Hammer to Fall: Property Ownership

It’s time to bring out the legal eagles for a look at expatriate matters

What with various cable TV channels imploring those with a few million bucks kicking about to invest in ‘Amazing Indonesia’ or whatever clunky slogan is being ill-advisedly pressed into service this month, perhaps it’s time to take a look at some of the legal issues facing foreigners living here. Obviously, Indonesian law can prove confusing for Indonesia’s merry band of laugh-a-minute expatriates, a situation which isn’t helped by the contradictory signals that have been sent out over the last couple of years, as a reformist president butts heads with some pretty powerful forces of reactionary nationalism.

Moreover, the Joko Widodo administration is currently issuing economic-policy package after economic-policy package in a bid to breathe a bit of life into the Republic of Indonesia’s moribund boondocks, and the whole political, economic and legal landscape seems to be on somewhat unstable ground at the moment.

The net upshot of all of this uncertainty seems to be that foreign citizens living in Indonesia have started to become a tad frustrated, as mendacity and political chicanery flip-flops the country’s powerbrokers from side to side. On the one hand, foreign investment is being actively encouraged and foreign citizens are even being advised to own property in the country. On the other hand, many work visas have been reduced from a year to only six months in length, while foreign teachers are jailed for ten years for the use of ‘magic stones’.

So without further ado, let us have a little look at how recent laws and regulations are shaping up, with the tacit acknowledgement that there is not often a very strong correlation here between what the law says and what actually happens in real life. First up can I just say a big thank you to my friends down at Hukum Online for their sterling help with this whirlwind tour through some of the murkier corners of the Indonesian legal system.

This time around, we are putting property ownership in the spotlight, an issue of relevance to many expatriates here. So, let’s get down to brass tacks. Government Regulation No. 103 of 2015 on the Ownership of Property by Foreign Nationals Domiciled in Indonesia aims to offer legal certainty to foreign citizens who are in possession of valid residency permits. However, a number of limitations still have to be observed.

The 2015 regulation states that foreign nationals who live or invest in Indonesia may acquire property under the right-to-use (hak pakai) land-title classification. Articles 2 and 6 of the regulation state that foreign citizens can own such titles for 20 years, which can be extended by another 20 years (the previous limit was a total of 25 years). Moreover, the 2015 regulation also makes it clear that property owning foreigners can bequeath right-to-use titles to their heirs in the event of their deaths.

However, regional administrations are likely to become involved in the implementation of the 2015 regulation, which could complicate things significantly. Moreover, many politicians here ultimately see the 2015 regulation as running counter to the spirit of land reform, while others see the regulation as not offering foreign citizens much in the way of anything new.

Disputes which arise between spouses of different nationalities are also likely to prove a thorny issue, as the new regulation states that any property owned by mixed-marriage couples does not constitute joint matrimonial property which must be proven through a notarized prenuptial agreement. The Indonesian Advocacy Team for Mixed Marriages (Tim Advokasi Perkawinan Campuran Indonesia) has raised a number of concerns in this regard. Firstly comes the issue of asset-separation agreements held between spouses and whether or not such documents will be required when purchasing or selling property. This presents a potential problem, as notaries currently refuse to deal with marital transactions involving foreign citizens.

Secondly, there is currently a lack of clarity surrounding the issue of the validity periods of any asset-separation agreements. Whether agreements drawn up with notaries now apply retroactively or not is the question here. And thirdly, the regulatory framework to be used in drawing up asset-separation agreements also remains unclear. Should the 1974 Marriage Law be used, or should the Indonesian Civil Code or another regulation be employed? This is an important question, as it determines whether asset-separation agreements, as referred to in prenuptial agreements, can only be drawn up prior to marriage or whether they can be drawn up after marriage, which would involve the freedom-of-contract principle and registration with a court.

The Indonesian Advocacy Team for Mixed Marriages is currently seeking further clarification on these matters from the Minister of Law and Human Rights. The 2015 regulation on property has the potential to offer legal certainty for mixed-marriage couples, but only if it is implemented clearly and in a way which deals with these important issues.

2015 regulation is also unclear as regards the price, land size and amount of property which can ultimately be acquired by foreign citizens. The fear is that this lack of clarity may lead to land becoming the object of financial speculation, or to a potential housing bubble developing. Indonesian notaries and land-deed officials (PPAT – Pejabat Pembuat Akta Tanah) are also being urged to thoroughly examine any land-title registrations, so as to avoid any potential breaches of the law and violations of the right-to-use limitation for foreigners looking to own property in Indonesia.

Specifically, the country’s Core Agrarian Law expressly prohibits any transfer of ownership by parties who are not the legitimate holders of property-ownership titles (and foreign citizens are strictly barred from taking possession of freehold, right-to-exploit and right-to-build titles).

If a foreign citizen wants to secure an official deed from a PPAT as regards the sales of an inherited property, then it is better to convert the title of the property to right-to-use in advance. Sales-and-purchase deeds (Akta Jual Beli – AJB) can then be drawn up before a notary, and this is to be followed by changing the title’s ownership to the name of its buyer. After that, the local buyer is allowed to keep the right-to-use title or convert it into a freehold title. This method costs more, however the results will be above board and comply with the law, which ultimately states that land obtained by foreign citizens under a right-to-exploit or right-to-build title must be transferred or sold to a local party within one year, otherwise it will seized by the state.

For more information on these issues and more, point your web browser at: en.hukumonline.com

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Mr. P abides.