David Hutton en International Global Transactions & Compliance 29/9/2016 · 5 min de lectura · ~100

Want To Own Land In Bali ? Better Read the Latest Issue of The Indonesian Legal Digest - Recent Legislation Makes It Easier

Want To Own Land In Bali ? Better Read the Latest Issue of The Indonesian Legal Digest - Recent Legislation Makes It Easier

Indonesian Legal Digest - Foreign Real Estate Ownership by David Hutton & Davidson Samosir, Advoket & Editor

http://en.hukumonline.com/pages/lt57186f8b354e8/foreign-ownership-of-indonesian-real-estate-land-it-s-purpose-changes-and-potential-for-success-a-comparative-analysis

David Hutton 1. & Davidson Samosir 2. © 2016

 Land - It is an alienable right of the People, at least those that are free and this is as old as time itself. You could even go so far as to say that it is very closely tied to all of the other freedoms that a Country’s citizens enjoy. You take their Land – You have taken a part or all of their Freedom because the two are inseparable and freedom to own land is also is aligned to other inseparable rights such as speech, religion association and the obvious others that we all know and we also know whether we are free or not.  

 It has been a recent and new phenomena globally that investors are looking into receiving better tax treatment by legally avoiding taxes in their native homeland through real and legitimate investments that will appreciate the overall value of their financial portfolio. With many countries “opening their Doors” to global investors, countries allow themselves become the “New Gold”, for both individual and corporate investors. Although many investors found tremendous success in their path, some “Backfired”.

 Indonesia

Indonesia, an archipelago country that has more than 17,000 islands expanding as wide as the United States’ east to west coasts, just recently opened their doors to the global investor. Although it is mistaken by many foreigners as part of Bali - instead it’s actually the other way around - The Indonesian government has recently changed their view on foreigners’ rights to own property. The responsible legislation for this was Government Regulation No 103 of 2015specifically deals with and Governs the Ownership of Residential Property by Foreign Citizens Domiciled in Indonesia (“GR 103/2015”).

 This new legislation, in essence, legalizes for different classifications and longer property ownership by foreigners for the purpose of attracting foreign “economic investment”, specifically those who wants to stay in Indonesia on a more permanent basis. It also extends to the type of land titles that foreigners may own. Foe example, foreigners may now enjoy property ownership of up to 80 years, instead of the previous regulatory framework that only allowed ownership rights of up to 50 years pursuant to Government Regulation No. 41 of 1996 on Ownership of Residential Property by Foreign Citizens Domiciled in Indonesia (“GR 41/1996”).

 Also worth noting is that, of the variety of Indonesian land titles such as freehold (Hak Milik), right- to-farm (HGU) right-to-build (HGB), right-to-use (Hak Pakai), and leasehold (Sewa) are not all available and designated to foreigners. Foreigners may only own property in which the underlying land rights are a right-to-use and leasehold. Interes. What’s even more interesting about the new GR 103/2015 is that foreigners may now own a land that is sitting on a freehold title, by attaching a right-to-use title on top of a freehold estate. Although the concept of having several layers of land rights for one single land plot seems like a foreign concept for those coming from a common law country, this concept is best understood with watching the Christopher Nolan movie “Inception” starring Leonardo Dicaprio, where it is possible to have multiple dreams within on a single dream. In other words, a person may experience a dream within a dream, and yet another dream within that dream.. Does this sound weird ? Well maybe but that is How this new concept works and it takes some study to fully understand it completely.[3]

 Moreover, what should be taken into account when thinking to buy a property in Indonesia is that the government sets certain restriction on property value that a foreigner may own based the Minister of Agrarian Affairs and Spatial Layout/Head of National Land Agency Regulation No. 13 of 2016 on Procedures for Granting Relinquishing and Transferring Ownership of Residential Property for Foreign Citizens Domiciled in Indonesia. This regulation sets different minimum thresholds based on the property type and locations, as follows:[4]

 Do note that at the time this article is written, the exchange rate of 1 US dollar against rupiah was around 13,000 rupiah, which means that foreigners thinking to buy a house in Bali must spend at minimum + 230,000 US dollar. 

      Property and its Heritage -A Soulful Treasure of A Culture 

But today is a different World, a “Global Village” and foreigners see opportunities of both personal and business that are attractive in other Countries. What is a Country to do? Should we let them in or Exclude them and their “Opportunities”? This is a delicate balancing act of Prosperity vs. loss of control but whose Opportunity and whose control? That was the dilemma and task that the Indonesian government tried to reconcile in “GR 103/ 2015 . - Is it Good for the Indonesian People and if so, how should it be Governed? - Isn't that what we are really talking about here –"Control"? To whose benefit, the Government or the people? Let's contrast other Countries where it has been both too restrictive and not restrictive enough.

