The Jakarta Post
Dian Kuswandini, The Jakarta Post, Jakarta
| Sat, 04/03/2010 10:14 AM | Life
Spending just a little time in Indonesia was enough to make British executive Richard think: “I’d love to live here someday.”
That was back in 1997 when he first travelled to the country as a student, and now, the 41-year-old man lives in South Jakarta, with his Indonesian wife and two children.
“I like it here. My wife is an Indonesian and I have interesting work here,” said Richard, who requested his full name not be published. “Indonesia is my only home.”
So as his only home, it is easy to understand why Richard followed his dream in purchasing a house in Indonesia – although the word “purchase” doesn’t really mean he fully owns his property.
“There are some conditions, and you must satisfy [them],” he said, referring to the current policy that allows a foreigner to own only one residential property for a certain period of time – not for forever.
The policy, under the 1996 regulation on foreign ownership, only allows expatriates to hold a leasehold title (or hak pakai) for 25 years, with the possibility of extending it another 25 and a further 20 years. This regulation is based on the 1960 Basic Agrarian Law, which stipulates that foreigners can only hold the right to use a property for not more than 70 years.
| Sat, 04/03/2010 10:14 AM | Life
Spending just a little time in Indonesia was enough to make British executive Richard think: “I’d love to live here someday.”
That was back in 1997 when he first travelled to the country as a student, and now, the 41-year-old man lives in South Jakarta, with his Indonesian wife and two children.
“I like it here. My wife is an Indonesian and I have interesting work here,” said Richard, who requested his full name not be published. “Indonesia is my only home.”
So as his only home, it is easy to understand why Richard followed his dream in purchasing a house in Indonesia – although the word “purchase” doesn’t really mean he fully owns his property.
“There are some conditions, and you must satisfy [them],” he said, referring to the current policy that allows a foreigner to own only one residential property for a certain period of time – not for forever.
The policy, under the 1996 regulation on foreign ownership, only allows expatriates to hold a leasehold title (or hak pakai) for 25 years, with the possibility of extending it another 25 and a further 20 years. This regulation is based on the 1960 Basic Agrarian Law, which stipulates that foreigners can only hold the right to use a property for not more than 70 years.
“Personally, that doesn’t matter to me,” said Richard, who bought his first house in his own name in 1998 and sold it to an Indonesian 10 years later. “I, at least, can renew [my leasehold title] two times,” he added.
But while Richard isn’t bothered about not being able to hold a full ownership title, Korean Kim Young-ho feels the opposite. For the 58-year-old, such a restriction offers no guarantee for someone like him, who decided to retire in Indonesia.
“I don’t feel it is safe to buy a property here as I’m not entitled to own my house 100 percent,” said Kim, who now lives in Bandung, West Java. “I can tell from my friends’ experiences that expats are very reluctant to buy properties in Indonesia because of this.
“That’s why they prefer just to rent, instead of buying a house,” he added.
Kim himself faced daunting challenges when he decided to sell his house in Jakarta five years ago. Married to an Indonesian woman, Kim said he had no idea that the house, which was bought in his wife’s name before their marriage, would be prone to so much future trouble.
“The thing is, because my wife is married to a foreigner, we were told that she had lost her right [to hold the full ownership title], that she couldn’t sell the house,” said the father of one, adding he and her wife didn’t sign a prenuptial agreement prior to their marriage.
Without a prenuptial agreement, he said, their assets aren’t legally separated. As a consequence, his wife’s house is also considered his, however as a foreigner, Kim has no right to hold a freehold title, or hak milik.
“When we got married, we never thought that this prenuptial arrangement would affect our rights relating to purchasing properties here,” he said. “When we found out about it later, it was already too late.”
Because of these experiences, Kim and his wife became more careful about purchasing property. So when the couple bought land in Bandung in 2006, they sought advice from a notary.
“We were advised to buy the land in our child’s name,” he said. Why? “Because if we bought it in my wife’s name and she died, the land couldn’t be inherited by either me or my child. Instead, it will be taken by the government,” he added.
