Indonesian property Law and investment Law updates

2011

The government has back-pedalled on a proposal to allow foreigners to own property in Indonesia for 90 years and will now only simplify the extension process and not change the maximum length of title from the current 70-year tenure.

The changes are contained in a new regulation which will be presented to President Susilo Bambang Yudhoyono for approval before the end of May, the Ministry of Public Housing’s Jamil Ansari said on Wednesday. The regulation is expected to take effect within two months of the president approving it, he said.

“The draft review of the regulation is almost finished and we expect it will be ready by the end of May,” Jamil said.

Currently, foreigners can hold property for 25 years. After the term expires, they may renew their property rights with the National Land Agency (BPN) for an additional 25 years and then extend it once more for 20 years, making for a total of 70 years.

Under the new regulation, foreigners will be able to renew for the additional 25- and 20-year terms at the same time, effectively meaning they will be able to renew for 45 years.

“Many foreigners find that the extension process for their property is really unpractical. Therefore, we decided to simplify it,” Jamil said.

Teguh Satria, chairman of the Indonesian Real Estate Developers Association (REI), said it would make more sense for foreigners to be able to own property outright so they did not have to go through time-consuming extensions.

Not allowing foreigners to own property meant Indonesia’s property sector was less competitive compared to Singapore and Malaysia, Teguh said.

He said there were around 83,000 foreigners living in Indonesia. If 10,000 of those foreigners bought a $250,000 apartment it would translate into $2.5 billion of foreign investment, Teguh said.

2010

The House of Representatives finally passed the proposed investment bill in to law last month. It has not been signed yet by the President but this is expected soon. Aimed at replacing two separate 30-year old laws for foreign and domestic investors, Law No. 1/1967 and Law No. 6/1998, the 2007 investment Law signals a much better investment climate than its predecessors. This is reflected in the following features:

• More certainty regarding land rights holding. Cultivation rights (HGU) are extended up 95 years from previously 35 years. Building rights (HGB) may be obtained for up to 80 years from previously 30 years. Land use (Hak Pakai) rights are also extended from previously 25 years to 75 years.
• Simplified business related licenses. Subject to further detailed regulations, applications for business related licenses will be served by the Investment Board of Investment (BKPM) under a one-stop service system. BKPM will act as a coordinator among government agencies, departments and regional administrations. Within the government, BKPM's position will also be elevated from a part of the trade department to a non-departmental bureau responsible directly to the president.
• Domestic and foreign investors are treated on an equal footing. Both groups will generally have the same access to any business areas despite the government requirement to reserve certain areas for small and medium enterprises and cooperatives. The government will a "negative list" in due course. This will contain some prohibited areas for investment or only open under certain conditions. However, if a business area is not on the list, investors can enter the area without restriction. At the moment, the negative list has not been issued yet.
• Longer time for temporary stay permits and shorter time to get permanent ones. A temporary stay permit (KITAS) may be granted for up to 2 years, twice as long as the current standard. The new law allows a KITAS to be converted into a permanent stay permit (KITAP) after a two-consecutive year of stay in Indonesia, much shorter than the current standard of five years.
• Removal of divestment requirement to local partner. Unlike its predecessor, the new law is silent about divestment requirement.

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2009

Negative list of investments
More clarity on which industries are closed/open to investment, but still some ambiguities. Restrictions exist on capital participation for foreign investors. Applies only to new applications for investments. Existing approvals are generally unaffected.

USD accounting for tax
Collective investment contracts (KIK) may qualify. Approval process in 25 days. May be back to Rupiah accounting - but then have to wait five years to re-apply USD accounting approval.

Energy law
serves as a basis for the state’s broad energy policy

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