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Nominee Holdings in Indonesia Crisis, what Crisis?

Mar 26, 2015

“It is absolutely not allowed for foreigner to  own a single inch of land in Indonesia. This is as stipulated by the National Constitution,” said Ferry Mursyidan Baldan Indonesia's Minister for Agrarian Affiars after attending the re-launch of a magazine on zoning in Bandung on Sunday, March 8, 2014.

“According to international law, only the home of a foreign ambassador and the Embassy can be owned by foreigners (in Indonesia),” he said.

The statements have caused widespread panic among unsophisticated foreign investors into Indonesia along with the various other Nationalistic and anti-foreign tone of policies entering the media from Jokowi's new nationalist administration.

300 odd expats, lawyers, real estate sales people, notaries and conference organisers turned out today at Bali's Best Westin for a decent panel of legal academic experts of a fairly nationalist persuasion to make the case that people with nominee arrangements have a crisis on  their hands and they need to go and see lawyers like them to re-arrange their affairs if they can before the Indonesian government kicks them off the Indonesian land they currently enjoy. And a very nice lunch too, I must say.

The comments leave a number of lawyers, especially international lawyers, scratching their heads and wondering what is at play. What part of the constitution is this guy thinking of? What principle of International law could possibly be relied upon to prevent foreigners owning land in a country if a country's domestic law permitted it?

It's exactly the kind of talk that yells "Sovereign risk" to any foreign investor. But what is its basis? Is there really any crisis at all?

For a start, Indonesia's agrarian law specifically and expressly permits titled land ownership by foreigners and foreign investment companies. There is a limit on the ownership of a particular kind of land tenure, "hak milik" to Indonesian individuals - but that is only a proportion of land in Indonesia. Much land is zoned for use under other kinds of title which are quite available to and enforceable by foreigners.

There is talk of a "sweep" for land "owned" "illegally" by foreigners. It has a resonance with the talk of Australian politicians referring to seekers of asylum under international law as "illegal" migrants.

Indonesian property law, like property law and zoning in many countries, is an area for advice by trained professionals. That advice will depend upon many circumstances such as the nationality of the registered landholder on the title and in the land office, the marital status of the landholder and the nationality of the landholder and their spouse as well as the place and time of the marriage and source of funds.

Secondly, clients need to have explained to them by their legal advisors the difference between a right of land ownership against the world and a right of contract against an Indonesian landholder. They are two very different things, and the good minister is speaking about the first and not the second.

There are very few foreigners who have attempted to register hak milik property in their own name in Indonesia. Anyone who has done that would have been very poorly advised. Most arrangements involve foreign funding of an Indonesian ownership in return for contractual agreements about use and proceeds of sale by a foreigner. There is inherently no legal prohibition on that, but foreign borrowing rules may be pedantically applied. The contractual rights are a lesser form of right than a property right, and do not amount to ownership of the land. Despite a weakness compared with a property right, there is nothing necessarily illegal about it.

The other people in hot water are those transactors who have engaged in various frauds. Some have confected loans and mortgages to secure against the disposal or further encumbrance of Indonesian owned land.

There are potentially some traps for unwary players in the latest national ist thrust. One is that the particular form of land title being spruiked of hak pakai requires Indonesian domicile, and players need to be aware that Indonesian domicile means Indonesian taxation on worldwide income - subject to all the normal rules about double taxation treaties etc which you may have a hard time explaining to the man on the motorbike with and ID card you cant read,  fruit on his lapel on one side and his hand out on the other.

If you feel an anxiety or a need to review your land arrangements in Indonesia then you ought speak with a lawyer qualified to advise on the aspects of the transaction and any differences between what you have, and what you think or hope or would like to have. It may not be as bad as you have been lead to believe by recent headlines, but make no mistake nationalism is in the air in Indonesia just like it is in Australia with the forced sale of prominent Chinese residential land registered to a Chinese national in Sydney recently.

Bali Post


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