Gary Dean
The Chief Justice of the Indonesian Supreme Court, I Gusti Agung Sumanatha, recently described the practice of foreigners buying land through nominee arrangements as a “circumvention of the law” (penyelundupan hukum / fraus legis). The Governor of Bali, I Wayan Koster, has gone further: both Indonesians and foreigners involved can now face criminal charges.
None of this surprises me. I have been warning clients – and anyone else who would listen – about this for over two decades.
What Is the Nominee Scheme?
The arrangement is deceptively simple. A foreign national pays for land, but an Indonesian citizen is recorded as the owner on the certificate (SHM – Sertifikat Hak Milik). Side agreements – nominee contracts, powers of attorney, loan agreements – are drawn up to give the foreigner effective control. The Indonesian is the legal owner in name only.
The problem? Under Indonesian law, these agreements are null and void.
The Law Is Clear – and Has Been for Decades
The prohibition on foreign land ownership is not a recent regulatory invention. It is rooted in Article 33(3) of the Indonesian Constitution and codified in the Basic Agrarian Law (UUPA, Law 5/1960) – the foundational land legislation of the republic. I wrote about this in detail in 2003, noting that “nominee agreements for land between Indonesian citizens and foreign persons are legally very weak, and will not hold up to legal challenge.” Nothing has changed since – except that enforcement is finally catching up.
Article 33 of Law No. 25/2007 on Investment made the prohibition explicit for investment structures:
“Domestic investors and foreign investors who make investments in the form of a limited liability company are prohibited from entering into any agreement and/or making a statement asserting that share ownership in a limited liability company is for and in the name of another person.”
“Such agreements and/or statements shall be declared null and void.”
The principle extends to land. Foreigners may hold Hak Pakai (Right of Use) or Hak Sewa (Lease Rights) on land in Indonesia. They may not hold Hak Milik (Freehold Ownership). Full stop.
Any nominee arrangement designed to circumvent this is, by definition, unenforceable. You are relying on the good faith of your nominee – not the protection of the law.
The Scale of the Problem
Research by the Crisis Work Group on Nominee Indonesia (K3NI) estimates that approximately 50,000 foreign nationals control land and properties in Bali through nominee schemes. That includes an estimated 10,500 plots of land worth around USD 10.4 billion, and roughly 7,500 villas operated without proper legal standing.
These are staggering numbers, and they represent an enormous amount of capital sitting on a foundation of legal sand.
What Can Go Wrong? Everything.
In my years advising foreign investors in Indonesia, I have seen nominee arrangements fail in every way imaginable:
- The nominee dies. The land passes to their heirs under Indonesian inheritance law – not to you. The family may or may not honour the arrangement. You have no legal standing to compel them.
- The nominee refuses to cooperate. They are, after all, the legal owner. Your side agreements are void under Article 33.
- The nominee’s creditors come calling. The land is legally theirs. It can be seized for their debts.
- Disputes go to court. Indonesian courts will, overwhelmingly, favour the Indonesian party – particularly when the foreigner’s claim rests on an arrangement the law explicitly prohibits.
I have told clients, repeatedly, over many years: the agreements and powers of attorney are made in good faith by all parties concerned. Ultimately, when it really comes down to it, this is what you are relying upon – not the law.
The Proper Alternative Has Always Existed
Foreign investors who want to acquire property in Indonesia have legitimate options:
- Establish a PMA (foreign investment company) and acquire land under Hak Guna Bangunan (Right to Build) – renewable, legal, and directly in the company’s name.
- Hak Pakai (Right of Use) – available directly to foreign individuals for residential purposes, with recent extensions up to 80 years.
- Leasehold arrangements – properly structured, with the lease registered against the land certificate.
These are not exotic or difficult structures. They are the standard, legal mechanisms that have been available for decades.
The Reckoning
What Governor Koster and Chief Justice Sumanatha are signalling is a shift from tolerance to enforcement. For years, the nominee scheme flourished because it was ubiquitous, profitable for agents and notaries, and rarely prosecuted. That era appears to be ending.
If you currently hold property in Bali through a nominee arrangement, this is the time to seek competent legal advice – not from the agent who sold you the scheme, but from professionals who understand Indonesian corporate and land law.
And if you are considering buying property in Indonesia: do it properly, or do not do it at all. The nominee shortcut was never safe. Now it is explicitly dangerous.
Gary Dean is the founder and chairman of Okusi Associates, a corporate services firm advising foreign investors in Indonesia since 1997.
Reference: Indonesian Land Law and Foreign Ownership of Land (Gary Dean, 2003)
