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Murky Waters of Foreign Ownership over Property in Indonesia

By June 30, 2022 No Comments

Foreword

The foreign ownership over property in Indonesia is derived from Agrarian Law1 which allows the foreign citizen to acquire right of use (hak pakai) as well as lease right (hak sewa). Currently, the property ownership by foreign citizen is emphasized under GR No. 18/20212 and MASP3 Reg No. 18/20214 which serve as the implementing regulation of the foreign property ownership. Nevertheless, there are gaps in the said regulations that could hamper the smooth implementation of property ownership by foreign citizen. This article discusses the regulatory framework of the foreign ownership over property and illustrates the potential gaps in its implementation.

Regulatory Framework

Foreign citizen is allowed to own a residence if he/she has immigration document, namely visa, passport, or resident permit. Such property may be inherited to his/her heir which must also have the said immigration document if the heir is a foreign citizen. The Indonesian citizen who marries foreign citizen is entitled to own land title same as any other Indonesian citizen to the extent that such land title is not a marital property evidenced by prenuptial/postnuptial agreement drawn up in notarial deed.

Under GR No. 18/2021, foreign citizen is allowed to own landed house (rumah tapak) as well as condominium unit. For the ownership of landed house, foreign citizen can now also own a landed house which is built upon the right of use land over the right of management, based on the land utilization agreement with the holder of the right of management. Previously, GR No. 105/20155 only allows foreign citizen to own landed house which is built upon (i) right of use, and (ii) right of use over the right of ownership (hak milik) which is possessed based on the agreement granting the right of use over right of ownership drawn up in PPAT6 deed.

The question now is, how if the foreign citizen purchases a landed house built over right of ownership or right to build land? MASP Reg No. 18/2021 provides the answer. Such land title of right of ownership or right to build will be converted into right of use. MASP Reg No. 18/2021 however is silent whether the conversion is conducted by the operation of law or required to be recorded by the Land Office based on application. As information, MASP No. 29/2016, the previous regulation, stipulates the conversion of title from right of ownership/right to build to right of use is conducted by the operation of law and the registration of the land title conversion is an administrative process which shall not terminate the civil relationship between the subject and its right.

For the condominium unit, foreign citizen is allowed to own the condominium unit which is built upon the right of use or right to build over (i) the state land, (ii) the right of management, or (iii) the right of ownership land. Previously, GR No. 105/2015 only allows the foreign citizen to own condominium unit which is built upon the right of use land. Hence, the ownership of condominium unit built over right to build land is something new.

Foreign citizen will obtain SHMSRS7 as the evidence of ownership over his condominium unit. Nevertheless, the foreign ownership of condominium unit which is built over right to build land does not include the joint ownership over the joint land.

Furthermore, GR No. 18/2021 stipulates that the condominium unit that can be owned by foreign citizen is a unit which is developed within the special economic zone, free trade zone, free port authority, industrial estate, and any other economic zone. “Other economic zone” is defined in the broadest sense as an urban area and/or urban supporting area, tourism area, or area which support the development of vertical housing. Seeing the broad definition of “other economic zone,” such provision should not be seen as major restriction towards the foreign ownership over condominium unit.

The property ownership by foreign citizen is granted with restrictions, namely (i) minimum price, (ii) maximum land area, (iii) total plot of land or condominium unit, and (iv) the utilization for residence. These restrictions are further governed under MASP Reg No. 18/2021.

The restriction for foreign ownership over landed house are (i) only allowed to own a house with luxurious (mewah) category; (ii) 1 (one) plot of land for each person or family; and (iii) the maximum total area of the land is 2,000m2. The exemption of the restrictions in point (i) and (ii) is granted to the foreign citizen, subject to the MASP approval, if his/her presence confers social and economic benefit. Meanwhile, for the condominium unit, the foreign citizen is only allowed to own condominium with the category of commercial condominium. There is also minimum price restriction for the foreign ownership over landed house and condominium unit which will be further specified under the MASP Decree.

The acquisition of the landed house and condominium unit by foreign citizen may be derived from sale and purchase, grant (hibah), asset swap (tukar menukar), auction, and any other means with the purpose of transferring the title. One provision under the MASP Reg No. 18/2021 indicates that the foreign citizen is allowed to acquire the ownership of property through the primary market and secondary market. Before MASP Reg No. 18/2021, the foreign citizen may only purchase a landed house or condominium unit through primary market.8

Gaps in Implementation

On the other hand, there are gaps left in the prevailing regulations which could hamper the implementation of foreign ownership over property in Indonesia.

