COMPANY PROFILECOMPANY PROFILECOMPANY PROFILECOMPANY PROFILE

Policy and Legal Framework Policy and Legal Framework Affecting Real Estate in Affecting Real Estate in IndonesiaIndonesia

"In investing, what is comfortable is rarely profitable."

Robert Arnott, American Entrepreneur

Outlines• Legal framework of land in Indonesia• Foreign investment on real estate• Increase of bank rate • Authority delegation from central government to local

government on land and building taxes (PBB) and acquisition levy of rights of land and building (BPHTB)

• Balanced occupancy rules• Expectation on land law and acknowledgment and

protection of customary community rights

3

Overview of Right of Land in Indonesia

•Right of Ownership (Hak Milik)•Right to Cultivate (Hak Guna Usaha)•Right of Use (Hak Pakai)•Right to Build (Hak Guna Bangunan)•Right of Ownership over Condominium Unit (Hak

Milik Atas Satuan Rumah Susun)

4

RIGHT OF OWNERSHIP

Right of Ownership is the most powerful and the fullest hereditary right which can be owned by a person over a land.

5

Owned by Indonesian only

Cannot be owned by foreigner and legal entity. Except the legal entity that was appointed by

government, as follows:a. State Bankb. Agricultural Cooperativesc. Religious Institutionsd. Social Institutions

Period of Time: Indefinite

6

RIGHT TO CULTIVATE

DEFINITION

A right to operate the land directly controlled by States, with certain period of time, for plantation, fishery or animal husbandry purpose

7

RIGHT TO CULTIVATE

Subjects who are able to hold Right to Cultivate

• Indonesian citizen;• Legal entity established based on Indonesian law and

domiciled in Indonesia.

8

RIGHT TO CULTIVATE

Time period of Right to Cultivate

Maximum 35 (thirty five) years. May be extended for maximum 25 (twenty five) years.After the period and the maximum length of time is expired, right holder may be given renewal for another 35 years (maximum).

9

RIGHT TO BUILD

DEFINITIONis the right to build and own buildings over other party’s land

10

RIGHT TO BUILD

Subjects who are able to possess Right to Build

• Indonesian citizen;• Legal entity established based on Indonesian law and

domiciled in Indonesia.

11

RIGHT TO BUILD

Time period of Right to Build

Maximum 30 (thirty) years. May be extended for maximum 20 (twenty) years.After the period and the maximum length of time is expired, right holder may be given renewal for another 30 years (maximum).

12

RIGHT OF USE

DEFINITION

A right to use and/or to take the production of a land which directly controlled by state or a land which belong to other person, who grants authority and obligation that is stipulated by authorized officer or in the agreement with the landlord.

13

RIGHT OF USE

Subjects who are able to possess Right of Use

• Indonesian citizen; • Foreigner domiciled in Indonesia;• Legal entity established in Indonesia based on Indonesian law and domiciled

in Indonesia;• Foreign legal entity that has a representative office in Indonesia;• A religious and social entity; • Representative from foreign country and International Organizations bodies; • Department, Government bodies Non-Department and Regional

Government.

14

RIGHT OF USE

Time period of Right of Use

Maximum 25 (twenty five) years. Extended for maximum 20 (twenty) years. After extended, can be renewed for another 20 years (maximum)

15

RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT

DEFINITION

a multilevel building which is built in an area that is divided into sections which are structured functionally whether horizontally or vertically that constitutes as units in which each can be owned and used separately, mainly for housing complemented with common equipment, common facilities and common land.

16

RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT

Time period of Right of Ownership over Condominium Unit

The time period of the Right of Ownership over Condominium Unit follows its underlying right of land where the condominium is built.

17

Condominium can be built over

Right of OwnershipRight to Build or

Right of Use over the State Land

Right to Build or Right of Use over the Right

of Management

RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT18

Foreign Investment on Real EstateForeign Investment on Real Estate

To conduct real estate business in Indonesia under the current law, a foreigner or foreign legal entity must establish a limited liability company (PMA). Currently, there is no restriction on a foreigner or foreign legal entity establishing a wholly foreign-owned PMA company in the real estate sector.

19

Industry Business Field Classification (KBLI) Industry Business Field Classification (KBLI)

KBLI Code:68110 (Real Estate that are Owned or Leased) 

Description:This group includes the business of buying, selling, leasing, and operating the real estate that are owned or leased, such as apartment building, residential building and non residential building. Including the activity of the selling of land and the operating of residential area.