 Comparison of Other Country’s Foreign Ownership of Real Estate Laws – The Good & the Bad 

 Mexico- Has certainly learned its lesson long ago when it allowed a foreigners to “Buy/ Lease” Mexican Real Estate under a “special trust” known as the U.S. individuals right to own residential or Commercial Mexican real estate through a "fideicomiso" and the restrictions under this Original Foreign Ownership was without restrictions. Even though the word "fideicomiso" literally means "trust" in Spanish not “Trust”, However the Internal Revenue saw it differently and decided that this "fideicomiso was not considered to be a trust for U.S. tax purposes but rather a “Title Interest” and because of its length of time (99 years) it turned out to be an “American Tax Nightmare” and because it was for a term of 99 years and the particular use of this “Century Leased Property” was not adequately specified the US tax code defined this purchase arrangement of 99 years as an ownership by Title therefore includable as an asset and taxable unless otherwise excludable !

 Mexico Today With Foreign Ownership of Real Estate

Today Mexico has what is referred to as“restricted zones” in which foreigners have the same right to purchase property as citizens, however These restricted zones consist of areas within *50 kilometers of the coast and 100 kilometers of an international border and the former Fideicomiso is still is in existence in order for a foreigner to purchase real estate as we have discussed. This has obviously today resulted in a dramatic change and one only has to look to the Province of Baja , the explosion of now one of the World’s most visited Tourist attractions ,Cabo San Lucas to see just what economic benefit this has caused with an avalanche of Tourists and it resembles nothing of he quaint little famous fishing Village back in 1982.

 Mexico’s Foreign Ownership Laws Are Less Restrictive- But these changes that were made with the 99 year fideicomiso or “trust” ownership before the new Law changes went into effect had no Provisions of “mandatory Retainage of Local economic financial benefit (today this has changed) With this new change in the law the question arises if the Local people are realistically getting the benefit of this new Foreign Real Estate Change and there is a differing opinions about whether they are or not but what seems certain is that the Indonesian Government with the issuance of GR 103 /2015 were mindful of these very issues and were notgoing to make the same mistake and thus sought to preserve the Indonesian Citizenry’s welfare for future generations.

 The Hot Property Today For Foreign Purchasers of Real Estate – Is obviously Costa Rica and this small Central American country has beautiful beaches on both the Caribbean and Pacific coasts. Historically its “Geopolitical” climate & history has been “smooth sailing” and stable unlike most of its Latin American neighbors.

 But, that said ownership of property near the coast is regulated, and there are other restrictions under some maritime zone laws that apply as well. But outside of restricted zones, foreign buyers shouldn’t encounter ownership hurdles. In this country there has been an obvious preference of Foreign Real Estate owners to own the Prime locations of coastlines and although there are some restrictions and even some prohibitions the legal community there has put on its “Thinking Cap” and already devised ways to circumvent these restrictions and to date this has been successful and without incident but the end of this story has yet to be written because there is much more coastline real estate to purchase and one can easily imagine a Foreigner owning prime Coastline Property for $ xxx and selling it to a World wide Hotel Corporations for many times over what it was purchased . So, as we have asked of other comparisons; “has this worked?” For now it appears that it has as the economic reports indicate. *And by the way virtually all of Latin America, real estate transactions are conducted in US dollars.

 Equador- The level of real estate prices (and the cost of living in general) in Ecuador is among the lowest in the world, which makes the country popular with retirees on a budget. There are no restrictions on foreigners owning property. Again it is helpful to inquire of whether Equador’s Foreign Real ownership Laws are working to enhance the Economic viability of the Country and again also the economic figures seem to indicate that they have served the economic interest of the country. Ecuador is among the lowest cost of living locations in the Caribbean which makes the country popular with retirees on a budget and in recent years this has been a refuge for US retired Ex –Pats who are living on Social Security income only.

 Chile – A Change in Foreign Ownership Laws with a Unique and “Novel” Twist 

 Chile – Without a doubt one of the most less restrictive and freedom of foreign ownership and restrictions is Chile and if you haven’t looked at their National statistics of Foreign ownership , new businesses , use of land, currency valuation , unaffected by the recent decade of Global Geopolitical & economic crisis you should . It is Booming and Flooding with US dollars with purchasing and starting of businesses, purchases of Wineries, walnut groves and new Housing and apartments by Foreign ownership So in this country at least it is safe to state that it is Booming !

 Chile Today 2016 - Is nothing short of a Marvel in today’s times and what Chile is doing is most certainly working and other Central American countries are following close behind Chile’s model in the neighboring countries of Nicaragua, Panama and especially Ecuador. All of their respective Laws of Foreign Real Estate ownership are virtually “non existent” (or Less restrictive than GR 103 /2015) and with these less restrictions Foreigners may obtain bothResidency Permits and even “Passports” and this has certainly added to the Foreign Economic interest/ investment equation and it not required that they remain “Domiciled” as does Indonesia’s GR 103 / 2015

 Chile coastline extends for 3,100 miles along the west coast of South America. The country is relatively modern, and politically stable than any of its South American neighbors and has the highest income per capita in Latin America. Chile also has attractive foreign real estate ownership laws.

