How Not To Get Scammed: Buying Property In Indonesia The Right Way

Buying property is one of the most common ways for Indonesians to protect and increase the value of their assets. Like any big industry, it attracts professional companies, amateurs looking to turn a quick profit and straight up scammers alike. In this article, we’ll give you a step by step guide to how to make […]

Buying property is one of the most common ways for Indonesians to protect and increase the value of their assets. Like any big industry, it attracts professional companies, amateurs looking to turn a quick profit and straight up scammers alike.

In this article, we’ll give you a step by step guide to how to make better property investments in Indonesia. Rule number one of any investing – don’t lose money. Let’s explore the other rules below.

Buying or leasing property as a foreign national in Indonesia

Register a company (PT PMA) to buy property

The safest way to purchase property is to register a foreign-owned company (PT PMA) first. A PT PMA is allowed to buy property (except land) with the Right To Use title. When you sell the property to a local investor, then they can change the title to Right to Own.

Learn more about registering a company in Indonesia.

Get a residence permit (KITAS) to lease property

All you need is a residence permit (KITAS). To lease, you’ll need to sign a Lease Agreement in front of a public notary.

If you don’t have a KITAS and a person to sponsor it, then the easiest way to get it is to use employer of record service.

Avoid buying property under a local person’s name

No matter how well you know the local person, this is one of the surest ways to lose money in Indonesia. If the local person owns the property, they are under no legal pressure to give you control over it. Property transactions are big enough to justify the expense of setting up a company, so don’t base your business decisions on blind faith.

Six steps to buying property in Indonesia correctly

  1. Use professional registered real estate agents
  2. Check the property licenses
  3. Conduct due diligence
  4. Sales Purchase Agreement and downpayment
  5. Final payment
  6. Change of Ownership

1. Use professional registered real estate agents

Real estate runs deep in the Indonesian culture. If one person decides to sell, then suddenly all of his family members, neighbors, household staff, co-workers, etc., will try to get involved.

While this may be useful for getting tips, we advise you to only negotiate with professional agents. Property ownership structures can be complicated, especially if it was inherited, and in most cases dealing with amateurs (aka the helpful friends) will complicate the process.

2. Check the property licenses

There are two documents you need to receive before you should even consider moving forward with the transaction:

  • The Certificate of the Property
  • The Building License/ IMB

If the seller is not providing those or is finding reasons to delay them, then it most probably means that something is not right.

3. Conduct due diligence

Once you have the certificates, it’s time to conduct due diligence. Take your time and don’t get pressured by the seller claiming that there is another buyer who will take this property unless you act now. Even if that was true, it’s better to lose a good deal than to rush into a bad one.

Some of the questions you should answer during the due diligence:

  • Who is the owner?
  • If the owner is a private individual, is this person married? If yes, do they have their spouse’s approval?
  • Is the property inherited? If yes, are all of the beneficiaries willing to sell? How have they declared their permission to sell?
  • What type of certificate the property has? Does it allow you to conduct your planned activities?
  • Are the documents with the owner or at a bank?
  • What are the local zoning laws?
  • How much tax would you need to pay for the property?

Depending on the size and purpose of the transactions, you can go much more into details. You can order due diligence from Emerhub’s property lawyers.

4. Sales Purchase Agreement and downpayment

Sales purchase agreement (SPA) obligates a seller to sell, a buyer to buy and sets the terms. Sign it in front of a public notary authorized for the area (PPAT).

Make sure the SPA protects your interests, and you understand all the terms. Emerhub can draft you the SPA and advise on which local notary to use.

After you sign the SPA you need to transfer the down payment. Market practice is 10%. Only send the money directly to the person listed in the certificate. If the seller insists on another recipient, then back off and cancel the transaction.

If the certificate is with the bank, then you first need to agree who will pay the remaining balance to the bank. Don’t transfer the rest of the fee before the notary (PPAT) receives the certificates and checks them.

5. Final payment

Final transfer and the signing of Deed Of Sell and Buy should be made simultaneously in front of the public notary.

Note that both parties need to pay tax. The following sale and purchase transaction taxes apply:

  • Buyer: (BPHTB) 5% from the land value, paid in the Local Revenue Department (Dispenda)
  • Seller: (PPh) 2.5% from land value, paid in the Regional Tax Department (KPP Pratama)
Both have to be fulfilled first in order to transfer the land title in the National Land Agency (BPN) and have the final sale and purchase agreement (AJB).
It’s common for a seller to propose an “unofficial” price to lower the tax. Note that each property has a Tax Object Price (NJOP) which defines the amount of property taxes you need to pay on the property. Your transaction price cannot be lower than that and should be seen by the local government as “realistic,” or otherwise, it can cause an audit. See an example below.

6. Change of Ownership

Once you complete the previous steps, the public notary will transfer the ownership to you. You are now officially owning property in Indonesia!

Extra: An example of lowering sales tax on property

NJOP: 5,000,000,000Agreed Selling Price

(IDR)

Submitted Price to Tax Office

(IDR)

Price7,000,000,0005,500,000,000 (500 million higher than the NJOP)
Seller Tax2.5% x (7,000,000,000 – 80,000,000*) = 173,000,000

*)  non taxable amount

2.5% x (5,500,000,000 – 80,000,000*) = 135,500,000

*)  non taxable amount

Buyer Tax5% x  (7,000,000,000 – 80,000,000*) = 346,000,000

*)  non taxable amount

5% x  (5,500,000,000 – 80,000,000*) = 271,000,000

*)  non taxable amount

Note that any difference between the submitted and agreed selling price needs to be covered in alternative ways such as furniture, renovation, etc.

Since 2011, Emerhub has helped over 500 companies of all sizes enter Southeast Asian markets.

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