Confirming Kim’s case, Agnes Kiki, an Indonesian married to an Australian man, agreed that a prenuptial agreement was necessary for mixed-marriage couples.
“If a mixed-marriage couple doesn’t have a prenuptial arrangement, then they can’t [fully] own property here,” said the mother of two, who luckily had a prenuptial agreement.
“The idea of this prenuptial agreement is to clearly state that all the property we buy during our marriage is in my name, not my foreign husband’s.
“So technically, my properties are protected by law, so that if one day I die, they will not be taken by the government,” she added.
Kiki admitted that many of her Indonesian friends, who are married to expats, did not know about this prenuptial agreement, causing them to run into trouble when they wanted to buy land and houses in Indonesia.
“Some even had to fake a divorce, so they could sign a prenuptial agreement and then remarry,” she said. “This is a possible option, but what if your husband decides not to remarry you or leaves you?” she laughed.
If there is another option other than a fake divorce, Kiki revealed, it is to buy property in the name of the wife’s family members.
“So it’s like we are borrowing our mother’s or sister’s name to buy the property,” she said.
This option, Kiki said, might sound more “friendly”, but she warned: “Problems might occur if, let say, our sibling’s wife or husband later argues with us, causing a family dispute and all.”
This second option revealed by Kiki, is similar to one common practice in Indonesia, where an Indonesian citizen acts as a “nominee” and holds the interest in the property on behalf of a foreigner. Under this option, the property title will be issued in the Indonesian’s name, and both parties will be engaged in a legal contract agreeing to certain conditions. The contract acknowledges that the foreign party has lent the nominee the purchase price of the property, while it also guarantees the foreigner’s complete authority to use, sell, mortgage or lease the property.
“I was told about this option – hak pakai atas hak milik [the leasehold title ‘floating’ over the freehold title],” said Richard. “And was advised by my consultant that it’s a safer option,” he added.
So how would a foreigner find a nominee? According to Gareth Lewis, CEO of Asia Property Finance Management, a nominee is usually someone the expat knows very well.
“Typically, nominees are trustworthy friends or business partners who have good credit backgrounds and reputations,” Lewis said. He continued, “Notaries facilitate these transactions and fees typically range from 2 to 5 percent of the value of the property.”
Besides the nominee arrangement, another alternative is to establish a foreign investment firm – dubbed a PMA (Penanaman Modal Asing) company as a “vehicle” to buy properties.
“Foreigners can use nominee arrangements with Indonesian citizens in order to obtain hak milik property. Similarly, PMA companies are able to obtain hak guna bangunan [HGB or right to build] property,” Lewis said, referring to the 1994 regulation on foreign investment.
According to the regulation, a foreigner can fully control a PMA company, with the title of the property under the company’s name in the form of hak guna bangunan. This right to build can be sold, exchanged, transferred, and mortgaged, and expires after 30 years with the possibility of a 20-year extension.
Although the options mentioned above are not strictly against the law, they’re considered contrary to the spirit of the law. The “nominee method”, for instance, is deemed to cause disadvantages to the country, according to the Indonesian Real Estate Association chairman Teguh Satria.
“Using a nominee means [expats] can escape paying taxes,” Teguh said. “They can use the property, let’s say, for 100 years and won’t have to pay taxes as much as they would be required to if they held the freehold title.
“This definitely will cause losses to the country,” he added.
However, Teguh said, expats could not be blamed for this, as it was the regulations in Indonesia that contained loopholes to allow such practices.
“There are just too many rights on land in Indonesia – the right to own; the right to use; the right to build; the right to exploit [hak guna usaha]; the right to use over the right to own and so on,” Teguh said. “This just confuses foreigners.”
Worse, with so many rights on land, he went on, “there’s no legal security offered to foreigners who want to buy properties here.”
Sidebox:
Relaxing the foreign ownership policy
Some expatriates buy houses in Indonesia to spend their holidays there, while others purchase them for retirement and investment purposes. No matter what purpose is, with more than 80,000 expatriates living in Indonesia, it’s easy to see why the prospects for the property market look bright.