 Chile’s Added Assurances For Foreign Real Estate Owners – This concept is new to the proliferation of the world’s countries who are now revisiting, modifying and changing laws for foreign ownership of real estate but Chile has taken this concept one step further with enormous results – They Include protection for the Foreign Ownership of real estate by non nationals into their own Governing Constitution which is a strong Legal provision of protection. 

 The Chilean Constitution- The Chilean Constitution “Specifically Decrees” that foreign real estate owners possess the same private property protections as Chileans and there is no residency or in-country presence is required to purchase property. Chile’s business-friendly environment has inspired economic growth with a two year “Corporate Tax Exemption”, and investing in Chilean real estate is a way to tap into this trend.At this writing this seems to have produced an enormous economic benefit with no “side effects” but it naturally begs the same question as the other Countries that have been examined in this article and that is – Will it last ?

 Soon To Be An Enormous Player In The Foreign Real Estate Ownership Game – Cuba 

CUBA * At first glance one might assume that Cuba is going to Open up to Foreigners with an “Open Door Policy” but not so fast here !

Cuba – 1935 - 1960 Such was the vibrant atmosphere and prosperity in Cuba a few decades before Organized Crime took over the entire country until Fidel Castro finally took over them and people may differ whether one was any better than the other but that’s a discussion for the Politicians but the essence here is for the Cuban Government to “Proceed with caution” in all matters and especially with regard to allowing Foreign ownership of Real Estate Property. Is there a lesson to be learned here ?

 It would appear that there is lessons to be learned and that is that people will always be the most valuable Natural Resource of any country as GR 103 / 2015 loudly proclaims and that any law that passes with regards to Foreign entities (especially New Conglomerate Corporations waving a “fist full of dollars”) should be viewed with some suspicion and circumspection.

Foreign Real Estate Directly Affects Currency Stability -In addition it should always be monitored as to how much money will Foreign interests leave in the local currency and in Local Banks and help stabilize the host country’s currency. This could be a critical factor in times like the one the United States is facing today with its “currency wars” with China and Russia. The US has had virtually no restriction of foreign ownership which has caused major economic problems. It also has a $19 Trillion debt, no way to pay it and US major Corporations are “voting with their dollars” and exchanging it for more solid currency such as the Swiss Franc, Norwegian Krone and even the Chilean Peso’ !

 And Speaking of Cuba and Especially of the newly established Diplomatic Sanctions, Restoration of Embassies and trade talks it all sounds terrific as long as they can address beforehand (Now !) the same “specter” of sinister banditos terorganisir that were in Havana in the 1940s and 1950s and who are still around with the same intentions only different faces so the danger is still ever present in Cuba – I wish them well.

Let us see how much they have learned about their own corrupt organizations, be they Organized Crime or Any Government (Especially their new friendly neighbor -The United States) of depriving the People of their rights, freedoms and culture. I wish them well, they are a great people and deserve a chance to make their mark on humanity as Indonesia is and is trying further to do !

 So , Did The Indonesian Government Get it Right ? 

 It is certainly a step in the right direction, at least for the present time. We do not get the benefit of looking forward with a “Crystal Ball” into the future or Backwards from the Holistic Vantage of Time and get to do over our deeds or misdeeds so we act, judge as we Live – In the Now and with all we have before us and with the best of intentions and so Jadi selamat kepada pemerintah pada pekerjaan dilakukan dengan baik !

 Did GR103 Go Far Enough ?

Given the fact that this new passage of “GR 103 2015” was to inspire and ignite a positive Economic Impact will it achieve this purpose ? Should there be additional requirements that flow over into the commercial & industrial area of Foreign real estate ownership that require foreign manufacturers contribute to humanitarian causes from a percentage of their profits ?

Should these entities also not be required to retain a certain portion of their monetary profits in Local currency in local banks to further stabilize their host country’s (Indonesia) economies?

Should there be additional provisions about “Revocation of Title” interests to foreign persons for misuse or abuse of their intended purpose ? Should there be instead a totally separate and specific Provision solely for Foreign Corporations ?

 To all of these I would say that the Indonesian People should share in these attributes and that is should be codified in Law either an existing one that is modified or a new one ; for example: “GR-103(a) Foreign National Responsibilities” 

[1] David Hutton is an International Attorney, Freelance writer for HukumonlineEnglish. His office website is ch.linkedin.com/in/dhutton1. David Hutton must candidly confess Bias towards Indonesia. He loves Indonesia and he has lived there. David and his wife Kristin are presently living in Züg Switzerland

 [2] Davidson Samosir is the Editor-in-Chief of Hukumonline English Newsroom, Advocate and Lecturer[3] For further information on GR 103/2015, see ILDNo.446[4] For further information on this regulation, see ILB No. 2863