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New Regulation on House Ownership by Foreigner (English Language)

house ownership for foreignerJust recently, a minister regulation of agrarian and spatial planning number 13 of 2016 on procedure of granting, relinquishment or transfer of right over house or residence ownership by foreigner domiciled in Indonesia (MR), as an implementing regulation of government regulation number 103 of 2015 (GR), governing the similar matter, was promulgated.

There are not many new stipulations under the MR. Most of the essential provisions are already governed by the GR, among others, foreigner can own a house or residence over right of use or right of use over right of ownership through an agreement made before land conveyancing officer, and a condominium unit built over right of use. This type of right of use or right of use over right of ownership is granted for 30 years, extendable to 20 years, and renewable for another 30 years, giving a total of 80 years.

MR provides further elaboration on the ‘right of use’. MR stipulates that the single house or condominium unit can be purchased under a right of use over a state land, right of management or right of ownership. This means, a foreigner can have a single house or condominium unit that is built over right of use over a state land, right of use over right of management, or right of use over right of ownership. Accordingly, MR provides flexibility on the three types of right of use for the foreigner. One important point to note, house development is governed under law number 1 of 2011 on housing and residential area (Housing Law). The Housing Law specifically stipulates that a single house can only be made over right of ownership (for Indonesian), right to build over state land, right to build over right of management or right of use over state land. It is clear that the Housing Law does not allow a single house to be built either over right of use over right of management or right of use over right of ownership. It means that the provisions under the MR and GR are conflicting to the Housing Law. This is significant and hence, the provisions may not be implementable.

MR does not allow a foreigner to build or construct a single house over the land, even though it is under right of use. This is different than the old version. A foreigner can only purchase a new single house from the developer or the land owner, and cannot be from secondary market. Moreover, the minimum purchase price is regulated under the MR. The range of minimum purchase price for a new single house varies region to region from Rp 1 bio to Rp 10bio, where for condominium unit, the range is from Rp 750mio to Rp 5bio. Since a foreigner has to buy a new property, if it is purchased from the developer, a foreigner will have to bear 10% VAT and 20% of luxurious tax (if the single house is priced more than Rp 20bio or the condominium unit is priced more than Rp 10bio), as well as 5% acquisition levy.

What is new and beneficial for foreigner is the stipulation on the financing over a new single house. MR stipulates further that the financing can be secured by a mortgage (hak tanggungan). If the single house is built on right of use over right of ownership, the encumbrance should be approved by the holder of right of ownership. If the single house or condominium unit is built on right of use over right of management, the encumbrance should be approved by the holder of right of management. This means a foreigner can purchase a new single house and get financing from the financial institution, and as security, the single house can be mortgaged for the benefit of the creditor.

The other important provision under MR is the clearance on the right to transfer the property by a foreigner. The MR however fails to provide mechanism of transfer. Since it refers to the prevailing regulations, if the property is built on right of use over state land, the prior approval should be from the official issuing the certificate of land. If it is built on right of use over right of management, approval are required from holder of right of management and official issuing the certificate. If it is built on right of use over right of ownership, from the holder of right of ownership and official issuing the certificate. Though clear, there are still layers that a foreigner has to pass through.

MR does not prohibit ownership of a single house or condominium unit more than 1 unit. This is different than the previous regulation. The limitation is only on the purchase price. Nevertheless, due to the gradual increase of property price, the attachment of MR should be adjusted from time to time.

*This article has been published in The Jakarta Post daily newspaper on 25 April 2016

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