But how bright that prospect could be is still open to question, as developers feel government’s restrictions on foreign ownership has made Indonesia appear less attractive to expatriate buyers.
“Expatriates are only allowed to hold a leasehold title for 25 years. Although they can renew the title for another 25 and 20 years, it’s actually complicated for them,” said Teguh Satria, chairman of the Indonesian Real Estate Association (REI). “Why do we not just give them the right for 70 years from the beginning, to make it easier?”
Teguh acknowledged that the 1960 Basic Agrarian Law allowed foreigners to use land for no longer than 70 years, thus scrapping the “25-25-20” scheme would be the best possible option for the moment.
“In terms of pricing, properties in Indonesia are much more affordable than neighboring countries,” he said. “However, it’s the 25-year [renewable] term that makes Indonesia lag far behind.”
Compared to Indonesia, for example, he said, properties in Singapore are 11 times more expensive. The price of property in Macau, on the other hand is four to six times higher, and in Malaysia, two to three times more expensive.
However, “Singapore offers 99 years of ownership; Malaysia 90 years, and in a certain area in Johor, they even let foreigners have a freehold title,” Teguh revealed. “Not only that, other neighboring countries already have their own programs designed to attract expats.”
Malaysia, for example, has “My Second Home Program”, while Thailand promotes its “Long Stay Program”. The Philippines, on the other hand, is introducing a “Retirement Program” for Japanese and Korean expats, granting them a lifetime visa.
“With these kinds of programs, expats will feel more secure, knowing that at least they have been granted legal security,” Teguh said.
Currently, the REI is discussing with the government a plan to revise the 1996 regulation on foreign ownership. Besides asking for the 70-year term, the REI is recommending the government gives expats legal security in terms of inheritance rights.
“We want the government to specifically regulate on this matter, giving assurance to foreigners that their family will be able to inherit their property when they die,” Teguh said, adding that the current regulation allows the government to take away the property if a foreigner dies.
According to Teguh, foreign ownership should not be seen as “selling the country”, but as bringing advantages to Indonesia. With around 10,000 apartments sold each year at US$ 250,000, he said, the market represents US$2.5 billion in direct investment. From this amount, 20 percent will be channeled to the government coffers in taxes.
“So we estimate the country could receive around Rp 5 trillion in taxes per year,” Teguh said. “Imagine if this Rp 5 trillion was used to build rusunami apartments for the lower-middle class,” he added.
There would be other multiplier expects, with expats spending money in Indonesia and hiring local employees. “This would give impetus to local industries, and contribute to the country’s whole economy,” Teguh said.
Residential expert Nonny Subeno said concurred with Teguh on the issue of foreign ownership.
“The government, as far as I am concerned, is worried locals will be pushed out of the apartment market, because foreigners will own most of them,” said Nonny of Provis Advisory Indonesia. “But there shouldn’t be any problem. We could follow the Thai model, where foreigners can only own up to 40 percent of the total number of apartments.
“In our case, maybe we can make it 30 percent for expats, and 70 percent for locals. That would be fair,” she added.
http://www.thejakartapost.com/news/2010/04/03/foreign-ownership-tripping-over-rules.html
http://www.thejakartapost.com/news/2010/04/03/relaxing-foreign-ownership-policy.html
But while Richard isn’t bothered about not being able to hold a full ownership title, Korean Kim Young-ho feels the opposite. For the 58-year-old, such a restriction offers no guarantee for someone like him, who decided to retire in Indonesia.
“I don’t feel it is safe to buy a property here as I’m not entitled to own my house 100 percent,” said Kim, who now lives in Bandung, West Java. “I can tell from my friends’ experiences that expats are very reluctant to buy properties in Indonesia because of this.
“That’s why they prefer just to rent, instead of buying a house,” he added.
Kim himself faced daunting challenges when he decided to sell his house in Jakarta five years ago. Married to an Indonesian woman, Kim said he had no idea that the house, which was bought in his wife’s name before their marriage, would be prone to so much future trouble.
