Buying costs are very high in Indonesia
June 14, 2017
How high are realtors’ and lawyers’ fees in Indonesia? What about other property purchase costs?
|Sale and Purchase of Land Deed||1%||buyer|
|Legal Fee||0.50% - 1.50%||buyer|
|Land and Building Transfer Duty||5%||seller|
|Real Estate Agent’s Fee||5%||seller|
|Costs paid by buyer||6.70% - 7.70%|
|Costs paid by seller||10%|
|ROUNDTRIP TRANSACTION COSTS||16.70% - 17.70%|
| See Footnotes
Source: Global Property Guide
How difficult is the property purchase process in Indonesia?
Individual foreigners can buy condominiums in Indonesia, though the formal law is slightly knotty. Foreigners can also buy control of landed property, though the legal difficulties are larger, and the degree of peace of mind attainable is correspondingly smaller.
The basis for foreign ownership of strata-title residential property, i.e. condominiums, is Government Regulation No 41 of June 1996. Regulation 41/1996 is however unclear, and no foreigner has actually received a strata title as a certificate of ownership. In practice, foreigners sign a Convertible Lease Agreement by which the title is held in the name of the developer, while a lease is held for a definite period. The Convertible Lease Agreement states that, if and when prevailing laws and regulations permit ownership of strata titles by foreigners, both the lessor and the lessee will be obligated to sign a deed of sale and purchase, transferring title to the foreign owner.
Foreigners are not allowed to own freehold land. Nevertheless, they can acquire rights to the use of land but not ownership rights.
There are three options open to foreigners for buying in Indonesia:
1. Through an Indonesian representative
It is common practice to have an Indonesian representative acquire land for the foreign buyer. Ownership of land must be transferred from the previous owner to the Indonesian representative. For the foreign buyer’s security, three agreements must be entered into with the Indonesian representative.
- Loan Agreement – this states that the foreign buyer lent the purchase price to the Indonesian representative.
- Irrevocable Power of Attorney – this gives the foreign buyer full authority to sell, lease, mortgage, etc. the land.
- Permanent Right of Use Agreement – this gives the foreign buyer full rights to the use and occupancy of the land.
2. Through a Penanaman Model Asing (PMA) Company
PMA is a “status of doing business” in Indonesia. A PMA company has 30 years to operate after formation. It can be granted additional 30 years, and another 30 years, if it expands its project through additional investment. This can be 100% controlled by a foreigner.
The Right to Build (Hak Guna Bangunan – HGB) is available to PMA companies. The right to build or construct on land is valid for 30 years. This can be extended for an additional 20 years, and even for another 30 years after that.
To set up a PMA company you will be required to:
- Submit a detailed business plan.
- Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit.
- Make an appropriate cash deposit in an Indonesian based bank. (The amount varies and is calculated from the capital employed in the business).
- Show the property investment as an asset of the company.
The process takes approximately 3 to 4 months and once completed the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up is around US$5,000.
3. Through a Leasehold Title
This can be granted to qualified foreigners who are domiciled in Indonesia with a KITAS working visa. The lease runs for 25 years, and can be renewed for another 25 years.
It is important to hire the services of an Indonesian lawyer to assist with the transaction, especially with the monetary exchange. All land transactions must take place at the Indonesian Notary’s local office, Pejabat Pembuat Akta Tanah (PPAT), where the land is located.
While it may be natural to give a deposit, it is not advisable. There is no code of conduct for real estate firms in Indonesia; they do not have any legal obligation to protect the buyer’s interests and guarantee the title.
There are registered and unregistered lands in Indonesia. The Basic Agrarian Law of 1960 governs certified land, which is registered at the local land office. Unregistered land, Adat land, is community-owned. An examination of the land certificate being bought is important.
Footnotes to Transaction Costs Table
Transfer tax is levied on the sale of real property in Indonesia at a flat rate of 5%. The base is the transfer value of the property.
Sale and Purchase of Land Deed
The execution of the sale and purchase of Land Deed is made before Land Officials, namely a notary public appointed by the Head of the National Land Office (PPAT) or a local Head of a District (Camat PPAT). The cost is 1% of the property value.
The registration fees are around 0.20% of the property value. Registration fees include administrative fees and stamp duty of IDR6,000 (US$0.45) per document.
Land and Building Transfer Duty (BPHTB)
The land and building transfer duty is levied at a flat rate of 5%, and is charged to the seller. The tax base is the transfer value of the property. There is a non-taxable amount which varies per region, and the non-taxable amount is IDR80 million (US$5,944) in Jakarta. This tax is different from the transfer tax.
TAX ON ACQUISITION OF LAND AND BUILDING (BPHTB)
|=||Taxable Value||IDR||2,220,000,000||Tax on Acquisition of Land and Building||5%||111,000,000.00|
Real Estate Agent´s Fee
Real estate agent´s fee is around 5% of the property value. The fee is paid by either the buyer or the seller, but not both.