All questions

Real estate ownership

i Planning

Every building must have a function and classification. The law divides function and classification of buildings into five types: those with a residential, religious, business, social and cultural, or special function. When planning an apartment or condominium development, the PMA company must ensure that the function and classification of the apartment building is in line with the zoning regulation or the city plan guidelines. Amendments to the apartment function and classification can be made so long as the new function and classification are in line with the zoning regulation or the city plan guidelines, and must be reflected in the PMA company's IMB.

ii Tax

Any acquisition of land title is subject to 5 per cent tax, payable by the acquirer promptly upon the execution of the transaction (for example, in the sale and purchase of land, the acquisition tax is payable upon the signing of the land title transfer deed before a PPAT). For any income received from the transfer of land or buildings, in general, the transferor is also subject to 2.5 per cent tax on the transaction price. In practice, it is common that a PPAT will complete the transaction, but the BPN will not accept the land registration until both acquisition tax and income tax are paid to the government.

iii Finance and security

Security interests in Indonesia are limited to those prescribed by Indonesian law. For land and buildings (including apartments), the type of security interests prescribed by law is the hak tanggungan (often translated as 'mortgage'). A hak tanggungan is created through the signing of a mortgage deed in Indonesian language before a PPAT and registration with the BPN office where the land is located.

Hak tanggungan only secures debts up to the amount specified in the mortgage deed (secured amount). The secured amount affects the PPAT fee payable by the mortgagor. The higher the secured amount, the higher the PPAT fee (in practice, normally, a PPAT charges 0.1 per cent of the secure amount as the fee). Because of its significant impact, the secured amount in hak tanggungan often becomes a major issue in financing transactions, as the creditor will try to push for the secured amount to be as high as possible (normally between 120 per cent and 150 per cent of the total outstanding debt), while, in contrast, the debtor will try have the secured amount fixed as low as possible.

Hak tanggungan grants a preference right to the holder in the event of bankruptcy of the mortgagor, and it follows the encumbered property, notwithstanding any transfer of the property, until the debt secured has been paid. Enforcement of hak tanggungan must be done by way of a sale by public auction or private sale. In a public sale or auction, the mortgagee is entitled to use the proceeds of the auction towards repayment of the debt. Private sale is allowed based on mutual consent between the mortgagor and mortgagee and if, by doing so, the highest sale price beneficial to both parties can be achieved. Hak tanggungan may not include a provision allowing the creditor to take possession of the property should the debtor be in default.