SUMMARY OF AN INDONESIAN LAND TRANSACTION

Please note that the information here supplied is to be used as a guide only. For exact information please consult a lawyer or notary in your area.  There are exceptions on the information here supplied, depending on the area of Indonesia, rules in Batam and Jakarta are different where there are "decrees" with exemptions.   In general one can conclude that that there many unclear areas in the Indonesian law, but it is generally safe to acquire properties.

The following summary outlines the basic steps involved in a foreign investor transacting a Hak Milik (“Freehold”) property in Indonesia with the Indonesian Nominee

A.        Due Diligence:

The Notary initially checks all aspects of the Hak Milik property and advises in relation to any impediments to purchase. The essential areas checked are:

• Hak Milik certificates of title authenticity at National Land Agency (“BPN”);
• ensuring no dual/fraudulent certificates exist by comparison with original title at BPN; 
• encumbrances, mortgages, Hak Tanggunan, Hipotik, Crediet Verband ;
• building licence (“Izin Mendirikan Bangunan”)/property usage;
• court actions in respect of the property;
• services connection;
• access road verification;
• disputes with local residents;
• any other issues particular to the property;
•  Any outstanding rates and taxes payable to the government (“PBB/Pajak Bumi dan Bangunan”);
• Necessary subdivision licenses or indication of government position on subdivision if development requires subdivision  .

B.        Hak Milik Transfer

Should the foreigner decide to proceed, the Indonesian Hak Milik owner executes with the designee of the foreigner, who must be an Indonesian citizen, either:

(a)        an Akta Jual Beli (“AJB”) ("Sale and Purchase Agreement") pursuant to which 100% of the purchase price is paid; or

(b)        a Perjanjain Pengikatan Jual Beli (“PPJB”) ("Agreement Binding for Sale and Purchase") pursuant to which a deposit is paid subject to payment of the balance of the purchase price. The deposit is generally not held by a stakeholder, as the common law concept of trust is not recognized under Indonesian law, but is typically paid to the vendor. Upon payment of the balance of the purchase price (in either one or a number of installments) the AJB is then executed and the conveyance of Hak Milik title to the foreigner’s Indonesian nominee occurs thereafter.

It should be noted that the Notary acts for both the vendor and purchaser in this transaction and is bound by ethics to ensure the transaction is finalized as agreed.

Upon execution of the AJB or PPJB, the original Hak Milik certificate(s) are escrowed with the Notary so that the vendor is then unable to deal with the land in a manner inconsistent with the PPJB. The Notary must receive proof of payment of purchase price before processing any Deeds in a transaction of this nature.

The typical costs to transact a Hak Milik conveyance are:

• Notarial fee for AJB or PPJB and AJB : 1.0% of the actual transaction value;
• Government transfer taxes : 5% of NJOP (“Nilai Jual Obyek Pajak” or Indonesian government designated value of the property) for each of vendor and purchaser;
• BPN registration fees: reserve Rp. 2.000.000 - Rp. 3.000.000 or more if the land area is large;
• Survey, subdivision or amalgamation costs if the Hak Milik titles are not in proper order for conveyance (subject to agreement as to costs between vendor and purchaser).

Please note that no legal title passes to the purchaser until after execution of the AJB and payment of the full purchase price.

Documents signed by Nominee at the Notaris office:

There are four documents needed for Nominee to sign (up to ten if more specific terms are required):

Number one describes that the foreigner gives money to the Indonesian name holder to buy land and property and the Indonesian gives this land and property to the foreigner to use it, out of his free will. The document also describes that the name holder gives the foreigner permission to sell, to rent it out or rebuild the house or property. It states that the agreement, if necessary, passes automatically to the heirs, as well of the foreigner as the name holders. It states that all of the property costs (electricity, water and taxes) have to be paid by the foreigner. The official 'Sertipikat' will be in the foreigner’s possession as well as the statement of cession, signed by the name holder. Only with this 'Sertipikat Hak Milik' it is possible to sell the land.

In the second document the selling of the property is granted to the foreigner. The name holder gives his explicit permission to do so.

In the third document the name holder gives permission to rent out the house or property.

The fourth document commits the name holder to co-operate, if the time ever comes that foreigners can own land and property in Indonesia, in making the foreigner being the new name holder on the 'Sertipikat'. In case the law changes in the disadvantage of foreigners, the name holder will co-operate in changing the agreement into a lease-contract of 50 years with option for another term.