Global Business Guide Indonesia

Property in Indonesia Property in Indonesia Property in Indonesia Property in Indonesia Property in Indonesia
Sign up for the GBG Indonesia Quarterly Business Intelligence Report for the latest news on your sector.
Sign Up
Property | Law on Foreign Ownership

Indonesia’s real estate market is incredibly attractive to foreign investors given the competitive prices and future scope of the country as an economic hub and political centre of the ASEAN. The subject of foreign ownership is a contentious one in Indonesia considering the challenges Indonesian national face in securing property rights and within the context of the property bubbles that the global crisis exposed in places such as Dubai. The change in the law on foreign property ownership that would extend the leasehold period to a full 70 years as opposed to 25 years followed by subsequent renewals was expected at the end of 2010 but is yet to be passed in the House of Representatives. While the passing of this law will give some greater advantages on the current system by which foreigners can own property, investors will still find it coming up short when compared with the regulations in other countries in the region such as Malaysia and Singapore.

Current Regulations

Current rules governing foreign ownership of property in Indonesia are laid out in Government Regulation Number 41 Year 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia. This is now under discussion to be redrafted as part of Law 1/2011 regarding Housing and Residential Areas. As of June 2011 the current law is still in place stipulating that foreigners who maintain a ‘presence’ in Indonesia be it through regular visits, residency or business interests are allowed to own a leasehold on a property in Indonesia for up to 70 years. This 70 year period is subject to renewal after an initial tenure of 25 years, then 20 years and then another 25 years. Non Indonesian nationals may not own a freehold Hak Milik (see glossary), but rather leasehold under the land title Right of Use Hak Pakai. This means that land under the more advantageous land titles of Right to Build (Hak Guna Bagunan and Hak Milik) that are often in the most sought after areas are off limits to foreign buyers.

The Vertical Housing Bill is also currently under discussion for being redrafted, this is concerned with apartments as opposed to landed houses. In the purchase of apartments the attitude is quite different towards foreign ownership as the land itself remains under Indonesian ownership. The change in this law to allow outright foreign ownership is expected to be passed smoothly as it does not involve the changing of the Basic Agrarian Law Act (1960) which regards foreign land ownership as unconstitutional. The passing of the Vertical Housing Bill will therefore clarify the regulations on the land tenure related to vertical housing and the rights to ownership of ‘space’ thereby facilitating foreign ownership. This will be an important step for international investors to gain confidence in the Indonesian housing market.

Non Indonesian nationals are currently able to buy a property in the following ways:

The purchase of a piece of land that is state owned or freehold (Hak Milik) that has an existing residential structure or to construct one on it, which has Right of Use (Hak Pakai) land title.

Purchase of an apartment with strata title within an apartment block that is on state land with Right of Use (Hak Pakai).

Purchase of a house on freehold land by written consent from the landowner. This is for 25 years and extendable to a further 25 years.

Purchase of a freehold property by a nominee Indonesian national who would own the freehold title but signs over power of attorney and other legal rights.

A PMA can own a freehold plot of land and the building under a right to build HGB (Hak Guna Bangunan) land title not Hak Milik. The property is owned in the name of the company and therefore must pay the applicable taxes and IUT fixed operation license are subject to renewal after 30 years. This is the most advisable method as it avoids entering into unsecured partnerships with Indonesian nationals that can be high risk.

Future Regulations

Minister of Public Housing, Suharso Monoarfa has been supportive of the move towards allowing improved terms of ownership for foreign investors. He is however keen to learn from the mistakes of other countries that saw their property prices soar and created a property bubble; such an occurrence in Indonesia would price Indonesian nationals out of the market: ‘the land is limited and foreigners have a greater opportunity to purchase a good property over the low income people of Indonesia’. When asked about the progress of the new regulations on foreign investment, the Minister confirmed that the basis of the upcoming regulations will allow leasehold ownership for a full 70 year period adding that ‘of course the government will have the opportunity to evaluate the property such as the change of use from a house to an office for example.’ What is still under discussion is the type of property that foreigners would be allowed to purchase. Current proposals being discussed are for properties of 1.5 billion RP while the government is more inclined to 2 billion RP and up, to protect the lower income property segment. Where the purchases will be permitted will most likely remain in the largest cities and most popular tourist destinations such as Jakarta, Bandung, Yogjakarta and Bali as well as the special economic zones in Batam.