20

Indonesia Investment Coordinating Board (BKPM) Latest Policy on PMA

Head of the Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of 2013 on Direct Investment License and Non-License Guidelines and Procedure

as amended by Regulation No.12 of 2013

21

Minimum Capital Investment The BKPM Regulation now clarifies the minimum investment as well as capitalisation requirements for PMA Companies. PMA Companies must have at least:

•minimum investment (i.e., capital, loans and retained profits) more than 10 billion rupiahs (or its equivalent in US Dollars);

•issued and paid-up capital of at least 2.5 billion rupiahs (or its equivalent in US Dollars).

22

CapitalCapital

Investment Procedures

In the new regulation, there is a removal of Registration Procedure

23

InvestorsInvestors Principle LicensePrinciple License

Business License

Business License

Project Completion

24

Under Article 24 Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of

2013

Under Article 24 Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of

2013

• A three-year time frame for completion of projects set out in foreign investors’ business plans. Longer timescales may apply for certain specific business sectors.

• In the event of failure to complete a project within the applicable time frame, the BKPM will grant an audit, following which the licence will either be extended for another single term of three years or revoked.

• A three-year time frame for completion of projects set out in foreign investors’ business plans. Longer timescales may apply for certain specific business sectors.

• In the event of failure to complete a project within the applicable time frame, the BKPM will grant an audit, following which the licence will either be extended for another single term of three years or revoked.

Bank of Indonesia Rates Average

25

Bank of Indonesia Latest PolicyCircular Letter of Bank of Indonesia No.15/40/DKMP

(enacted on September 24, 2013)

Implementation of Risk Management for Banks Providing Loans or Financing for Property, Loans or Property-backed Consumer Financing,

and Loans or Vehicle Financing

The background of the publication is to increase the prudential aspects of banks related credit distribution of property

Effective as of September 30, 2013

26

Background

• The growth of home ownership loan (KPR)/condominium ownership loan (KPRS) with building area more than 70m2 has reached 25.5% and 63.3% respectively in July 2013, which is more than the aggregate loan growth.

• According to Debtor Information System of April 2013, 35,298 debtors owning over 1 KPR with loan value of Rp 31.8 trillion.

• Therefore, BI considers it important to have a policy that can strengthen financial sector to minimize risks that may arise, including the excessive loan growth or property financing, and property-backed consumer financing.

27

Loan to Value (LTV) or Financing to Value (FTV) Ratio

28

Ratio between credit value or financing given by bank against real estate value as security at the time of credit or financing is granted according to last appraisal value

Ratio between credit value or financing given by bank against real estate value as security at the time of credit or financing is granted according to last appraisal value

Loan/Financing and Type of Collateral

MaximumFacility I

LTV/FTVFacility II Facility III

Home Ownership Loan (KPR) Type>70m2

70% 60% 50%

Condominium Ownership Loan (KPRS) Type>70m2

70% 60% 50%

Home Ownership Loan (KPR) Type 22-70m2

- 70% 60%

Condominium Ownership Loan (KPRS) Type 22-70m2

80% 70% 60%

Condominium Ownership Loan (KPRS) Type - 21m2

- 70% 60%

Ownership Loan (KP) Home Office/Home Store

- 70% 60%

29

Sample Case 1In June 2013, A intends to purchase a condominium with a building area of 80 sqm of Rp 1 billion. A has signed a conditional sale and purchase agreement with the developer and has paid the down payment. A applies for condominium ownership loan (KPRS) for Rp 700 million (70% x Rp 1 billion). The bank obtains information that A has already obtained home ownership loan (KPR) for Rp 500 million from other bank (therefore,the application is A’s second facility), the property construction will be commenced in December 2013, and delivery date will be in July 2016. According to that information, the bank may not provide facility to A until the physical condominium is ready or the first facility has been fully paid.

30

Sample Case 2

A has obtained the home ownership loan (“KPR”) to purchase the house in site X, with the building area of 100m2 (one hundred square meter) in January 2012. During the term of KPR, A has applied for another KPR facility to purchase the house in site Y, with the building area of 150m2 (one hundred and fifty square meter) in June 2013. In this case, the calculation of LTV will be as follows:

31

Property Loan Facility LTV

House X First 70%

House Y Second 60%

32

Circular Letter of Bank of Indonesia No.15/40/DKMP

•Banks are not allowed to provide loan for down payment•Banks are allowed to provide loan if the property is physically existed and ready to be delivered

However, there are some exceptions to this rule:• if the facility is the first facility to the debtor;•a cooperation agreement between bank and developer stipulating commitment by the developer to complete the property;

•a corporate guarantee by the developer;• the gradual disbursement of facility according to the construction progress;• the devaluation of credit quality of the developer if it cannot complete the property construction within a specified delivery date.