“The thing is, because my wife is married to a foreigner, we were told that she had lost her right [to hold the full ownership title], that she couldn’t sell the house,” said the father of one, adding he and her wife didn’t sign a prenuptial agreement prior to their marriage.
Without a prenuptial agreement, he said, their assets aren’t legally separated. As a consequence, his wife’s house is also considered his, however as a foreigner, Kim has no right to hold a freehold title, or hak milik.
“When we got married, we never thought that this prenuptial arrangement would affect our rights relating to purchasing properties here,” he said. “When we found out about it later, it was already too late.”
Because of these experiences, Kim and his wife became more careful about purchasing property. So when the couple bought land in Bandung in 2006, they sought advice from a notary.
“We were advised to buy the land in our child’s name,” he said. Why? “Because if we bought it in my wife’s name and she died, the land couldn’t be inherited by either me or my child. Instead, it will be taken by the government,” he added.
Confirming Kim’s case, Agnes Kiki, an Indonesian married to an Australian man, agreed that a prenuptial agreement was necessary for mixed-marriage couples.
“If a mixed-marriage couple doesn’t have a prenuptial arrangement, then they can’t [fully] own property here,” said the mother of two, who luckily had a prenuptial agreement.
“The idea of this prenuptial agreement is to clearly state that all the property we buy during our marriage is in my name, not my foreign husband’s.
“So technically, my properties are protected by law, so that if one day I die, they will not be taken by the government,” she added.
Kiki admitted that many of her Indonesian friends, who are married to expats, did not know about this prenuptial agreement, causing them to run into trouble when they wanted to buy land and houses in Indonesia.
“Some even had to fake a divorce, so they could sign a prenuptial agreement and then remarry,” she said. “This is a possible option, but what if your husband decides not to remarry you or leaves you?” she laughed.
If there is another option other than a fake divorce, Kiki revealed, it is to buy property in the name of the wife’s family members.
“So it’s like we are borrowing our mother’s or sister’s name to buy the property,” she said.
This option, Kiki said, might sound more “friendly”, but she warned: “Problems might occur if, let say, our sibling’s wife or husband later argues with us, causing a family dispute and all.”
This second option revealed by Kiki, is similar to one common practice in Indonesia, where an Indonesian citizen acts as a “nominee” and holds the interest in the property on behalf of a foreigner. Under this option, the property title will be issued in the Indonesian’s name, and both parties will be engaged in a legal contract agreeing to certain conditions. The contract acknowledges that the foreign party has lent the nominee the purchase price of the property, while it also guarantees the foreigner’s complete authority to use, sell, mortgage or lease the property.
“I was told about this option – hak pakai atas hak milik [the leasehold title ‘floating’ over the freehold title],” said Richard. “And was advised by my consultant that it’s a safer option,” he added.
So how would a foreigner find a nominee? According to Gareth Lewis, CEO of Asia Property Finance Management, a nominee is usually someone the expat knows very well.
“Typically, nominees are trustworthy friends or business partners who have good credit backgrounds and reputations,” Lewis said. He continued, “Notaries facilitate these transactions and fees typically range from 2 to 5 percent of the value of the property.”
Besides the nominee arrangement, another alternative is to establish a foreign investment firm – dubbed a PMA (Penanaman Modal Asing) company as a “vehicle” to buy properties.
“Foreigners can use nominee arrangements with Indonesian citizens in order to obtain hak milik property. Similarly, PMA companies are able to obtain hak guna bangunan [HGB or right to build] property,” Lewis said, referring to the 1994 regulation on foreign investment.
According to the regulation, a foreigner can fully control a PMA company, with the title of the property under the company’s name in the form of hak guna bangunan. This right to build can be sold, exchanged, transferred, and mortgaged, and expires after 30 years with the possibility of a 20-year extension.
Although the options mentioned above are not strictly against the law, they’re considered contrary to the spirit of the law. The “nominee method”, for instance, is deemed to cause disadvantages to the country, according to the Indonesian Real Estate Association chairman Teguh Satria.
“Using a nominee means [expats] can escape paying taxes,” Teguh said. “They can use the property, let’s say, for 100 years and won’t have to pay taxes as much as they would be required to if they held the freehold title.
