Real estate law in Indonesia: legal viewpoint by Eddy Leks

Interview with Eddy Leks, CEO & Managing Director of Leks Co Lawyers

You are the creator, founder and managing partner of Leks Lawyers. Why did you decide to start this company? You worked for a large corporation. You were in a very comfortable position.

The opportunity was there. When I worked for the Lippo Group I had many opportunities to meet with various investors and real estate developers. One day there was a client asking me for help on a legal matter. I saw that as an opportunity and so I decided to move into this new venture.

What was it like in the beginning?

The first year was tough because nobody knew our firm. Nobody knew Leks & Co. Everyone thought I was still working for the company at that time but through word of mouth friends and colleagues the news spread. I contacted the various channels of real estate investors and developers that I knew and tried to find out what they need from us.

You mentioned property and that is the hot topic in the region these days for locals as well as investors. We have met many CEOs from Germany or India who have lived here for 5-10 years and they don’t own a house. They rent a house. They wish to own their own place. New policies are coming out now and the government is trying to be friendlier to them. How is that going? What are the actual policies?

That is always the question asked by people especially foreigners. The land law of Indonesia has been governed by the law of 1960. It is an old law and until now there has been no amendment to the provisions of that law. In the provisions for foreigners there is one type of land that allows them to purchase or to own land and that is “right of use”. In Indonesian terms it is called Hak Pakai. That is the only land that a foreigner may have. The only other option is to lease property. So the 1960 “right of use” law was the only law for foreigners to own land here. However, in 1996 there was a law propagated by the government, a new regulation defining in more detail the “right of use”. When Joko Widodo was elected president there was again a discussion about this “right of use” land law, especially from real estate developers who wanted more flexibility for foreigners and the idea was to give “right of use” for an indefinite period of time. That was discussed at that time. I think legally that the “right of use” law of 1960 is undefined and limited and the indefinite time frame is granted more for foreign governments and for their embassies. Not really for individual ownership.

Are there any new options?

By the time Joko Widodo came to power late in 2015 there was a government regulation revoking the 1996 regulation. A regulation was put in place that foreigners can have “right of use” and that they can buy a house or a condominium unit. However this type of property must be new. You need to buy it from a primary market. From a real estate developer developing a new property and building a new building and then selling it. You cannot buy on the secondary market. If it is a house it may not have an adjoining wall with the next house. It has to be freestanding. There is no limit to the size of the house but it has to be new. However there is a limit on the sale price and each region is different. For example in Jakarta it is 10 billion rupiah but for a condominium it is 5 billion rupiah. That is the most expensive minimum sale price in Indonesia.

We know that many prospective buyers and even many real estate developers and sales agent don’t know what the law actually is regarding the sale of property to foreigners. What services can you provide them with?

Our clients are mainly corporations. In terms of real estate investments I need to draw a line so that it is very clear. When we talk about foreign investment it can be for business purposes, for real estate business or just to own property in Indonesia. Real estate development is 100% open to investors. If you come to Indonesia and you want to invest in the real estate sector you can set up and own 100% of a limited liability company. This is not new. It has been happening for about 20 years. But now the discussion is more about a foreign investor owning a house or condominium. It is a different part of the law. When you set up a limited liability company you can have a HGB, Hak Guna Bangunan as we call it, right to build. You set up an Indonesian company that you own 100% and for real estate development you buy a chunk of land and certificate it under HGB. But if you buy it as an individual foreigner you cannot purchase an HGB. You can only have “right of use”. If you want to use it individually then those are the government regulations of 2015 that you have to follow. But if you want to set up a real estate business you have to set up a limited liability company in Indonesia and then you can buy HGB in the same way as other real estate developers in Indonesia.

What are your expectations for the coming years in terms of property? Do you think that Indonesia is calling enough attention to itself to get more investors?

I believe so. Since Joko Widodo was elected many laws have been changed and amendments are being added very quickly. Last week the Ministry of Home Affairs cancelled many local regulations of various local governments in Indonesia that are considered to be hindering the investment process in Indonesia. I think that as a legal practitioner I really have to look at the news and the government actions because on a daily basis there is a chance that they can issue a new regulation or amendment to an old regulation to encourage local and foreign investment. They have also managed to restructure the administration process in the government with online application. There was a presidential instruction to all the local governments that real estate licences have to be done online by 2017. The government has given one year to restructure their system in order to prepare the online application process.

The government is trying to speed up all the sectors and they are trying to look friendly to investors. For example, our firm was invited to a meeting with the ministry to help them with a survey so that they can upgrade their rating. It has never happened before under other presidents. It’s interesting because now we can see that the government wants to be seen as investment friendly country.

From your perspective as a lawyer in Jakarta, do you see Indonesia easier to do business?

Yes. Much has already changed. Now it is very quick to set up a company. Within 30 minutes you can set up a new company. Everything is online so all you have to do is have the company’s name and pay the establishment fees. Then the notary will put it online and then not long after that the legalization can be issued.

So no more long waiting periods.

That’s true. It used to take up to 2 months. But now it is 30 minutes to an hour maybe. Once the deed of establishment is signed and the fees are paid a legalization can be issued. Everything is online and the notary will keep all the original documentation. The ministry wants to see that the documents are uploaded and then they will approve it through their online system.