In late 90s, Indonesia Laws regarding land has been amended. New laws are now permitted the foreigners to purchase apartments in Indonesia if the building has a strata title status.
Moreover, the foreigners can not hold the strata title of ownership of the apartment. The foreigners only can hold the right of use of the apartment.
Government Regulation 41 of 1996 regarding Ownership of Residences by Foreign Persons Domiciled in Indonesia (“Law 41/96”) clearly stipulate that the foreigner can hold the right of use of apartment with certain conditions e.g. the said foreigner is given benefit to Indonesia. Moreover, the right of use is only given for 25 years and can be extended for other 25 years.
There are two (2) ways for foreigners to have property in Indonesia. The following scenarios are e.g.:
1. CONVERTIBLE LEASE AGREEEMENT: There is a way for foreigners to purchase property in Indonesia by signing the convertible lease agreement with the developer company. This agreement entails that the foreigner may purchase apartment, but the title is still held in the name of the developer. This lease agreement is for a definite period.
The transfer provision: This Convertible Lease Agreement states that the Lessee will obtain the right of ownership of the apartment automatically when the law and regulations regarding the land and apartment change. Then both lessee and lessor will enter into Sale and Purchase agreement. And the title of ownership shall be transferred to the lessee.
The current practice in Indonesia that the developer company usually uses the standard contract in selling strata title to the customers. The standard contract is one sided contract. The content of the contract are made by the developer not the by both parties. It is can be called ‘take it or leave it contract’. There is no freedom of contract.
Promissory Note: Besides, the convertible lease agreement, the lessee shall enter separate agreement with developer (“Promissory Note”). The said Promissory Note states that the lessee may re-sell the apartment to other parties chosen by him/her. Moreover, it shall be stated also that if the developer transfer its rights and obligation to third party under the lease agreement, the said promissory note shall be valid and forced to the third party.
2. NOMINEE ARRANGEMENT: The foreigners may have an Indonesian person that they can trust so that the property under the Indonesian name.
Then, the foreigner and Indonesian person will enter into an agreement that this Indonesian person has debt to the foreigner and pledge the said apartment.