Leasehold vs Freehold in Indonesia: A Buyer's Guide for Foreign Investors

The short answer: Foreign nationals cannot hold SHM freehold title in their own name in Indonesia. But three legal structures give you secure, long-term access to property in Lombok: leasehold (Hak Sewa), right of use (Hak Pakai), and a foreign-owned company (PT PMA) holding HGB title. Each has different security levels, costs, and ideal use cases.

This guide explains how each structure works in practice, what the real costs are, and which one fits which buyer.

→ Part of the HubLombok cluster: Investing in South Lombok — The Complete Guide

Indonesia's land-title system: what you're actually buying

Indonesia operates a civil-law land system rooted in the Basic Agrarian Law (UUPA) of 1960 and significantly updated by Government Regulation PP 18/2021. There are five distinct land-title types:

| Title | Indonesian name | Who can hold it | Duration | |-------|----------------|-----------------|----------| | Freehold | SHM (Sertifikat Hak Milik) | Indonesian citizens only | Perpetual | | Building rights | HGB (Hak Guna Bangunan) | Indonesian citizens + PT PMA companies | 30yr + 20yr + 30yr renewal | | Use rights | Hak Pakai | Indonesian citizens + qualifying foreign individuals | 30yr + 20yr + 30yr | | Leasehold | Hak Sewa | Any person or entity | Per contract (typically 25–55yr) | | Cultivation rights | HGU | Legal entities (plantations, agriculture) | 35yr + 25yr |

For a foreign individual buying a villa in Lombok, the practical options are Hak Sewa (leasehold), Hak Pakai, or HGB held through a PT PMA company. Each is legal, commonly used, and recognised by Indonesian courts — the differences lie in security, cost, flexibility, and duration.

Option 1: Leasehold (Hak Sewa)

How it works

Leasehold is the most widely used structure for foreign villa buyers in Lombok, Bali, and across Indonesia. You purchase a contractual right to occupy and use a parcel of land for a fixed term, typically 25–30 years, with a documented option to extend for a further 20–25 years. The ground title (usually SHM) remains with the original landowner. You own the building constructed on the land.

The transaction is documented through two notarised instruments:

AJB (Akta Jual Beli) — sale and purchase deed for the building/improvements
Perjanjian Sewa Menyewa — the lease deed for the land, specifying term, extension rights, and conditions

Neither instrument is a title registration. Leasehold is a contractual right, not a registered title on the BPN (national land registry). This is the fundamental difference from HGB or Hak Pakai.

Duration in practice

Initial term: 25–30 years, starting from the date of the notarised deed
Extension option: a further 20–25 years, explicitly documented in the original deed
Total holding period: 45–55 years — sufficient for most investment horizons

When buying off-plan, confirm whether the lease term runs from the date of the deed (common) or from the completion of construction (less common but buyer-favourable — you lose no time during the build period).

What makes the extension clause enforceable

This is the single most important detail in a leasehold deal. The extension option must be:

Written verbatim into the original notarised lease deed (Perjanjian Sewa Menyewa)
Specific about the additional term (e.g. "an additional period of 25 years at the same terms")
Executed before the same PPAT notary who handled the original deed
Not in a separate side letter, addendum, or verbal promise from the developer's sales team

Landowners die. Developers go bust. Side agreements disappear. An extension clause in the original notarised deed is enforceable against the landowner's heirs and successors. A verbal promise is worth nothing in an Indonesian court.

Transaction costs

| Cost item | Typical range | |-----------|-------------| | BPHTB (buyer's acquisition duty) | 5% of value above NJOP (government reference price) | | PPh (seller's income tax on transfer) | 2.5% of gross sale price, paid by seller | | Notary / PPAT fee | 0.5–1% of transaction value (min. Rp 2M) | | AJB and lease deed preparation | Rp 5–15M (≈€300–900) | | Agency commission | 3–5% (sometimes included in developer price) | | Total buyer cost (excl. agency) | Approx. 7–9% of purchase price |

Risks — and how to mitigate them

1. Extension risk — already covered above. Mitigate: extension clause in the original deed, full stop.

2. Title chain risk — if the underlying SHM title has problems (court claims, communal land disputes, encumbrances), your leasehold is compromised even if the lease deed is perfect. Mitigate: BPN cadastral check before signing.

3. Landowner default or death — the lease obligation passes to heirs, but disputes happen. Mitigate: confirm the landowner is a registered individual (not a communal title holder), check for outstanding loans against the SHM, and retain a local attorney to hold the extension clause documentation.

