Buying property is one of the most common ways for Indonesians to protect and increase the value of their assets. Not everyone knows how to do it safely or not lose money.
In this article, we’ll give you a step by step guide on how to make better property investments in Indonesia.
Buying or leasing property as a foreign national in Indonesia
Register a company (PT PMA) to buy property
The safest way to purchase property is to register a foreign-owned company (PT PMA). Your PT PMA can buy property (except land) with the Right to Use title. When you sell the property to a local investor, then they can change the title to Right to Own.
Get a residence permit (KITAS) to lease property
You need to apply for a residence permit (KITAS). To lease, you’ll need to sign a Lease Agreement in front of a public notary.
If you don’t have a KITAS and a person to sponsor it, then using the employer of record service is the easiest way to get it.
Avoid buying property under a local person’s name
Some foreign nationals still believe that the only way they can proceed with a property deal in Indonesia is when it’s under a local person’s name. While the local person can have the best intentions, it’s still an investment based on blind trust.
Hence, no matter how well you know the local person, this is one of the surest ways to lose money in Indonesia. If the local person owns the property, they are under no legal pressure to give you control over it. Property transactions are big enough to justify the expense of setting up a company.
Six steps to buying property in Indonesia correctly
Emerhub’s latest blog post describes the following six steps in detail. In short, here is what you need to be wary of when considering to enter into a property deal in Indonesia:
1. Use professional registered real estate agents
Property ownership structures can be complicated, especially if it was inherited. In most cases dealing with amateurs, such as helpful friends, will complicate the process.
2. Check the property licences
There are two crucially important documents from the viewpoint of buying property in Indonesia:
• The Certificate of the Property
• The Building Licence/ IMB
If you are having difficulties receiving these two documents from the seller, you should not proceed with the transaction.
3. Conduct due diligence
Conducting due diligence comes right after you have everything settled with the property licences. Don’t break under the pressure of the seller, even if they claim to have a line of buyers besides you. It’s better to lose a good deal than to rush into a bad one. In our blog, we’ve highlighted the key questions you should ask when it comes to land due diligence.
Note that you can order due diligence from Emerhub’s property lawyers.
4. Sales purchase agreement
Sales purchase agreement (SPA) obligates a seller to sell, a buyer to buy and sets the terms. Sign it in front of a public notary authorised for the area (PPAT).
Make sure the SPA protects your interests, and you understand all the terms. Emerhub can draft the SPA for you and advise on which local notary to use. Once you’ve signed the SPA you also need to transfer
the down payment.
5. Final payment
Final transfer and the signing of the Deed Of Sell and Buy should be made simultaneously in front of the public notary.
Note that both parties need to pay an additional tax:
• Seller pays 2.5 % of the transaction value
• Buyer pays 5 % of the transaction value
Seller may also propose an “unofficial” price to reduce the tax. Before accepting that, keep in mind the following: each property has a Tax Object Price (NJOP) that defines the amount of property taxes you need to pay. Your transaction price cannot be lower than that.
The local government should also find that amount realistic, otherwise it may lead to an audit. As an extra, we’ve also provided an example of lowering sales tax on property – find the calculation from the original article published on Emerhub’s blog.
6. Change of ownership
Once you complete the previous steps, the public notary will transfer the ownership to you!