing development, and provided that they do not own the underlying land, which is akin to strata-title. However, the law is a bit uncertain in this regard, with no foreigner ever actually receiving a strata title as a certificate of ownership.
Due to this uncertainty, there are two other ways that you can own rights to an apartment or condominium:
1. One right that a foreigner can purchase is land-use rights (Hak Pakai), which isn’t really ownership, but rather is the right to lease the property for 25 years, with a right to renew this. This means that the title is held in the name of the developer, and the lessee has a lease for an initial terms of 25 years, which is then able to be renewed for a further 25 years and again for another 20 years, so it is a 70 year leasehold. The lease does not really have any ownership rights and it cannot be transferred to an heir.
2. An alternative is for foreigners to take out a Convertible Lease Agreement. This means that the title is held in the name of the developer but your right in the property is held as a lease until it is possible for you to legally own the property (if the Indonesian laws around foreign ownership of property change). The Convertible Lease Agreement would state that if and when the lessee can legally own the property, then the lessee and lessor will be required to sign a Deed of Sale & Purchase, and title shall be transferred to the foreign national.
Whilst you would not actually own the property to begin with, you will have the rights to own it when it is legally possible for you to. It is a good option, but be sure that you have checked the developer properly to ensure that they have legal title over the property. It is not clear whether the rights under the Convertible Lease Agreement can be transferred to a third party and another legal agreement may be required to allow for this right. It is strongly advisable that you obtain local legal advice before entering into a Convertible Lease Agreement to ensure that it can be enforced if and when the time arises.
Advantages of a Convertible Lease Agreement
A Convertible Lease Agreement will enable you to have strata title to your property if the laws in Indonesia change to allow foreign ownership. This will mean you are one step ahead of the rush that is likely to occur at that time.
Disadvantages of a Convertible Lease Agreement
There is no guarantee that the laws in Indonesia will change to allow for foreign ownership, so you could be paying a lot for a right that never eventuates. Even if the laws do change, there is also the possibility that the legal agreements you have in place do not hold up in court. There is little that can be done to mitigate this risk, except ensure you have good legal advice when setting up the contracts.
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