4. No mortgage collateral — Indonesian banks do not accept Hak Sewa as collateral for loans. If you need leverage, leasehold is not the right structure.

5. Building permit ambiguity — the building must have a valid IMB or PBG (post-2021). Without it, the structure cannot legally be transferred and may be subject to demolition orders. Verify before signing.

When leasehold is the right choice

Single asset purchase for personal use or one-villa rental
Budget under €300K (setup cost is proportionate)
Developer has clean SHM on the underlying land
You have 40–50 year investment horizon
No intention to use the asset as bank collateral

Option 2: Hak Pakai (Right of Use)

What changed in 2021

Government Regulation PP 18/2021 expanded Hak Pakai eligibility to include foreign nationals who hold a valid residency permit (KITAS or KITAP) in Indonesia. Prior to 2021, Hak Pakai for foreigners was available only through complex bilateral treaty mechanisms.

Under PP 18/2021, a foreign individual with active Indonesian residency can hold Hak Pakai title directly — a registered title in their own name on the BPN system.

Duration

Initial term: 30 years
First renewal: 20 years
Extension: 30 years
Maximum total: 80 years — significantly longer than most leasehold structures

Who qualifies

You must hold a valid KITAS (temporary residency permit, typically 1–2yr) or KITAP (permanent residency permit, 5yr). Tourist visas and Retirement visas do not qualify. The property must be used as a residence, not as a commercial rental operation in certain formulations — legal advice is recommended before assuming Hak Pakai covers an Airbnb rental business.

Costs vs leasehold

Hak Pakai carries similar transaction taxes (BPHTB, PPh) but involves an additional BPN registration process. Total costs run approximately 8–10% of purchase price. The title is registered and appears on the national cadastral system — materially higher security than a contractual leasehold.

When Hak Pakai makes sense

You hold a KITAS or KITAP (or are willing to obtain one)
You want registered title security without setting up a company
Long-term residence in Lombok is part of the plan
The property is primarily for personal use

When it doesn't

You hold only a tourist or retirement visa
The property will be operated commercially and you need operational flexibility
You want to acquire multiple assets across different zones

Option 3: PT PMA — HGB title through a foreign-owned company

What it gives you

A PT PMA (Penanaman Modal Asing — foreign investment company) can hold HGB title (Hak Guna Bangunan — Building Rights) on its balance sheet. HGB is a registered title — not a contract — that appears on the BPN system in the company's name. It can be mortgaged, used as bank collateral, and transferred via share sale.

This is the most secure structure available to foreign capital in Indonesia, and the most flexible for investors with multiple assets or an active rental business.

Setup costs

| Item | Typical cost | |------|-------------| | Notary fee (deed of establishment) | Rp 5–15M (€300–900) | | BKPM agent / OSS submission | Rp 5–20M (€300–1,200) | | Ministry of Law registration | Rp 1–5M (€60–300) | | Minimum paid-in capital | 25% of Rp 10B nominal ≈ Rp 2.5B (≈€155K) — held in company account, not spent | | NPWP (tax registration), SIUP | Rp 1–3M (€60–180) | | Total setup | €3,000–8,000 (excluding capital deposit) |

The minimum capital deposit (Rp 2.5B ≈ €155K) sits in the company bank account. It is not consumed by the setup — it is the company's paid-in capital and becomes part of the property purchase budget.

Ongoing annual costs

| Item | Typical annual cost | |------|-------------------| | Tax compliance (PPh, VAT) | €600–1,200/yr (local accountant) | | LKPM quarterly investment report to BKPM | Included in accountant fee | | Annual General Meeting + minutes | Rp 1–3M (€60–180) | | Financial statement preparation | €300–600 | | Total ongoing | €1,000–2,000/yr |

HGB duration

Initial: 30 years
Renewal: +20 years
Extension: +30 years
Maximum: 80 years (subject to land policy at each renewal)

The resale mechanism

When you sell a PT PMA-held property, you sell the shares of the company, not the land title. The buyer acquires the company (and with it, the HGB title). This is a share transfer, not a land sale:

Seller pays 5% income tax on share gain (vs 2.5% on gross land sale)
Buyer pays no BPHTB (land acquisition duty) — the title doesn't change, the ownership of the company does
The HGB title stays in the company name throughout — no BPN re-registration required

This makes PT PMA disposals faster and administratively cleaner than title-level transactions.