The extension of the leasehold to 70 years is certainly more attractive to foreign investors as banks will be far more willing to finance a longer term lease. The term of 70 years; while an improvement on the process of 25 years followed by subsequent renewals, is still short of the 90 years that foreign investors are permitted in Singapore and Malaysia. When the law will actually be passed is a further area of uncertainty with several of the proposed deadlines having not been met.

Such changes will therefore be beneficial to those with interests in Indonesia be it for business, tourism or retirement; but do little in the way of creating a valuable investment instrument as the laws are designed to avoid any speculation on future land prices and use. Foreigners would only be allowed to purchase property that is built on land with the Right to Use which is still in short supply in Indonesia. Most strata title properties are not built on this type of land as well as the weaker legal strength of the type of ownership which makes obtaining bank financing difficult. Property ownership rights for both foreigners and nationals are poorly enforced in Indonesia; for property rights, the country was ranked 84th out 139 countries in the World Economic Competitiveness Report 2010-2011.

The delay on the passing of the law and the unremarkable changes that the passing of the law will bring with it may have less impact on the property sector than the country’s developers had hoped for. While the stable economic growth will sustain the country’s attractiveness for investment, property investors will shop around for where the highest margins can be found in the region which may well see Indonesia overlooked. The estimates of the law’s contribution to raising the contribution of property to 10% of GDP will therefore take much longer to be reached.


Hak Milik - freehold title that can be bought, sold, mortgaged and inherited and is only available for Indonesia nationals and Indonesian corporations. International corporations cannot hold a freehold title.

Hak Guna Bagunan - the right to construct a building on a plot of land by a corporation (both domestic and foreign) or individual for a period of 20-30 years that is subject to renewal by applying to the National Land Agency. The purpose of the purchase must be executed in order for the land title to be secured in that the land may not be left idle.

Hak Sewa Bagunan - the right to rent land for building purposes by a determined amount of time by the two parties. This is an informal agreement in that it is not certified or registered with the land authorities and the legal protection of those engaging in it is therefore unclear. It can be held by a foreigner that is residing in Indonesia or the Indonesian branch of a foreign company. The agreed use of the land must be maintained throughout the lease period.

Hak Pakai - the right to use land for a specific and pre agreed purpose for a defined amount of time. This can be held by an Indonesian national, foreigners domiciled in Indonesia, foreign investment companies (PMA) and representative offices.

Hak Guna Usaha - the right of exploitation, applicable for state owned land to be used for agricultural and aquaculture purposes for a period of up to 35 years with a 25 year extension by applying to the National Land Agency. The land must be used for the purpose that it was leased for and may not be left idle.

Strata Title - the deed or right of use of an apartment can be purchased by a foreigner who resides in or has a regular ‘presence’ in Indonesia, as it is considered to be vertical space as opposed to land.

Global Business Guide Indonesia - 2012

icone share

Indonesia Property Snapshot - Real Estate

Contribution to GDP: 2.79% (Q3 2015)
Mortgage to GDP Ratio: 3.5% (2015)
Housing Backlog: 15 million (estimated 2016)
Average Condominium Price: 48,100,000 IDR/sqm (CBD, Jakarta, Q3 2015)
Average Retail Space Rental Price: 500,00 IDR/sqm/month (CBD, Jakarta, Q1 2016), 545,968 IDR IDR/sqm/month (Jakarta, 2016)
Average Office Space Rental Price: 401,010 IDR/sqm/month (CBD, Jakarta, Q1 2016)
Average Industrial Land Price : $221.51 USD/sqm (Bekasi, Q1 2016), $144.16 USD/sqm (Tangerang, Q1 2016)
Relevant Law: Government Regulation No. 41 of 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia allows foreigners to own leaseholds of up to 70 years subject to renewals at 25, 20 and 25 year intervals.