First, there is conflicting provision between GR No. 18/2021 with the Agrarian Law and Condominium Law,9 in particular on the foreign ownership over condominium built over right to build land. Condominium Law stipulates that SHMSRS is issued for any person who qualifies to hold land title as specified under Agrarian Law.10 In the context of condominium, the relevant land title that might be held by foreign citizen under Agrarian Law is right of use.11 Therefore, based on Condominium Law and Agrarian Law, it might be concluded that the foreign citizen is only allowed to own condominium unit which is built upon right of use land.

While Agrarian Law does not allow the foreign citizen to acquire right to build land, GR No. 18/2021 allows the foreign citizen to own condominium unit which is built over right to build land. This might be seen as conflicting provision between GR No. 18/2021 with Agrarian Law and Condominium Law. As the consequence, the said provision under GR No. 18/2021 might be judicially reviewed through the Supreme Court as it is deemed conflicting with the superior law of Agrarian Law and Condominium Law. If the judicial review is admitted, the provisions on foreign ownership of condominium unit could be revoked.

Second, with regards to the restrictions applied for foreign citizen to own property. As we have established earlier, GR No. 18/2021 specifies some restrictions that must be complied for the foreign ownership of property, namely (i) minimum price, (ii) maximum land area, (iii) total plot of land or condominium unit, and (iv) the utilization for residence. The restrictions are further elaborated under MASP Reg No. 18/2021. We see that there is no further explanation in MASP Regulation on what is the maximum condominium unit that can be owned by foreign citizen. Furthermore, MASP Reg No. 18/2021 also does not specify the minimum price requirement as the minimum price will be set in the MASP Decree.

Based on the aforementioned, it is still unclear what will be the minimum price of property that can be owned by foreign citizen. Until the MASP issues the said Decree, some of the property developer could be hesitate in determining the price of the property designated for foreign citizen. It will be interesting to see what will be the minimum price for the property that can be owned by foreign citizen. Will it be lower or higher than the previous determined price?

Before it is revoked by MASP Reg. No. 18/2021, the minimum price restriction was described in MASP Reg No. 29/2016.[/efn_note]Minister of Agrarian and Spatial Planning Regulation No. 29 of 2016 on The Procedure of the Granting, Relinquishment, or Transfer of Right over the Ownership of Residential House by Foreign Citizen Domiciled in Indonesia[/efn_note] In DKI Jakarta, for instance, the minimum price restriction for landed house is Rp10billion, while the minimum price for condominium unit is Rp3billion. With regards to this matter, we made some projection on the minimum price restriction that could be determined for both landed house and condominium unit.

We made our projection by taking into account the increase of the multiplier to calculate the price of luxury house in 2021 and before. In 2021, the price of the luxurious house is 15 times the price of public house.12 While the multiplier of the price of luxurious house before 2021 is 6 times.13 It is shown that the multiplier applied in 2021 is higher 2.5 times than the multiplier applied before. This illustrates that the price of luxurious house in 2021 is 2.5 times higher than its price before 2021. By taking into account 2.5 times multiplier, we forecast that the minimum price restriction for landed house and condominium unit, probably, is in the amount of Rp20.5billlion and Rp7.5billion respectively.14

Closing Remarks

As we have established above, there are potential gaps in the regulation of the foreign ownership over property in Indonesia. Accordingly, it will be desirable to have a more specific and detailed regulations or guidelines to ensure the smooth implementation of the foreign ownership over property in Indonesia.

Kevin Samuel Fridolin Manogari

Sources

  1. Law No. 5 of 1960 on Basic Principles of Agrarian
  2. Government Regulation No. 18 of 2021 on Right of Management, Land Right, Condominium Unit, and Land Registration
  3. Minister of Agrarian and Spatial Planning / Head of National Land Agency
  4. Minister of Agrarian and Spatial Planning / Head of National Land Agency No. 18 of 2021 on the Methods of the Determination of Right if Management and Land Rights
  5. Government Regulation No. 103 of 2015 on the Ownership of Residential Housing by Foreign Citizen Reside in Indonesia, which has been revoked by GR No. 18/2021
  6. Land Conveyancing Officer / Pejabat Pembuat Akta Tanah
  7. Certificate of ownership of Condominium Unit / Sertipikat Hak Milik atas Satuan Rumah Susun (“SHMSRS”)
  8. Article 2 of MASP Regulation No. 13/2016
  9. Law No. 20 of 2011 on Condominium Law as amended by Law No. 11 of 2020 on Job Creation
  10. Article 47 paragraph (2) of Condominium Law
  11. Article 17 of Condominium Law stipulates that condominium can be built over (i) right of ownership land, (ii) right of use/right to build over state land, and (iii) right of use/right to build over right of management land
  12. Article 21E of Government Regulation No. 12 of 2021
  13. Article 1 number 7 of Minister of Public Works and Housing Regulation No. 7 of 2013
  14. This calculation is projection only and shall not be deemed as fully accurate calculation. The accurate and binding minimum price restriction is the minimum price restriction as determined further by the Government Instance