Minister Sneezes & the Market Catches Cold

The Bali & Lombok property markets can be considered a barometer of economic confidence by investors


Things were booming along in the property sector, until last March, that is. That’s when a “ground zero” Bali conference at which Indonesian property experts and government speakers warned that “illegal nominee land agreements could result in forfeiture”. 
 
At the March Canggu Club event, various expert speakers urged foreign land agents to use “correct legal methods of ownership” to a full house. The “right advice” on techniques to secure land interests of foreigners was given by Indonesian and foreign lawyers. But it was well intentioned Agrarian Minister and State Land Board Chair, Hon. Ferry Baldan, who got the total attention of the standing-room-only crowd of Western attendees, when he warned of land confiscation, if held by illegal nominee agreements. The disconcertingly blunt punch line was to the effect that if inspections of land records revealed unlawful foreign land ownership, that the land itself might be subject to forfeiture. And that, was the proverbial shot heard ‘round the world'. 
 
Sponsor Paradise Properties, reported the event like this: 
 
STOP PRESS: 
 
First ‘Myth Buster’ Presentation successfully gives the right advice on land ownership and foreign investors. May 2015, Paradise Properties Newsletter 
 
The respected “Bali Advertiser”, in a 15 April op-ed story, referring to the Minister’s grim warning, speculated “what this will do to the property market is anybody’s guess”. 
 
Since then, based on a small sample of real estate agent feedback, it turns out that land sales took a nosedive. Bad news travels fast. The real property market stayed spooked for the next 6 months or more. Yet until now, the fallout has been all quiet on the real estate front. Finally, it began to sink in that disruptions of land ownership are a low-percentage possibility and the cognoscenti among us have more or less ruled them out. Legal analysts agree that dire statements like this are not especially accurate. But for reasons best explained by human nature, are taken as the gospel truth when they emanate from apparent official authority. 
 
The Bali and Lombok property markets can be considered a barometer of economic confidence by investors. That confidence can be shaken by any kind of pronouncement by government officials. 
 
Property agents note that in October, the inventory of properties for sale on Bali and Lombok was the highest since early 2010, resulting from a significant slowdown in housing demand and land capital development spending. The word on the street is that southward prices, a weak Rupiah and initial shock dissipation of official warnings, have generated a rebound in land transactions. This has accounted for a resurgence in market action and corresponding sales pace. These positive indicators should offer some assurance that the real estate market is regaining solid ground despite the last 6 month slump. 
 
Even so, the debate rages on over how far an overseas investor in an Indonesian land deal can go, to legitimately secure his/her interests. There are basically two opposing camps out there. Although they each prioritize absolute compliance with Indonesian law, one is strictly conservative, while the other is innovative, sophisticated and progressive. 
 
First you have the pro-active “toe-the-official-line” camp. These people far outnumber the other “iconoclast” camp. Possibly having been burned by inadequate legal documents, or having heard the horror stories, the rank and file obviously take comfort from safety in numbers, or herd instinct. New members are actively recruited. They are big believers in using either hak pakai title, a short term lease, or shares in an Indonesian foreign investment company (PMA Pt.) to acquire land. In fact, these en masse adherents to the narrow view, have organized themselves under the banner “k3ni”. Their implicit faith in the official line, to the exclusion of all else, brings to mind an excerpt from Lord Tennyson’s “Charge of the 
Light Brigade”:
...tho' the soldier knew someone had blunder'd: 
Theirs not to make reply, Theirs not to reason 
why,Theirs but to do and die... 
 
By contrast, the iconoclast camp is comprised of land investors who question one- sided viewpoints, unsupported by explicit legal citations. They tend to look at the letter limit of the law and utilize it to their fullest advantage. Assertions which do not bear analysis are suspect. They prefer to explore, evaluate and utilize perfectly legitimate alternatives, not recognized by conventional wisdom. New ways to use old law are developed. Multi-dimensional application of existing regulations are devised. This camp is resonates well with the choice suggested by Robert Frost in: “The Road Not Taken”: 
 
Two roads diverged in a yellow wood, And sorry I could not travel both, and being one traveler, long I stood...Then took the other, as just as fair, And having perhaps the better claim, Because it was grassy and wanted wear. 
 
At the end of the day, anyone needing to secure a land acquisition/development in Indonesia should proceed with advice of local legal counsel specializing in secured transactions for foreigners. If a Notaris, SH, PPAT creates documents which inherently secure your investment, two things happen:
 
1. The need to litigate is relegated to improbability (as with your name on the certificate as mortgagee), 
 
2. The work of a Notaris carries with it, a strong presumption of legality.
 
After all, what Notaris in his/her right mind would jeopardize his/her professional license to produce an unlawful document, just to make you happy?