When PT PMA makes sense

Buying more than one asset (incremental cost per additional property is near zero — same company holds multiple HGB titles)
Planning to hold for 15+ years
Operating a rental business at scale (VAT registration, invoicing, employee contracts)
Wanting to use the asset as bank collateral (Indonesian banks lend against HGB)
Entering a parcel that is only available on HGB terms (some KEK Mandalika plots)

When PT PMA doesn't make sense

Single villa, personal use, budget under €200K (setup cost is disproportionate)
No appetite for annual Indonesian tax/compliance
Short to medium horizon (under 10 years)

Head-to-head comparison

| | Hak Sewa (Leasehold) | Hak Pakai | PT PMA (HGB) | |--|---------------------|-----------|--------------| | Foreign individual eligible | ✅ Always | ✅ With KITAS/KITAP | Via company | | Registered title (BPN) | ❌ Contractual only | ✅ | ✅ | | Bank collateral | ❌ | ❌ in most cases | ✅ | | Max duration | 45–55yr | 80yr | 80yr | | Setup cost | Low (7–9% transaction) | Low–medium | Medium (€3K–8K) | | Annual compliance | None | None | €1K–2K | | Multiple assets | One deed per asset | One title per individual | Same company holds all | | Resale mechanism | Lease transfer + AJB | Title transfer | Share transfer | | Best for | Single villa, any buyer | Long-term residents | Portfolio investors |

The due diligence non-negotiables for any structure

Regardless of the structure you choose:

Pull the BPN cadastral printout (Informasi Pertanahan) for the specific parcel. Confirm title type, registered holder, and that no encumbrances, mortgages, or court orders are attached.
Verify seller identity matches the BPN record exactly — name, NIK (national ID number).
Confirm the building permit (IMB or PBG, depending on when it was issued). No permit = no legal transfer.
Check zoning — the parcel must be in a tourism or mixed-use zone (RTRW). Agricultural land (sawah) cannot legally support a villa rental business.
Use your own independent PPAT notary — not the developer's recommended notary. The PPAT notary has a duty to both parties; the developer's notary has a relationship with the developer.
For leaseholds: read the extension clause word by word before signing.

→ Full 24-point checklist: Due Diligence for a Lombok Property

One structure foreigners must avoid: nominee arrangements

A nominee structure — where a foreign buyer funds the purchase but an Indonesian national holds the title as a "nominee" — is explicitly illegal under Indonesian law (Law No. 5/1960, Agrarian Law; confirmed by Supreme Court ruling). The risks are severe:

The nominee can sell the property without your consent and you have no legal recourse
Courts routinely void nominee agreements — you lose both the property and the money
The transaction can be treated as criminal fraud against the state

No reputable notary, attorney, or developer will recommend this structure. Walk away from anyone who does.

Frequently asked questions

Can a foreigner legally buy a villa in Lombok?

Yes — through leasehold, Hak Pakai (with KITAS/KITAP), or via a PT PMA company. Freehold title (SHM) in a foreign individual's name is not available, but the three legal structures above are all court-recognised and commonly used by thousands of foreign property owners across Indonesia.

What is the maximum duration of a foreign-held leasehold?

Typically 45–55 years: an initial 25–30-year lease plus a documented extension option of 20–25 years. The extension must be written into the original deed to be enforceable.

Is a 30-year leasehold risky?

The duration itself is not the primary risk — the extension clause is. A 30-year lease with a solid 25-year extension clause in the original notarised deed is more secure than a 55-year lease without enforceable documentation. Always verify the extension clause before signing.

Can a foreigner own multiple villas in Lombok?

Via leasehold: yes, one deed per property. Via PT PMA: yes, the same company can hold multiple HGB titles — this is the most efficient structure for portfolio investors. Hak Pakai is generally available for one residential property per individual.

What taxes apply when I eventually sell?

Leasehold (via lease transfer): seller pays 2.5% income tax on gross transfer value; buyer pays BPHTB (5% of value above NJOP).
PT PMA (via share sale): seller pays income tax on share gain; no BPHTB for the buyer.
Total transaction costs (both sides): typically 8–12% of purchase price for leasehold transfers; somewhat lower for PT PMA share sales.

Is nominee ownership illegal in all cases?

Yes. Under Law No. 5/1960 and confirmed by Indonesian Supreme Court rulings, nominee structures are void and may expose both parties to criminal prosecution. The three legal paths (leasehold, Hak Pakai, PT PMA) exist precisely because the legal system provides alternatives.

→ Back to the Complete Guide: Investing in South Lombok

→ Before signing anything: Due Diligence Checklist

→ For portfolio investors: PT PMA Guide

→ Common buyer errors: Seven Mistakes Foreign Buyers Keep Making