33

Land and Building Tax & Acquisition Levy of Right of Land and Building

Legal Basis:

Law No.28 of 2009 on Local Taxes

New changes to local tax law

as a follow-up to the regional autonomy policy and fiscal decentralisation.

34

Effective as of January 1, 2014

35

0.5%0.5% Maximum of 0.3%Maximum of 0.3%

Land and Building Tax Rate

36

Acquisition Levy of Right of Land and Building Rate

5%5% Maximum of 5%Maximum of 5%

Effective as of January 1, 2011

Balanced OccupancyBalanced OccupancyLegal Basis: Regulation of the Minister of Housing No.10 of 2012 on Implementation of Housing and Settlement Area With Balanced Occupancy

Balanced Occupancy is a housing and residential areas built in balanced with a certain composition in the form of a single house and row house between the modest house, middle house and luxurious house, or in the form of public and commercial condominium.

Balanced Occupancy on Condominium is housing and residential areas built in balanced between commercial and public condominium.

37

No. Location of Balanced Occupancy

Scale

1. Housing at least 15 (fifteen) houses to 1,000 (one thousand) houses

2. Settlement at least 1,000 (one thousand) houses to 3,000 (three thousand) houses

3. Occupancy Area at least 3,000 (three thousand) houses to 10,000 (ten thousand) houses

4. Settlement Area more than 10,000 (ten thousand) houses

LOCATION REQUIREMENTS FOR BALANCED OCCUPANCY38

COMPOSITION OF BALANCED OCCUPANCY ON HOUSING

The comparison based on the number of houses

It means the comparison of modest house, middle house and luxurious house.

The comparison is in the scale of 3:2:1.

The comparison is 3 (three) or more modest houses against 2 (two) middle houses against 1 (one) luxurious house.

39

COMPOSITION OF BALANCED OCCUPANCY ON HOUSING

The comparison based on the area of the land.

It means the comparison of area for modest house against total land area.

The area of land for a modest house is at least 25% (twenty five percent) from the total land area with the amount of modest houses at least equal to amount of luxury houses plus amount of middle houses.

40CONT’D

Developed proportionally between commercial condominium and public condominium.

It means at least 20% (twenty percent) from the total floor area of commercial condominium.

The public condominium may be developed in a separate building from the commercial condominium; or

Built within the area of commercial condominium.

COMPOSITION OF BALANCED OCCUPANCY ON CONDOMINIUM

41

COMPOSITION OF BALANCED OCCUPANCY ON HOUSING

Developers who only develop medium houses.

Develop modest houses at least 1 ½ times of the number of medium houses to be built.

42CONT’D

Expected Laws

43

Land LawLand LawAcknowledgment and

Protection of Customary Community Right

Acknowledgment and Protection of Customary

Community Right

Land Law

This regulation will complement and enhance operational of Law No.5 of 1960 on Principle Provisions on Agrarian

This regulation will stipulate:•the formation of a court for the resolution of disputes related to land;

•agrarian reform;•acquisition of the land ownership based on customary;•the use of space above and beneath the land.

44

Acknowledgment and Protection of Customary Community Right

45

National Legislation Program (Prolegnas) 2012

National Legislation Program (Prolegnas) 2012

to provide certainty for customary community in order to be recognized as a legal subject of land

rights.

to provide certainty for customary community in order to be recognized as a legal subject of land

rights.

Acknowledgment and Protection of Customary Community Right

46

This regulation will stipulate:1.The scope of recognition and protection: identification,

verification, and determination of customary community;2.Rights and obligations of customary community;3.The presence of customary institution and committee to

support the conservation, development and empowerment;4.Dispute settlement mechanism through mutual consent,

customary institution and customary court.

Concluding Pointers

47

• Understand the legal framework of land and building law in Indonesia;

• Foreign investment on real estate is 100% opened;• Increase of bank rate offers challenges to developers;• Authority delegation from central government to local government

on land and building taxes (PBB) and acquisition levy of rights of land and building (BPHTB);

• Balanced occupancy is a must;• Expecting land law and acknowledgment and protection of

customary community rights.

THANK YOU

48