“This definitely will cause losses to the country,” he added.
However, Teguh said, expats could not be blamed for this, as it was the regulations in Indonesia that contained loopholes to allow such practices.
“There are just too many rights on land in Indonesia – the right to own; the right to use; the right to build; the right to exploit [hak guna usaha]; the right to use over the right to own and so on,” Teguh said. “This just confuses foreigners.”
Worse, with so many rights on land, he went on, “there’s no legal security offered to foreigners who want to buy properties here.”
Sidebox:
Relaxing the foreign ownership policy
Some expatriates buy houses in Indonesia to spend their holidays there, while others purchase them for retirement and investment purposes. No matter what purpose is, with more than 80,000 expatriates living in Indonesia, it’s easy to see why the prospects for the property market look bright.
But how bright that prospect could be is still open to question, as developers feel government’s restrictions on foreign ownership has made Indonesia appear less attractive to expatriate buyers.
“Expatriates are only allowed to hold a leasehold title for 25 years. Although they can renew the title for another 25 and 20 years, it’s actually complicated for them,” said Teguh Satria, chairman of the Indonesian Real Estate Association (REI). “Why do we not just give them the right for 70 years from the beginning, to make it easier?”
Teguh acknowledged that the 1960 Basic Agrarian Law allowed foreigners to use land for no longer than 70 years, thus scrapping the “25-25-20” scheme would be the best possible option for the moment.
“In terms of pricing, properties in Indonesia are much more affordable than neighboring countries,” he said. “However, it’s the 25-year [renewable] term that makes Indonesia lag far behind.”
Compared to Indonesia, for example, he said, properties in Singapore are 11 times more expensive. The price of property in Macau, on the other hand is four to six times higher, and in Malaysia, two to three times more expensive.
However, “Singapore offers 99 years of ownership; Malaysia 90 years, and in a certain area in Johor, they even let foreigners have a freehold title,” Teguh revealed. “Not only that, other neighboring countries already have their own programs designed to attract expats.”
Malaysia, for example, has “My Second Home Program”, while Thailand promotes its “Long Stay Program”. The Philippines, on the other hand, is introducing a “Retirement Program” for Japanese and Korean expats, granting them a lifetime visa.
“With these kinds of programs, expats will feel more secure, knowing that at least they have been granted legal security,” Teguh said.
Currently, the REI is discussing with the government a plan to revise the 1996 regulation on foreign ownership. Besides asking for the 70-year term, the REI is recommending the government gives expats legal security in terms of inheritance rights.
“We want the government to specifically regulate on this matter, giving assurance to foreigners that their family will be able to inherit their property when they die,” Teguh said, adding that the current regulation allows the government to take away the property if a foreigner dies.
According to Teguh, foreign ownership should not be seen as “selling the country”, but as bringing advantages to Indonesia. With around 10,000 apartments sold each year at US$ 250,000, he said, the market represents US$2.5 billion in direct investment. From this amount, 20 percent will be channeled to the government coffers in taxes.
“So we estimate the country could receive around Rp 5 trillion in taxes per year,” Teguh said. “Imagine if this Rp 5 trillion was used to build rusunami apartments for the lower-middle class,” he added.
There would be other multiplier expects, with expats spending money in Indonesia and hiring local employees. “This would give impetus to local industries, and contribute to the country’s whole economy,” Teguh said.
Residential expert Nonny Subeno said concurred with Teguh on the issue of foreign ownership.
“The government, as far as I am concerned, is worried locals will be pushed out of the apartment market, because foreigners will own most of them,” said Nonny of Provis Advisory Indonesia. “But there shouldn’t be any problem. We could follow the Thai model, where foreigners can only own up to 40 percent of the total number of apartments.
“In our case, maybe we can make it 30 percent for expats, and 70 percent for locals. That would be fair,” she added.
http://www.thejakartapost.com/news/2010/04/03/foreign-ownership-tripping-over-rules.html
http://www.thejakartapost.com/news/2010/04/03/relaxing-foreign-ownership-policy.html
