Property rights
The wave of bomb threats and wild rumors in the aftermath of the July 27 riots distracted the media's attention from a seminar early last week on two new very important government regulations, effective as of June 17, which will significantly influence the development of the property market. The seminar featured Minister of Agrarian Affairs Soni Harsono and several departmental heads of the National Land Agency as the main panelists. It discussed Government Regulation No.40/1996 on three categories of land titles: the Right To Exploit, the Right To Build and the Right To Use together with Government Regulation No.41/1996 on the ownership of houses/residential apartments by foreigners residing in Indonesia.
Though the two regulations have yet to be supplemented by presidential and ministerial decrees regarding the technical details on their implementation, the new rules promise a number of new outstandingly good developments related to the security of land titles, mortgage financing and foreign ownership of houses in the country.
Under Government Regulation No.40, for example, Indonesian citizens and companies incorporated under Indonesian laws are allowed to acquire at one time the Right To Exploit land title for 95 years and the Right To Build land title for 80 years. Previously, the newly issued Right To Exploit title was effective only for 35 years. The title could be extended by 25 years and renewed with a validity of 35 years after the expiry of the extension period, but each step had to follow long, separate application processes. Now the title can be acquired up front with a cumulative validity of 95 years. The same easier procedure is also effective for obtaining the Right To Build title, thereby allowing an applicant to get up front a title valid for 80 years (30 years for a new title, 20 years for the extension and 30 years for the renewed title).
Unlike the two previous titles, the Right To Use title can be obtained by foreigners residing in Indonesia, foreign companies operating offices in Indonesia, diplomatic missions and the representative offices of international/multilateral agencies. The title is valid for 25 years, but is extendable by 20 years and renewed for a validity of 25 years. However, especially in relation to land used for investment operations, the title also can be obtained up front for a validity of 70 years. Diplomatic missions and the representative offices of international agencies are even allowed to obtain the Right To Use title for state land for an unlimited period of time.
The easier procedure will surely improve the security of land titles, which are required by investors and will save a lot of time and costs because the businessmen are required to undergo the application process only once.
The better security of land titles and the compulsory registration of any transactions related to them with the Land Registration Office will also be a boon to the development of mortgage financing, as mortgage bankers can rest assured that their loans are firmly secured under clear-cut legal frameworks. This better security, combined with the legal certainty provided by Law No.4/1996 on mortgage related to land and buildings, will significantly increase the liquidity of land and deepen the financial and capital market through the securitization of mortgages.
Government Regulation No.41 allows foreigners residing in Indonesia to own one house or one apartment unit built on state land covered by the Right To Use title and other land acquired through transactions with the owners of the land titles. The house/apartment ownership right is valid for 25 years and is extendable by another 25 years. The regulation defines foreigners as those whose residence in Indonesia benefits national development. But the regulation is rather flexible with regard to the definition of residence in Indonesia, stipulating that the owners shall not necessarily use Indonesia as their permanent residence. Hence, a businessman who occasionally visits Indonesia for business purposes is also entitled to obtain a house/apartment ownership right.
Technical details on the implementation of this regulation have yet to be issued by the ministers of agrarian affairs and public housing, but the new rule will surely bolster the property market in the country. Of more importance, also, is that house/apartment purchases by foreigners mean foreign exchange revenues for the country. That is especially welcome amid the worries about the widening current account deficit.