For any foreign investor considering real estate in Bali, the first and most important step is understanding the legal frameworks surrounding property ownership.
Key questions naturally arise, such as: How can I legally acquire land or property (such as a villa or land)? How is my investment protected? And what rights do I have as a foreigner?
Freehold ownership offers the highest level of control over a property. It allows the owner to use the property, sell it, and generate income from it, such as through leasing or rentals.In Indonesia, freehold ownership is recognized under three main titles: Hak Milik, Hak Guna Bangunan (HGB), and Hak Pakai.
Hak Milik is the strongest form of property ownership in Indonesia. It gives the owner full control over the property, the right to use it, sell it, and earn income from it. However, this title is only available to Indonesian citizens, as the government restricts foreign ownership to protect national land ownership.
Foreigners cannot own Hak Milik property directly. If an Indonesian owner sells Hak Milik land to a foreign-owned company (PT PMA), the ownership status automatically changes to Hak Guna Bangunan (HGB).
Similar to a long-term lease, HGB is a land title that can be held by companies, including PT PMAs. It provides rights over land or buildings for an initial 30-year term, extendable for 20 years and subsequently for another 30 years, subject to legal requirements, allowing for a total potential duration of 80 years.Importantly,
HGB goes beyond a standard lease. It confers ownership-like rights, including the ability to sell, transfer, or mortgage the property. As such, banks may accept HGB held by a PT PMA as collateral for loans.
Hak Pakai is the only land title that may be held directly by foreign individuals, provided specific requirements are met. These include holding a valid KITAS and using the property strictly for residential purposes. The title is granted for 25 years, extendable for 20 years, and renewable for a further 25 years, allowing for a total potential duration of 70 years, as long as residency status is maintained.
Leasehold (Hak Sewa) is the most common way foreigners hold property in Indonesia. It allows the use of land or buildings for 25-30 years, with the possibility to renew the lease based on new terms.
Leasehold agreements are signed before a notary rather than registered with the land office. During the lease, the tenant can use and manage the property, whether for living or business purposes, which makes leasehold a flexible option.
