PROPERTY LAW IN INDONESIA
The system of land registration in Indonesia includes measuring, mapping and recording the land dimensions, registering the land title (which includes a public announcement) and, finally, the issuance of the land certificate under the applicant’s name.
The advantages of registration include that the applicant is entitled to the title he or she acquires without any interference from other parties. The legal effect of recordation in a land registration book and land certificate varies depending on when the certificate was issued.
Currently in Indonesia, there is no limitation for the foreigner or foreign entity to establish an Indonesia legal entity, fully owned by foreigner or foreign entity, which has main business in property development/investment sector. This matter is regulated under the Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment as amended by Regulation of President of the Republic of Indonesia Number 111 of 2007 on Amendment to Presidential Regulation of the Republic of
Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment.
As it is said earlier above, the Right to Build can be owned by Indonesia legal entity. A PMA company is also regarded as an Indonesia legal entity. Further, for property development/investment sector, there is no limitation for a foreigner or foreign entity to establish a PMA company. Therefore, a foreigner or foreign entity, through a PMA company, can own a property or a strata title building which is built over the land of the
Right to Build.
PROPERTY LAW IN INDONESIA
Land matters except for mining and forestry are under the jurisdiction of the National Land Agency (Badan Pertanahan Nasional) formed to administer all matters relating to the Basic Agrarian Law of 1960 such as the registration of land rights and the granting of rights and various permits to use the land. There are currently only two categories of land rights:
a) Adat land (customary land) where the land is not registered with the relevant land office. There are 2 individual rights and 6 community rights in this category. All rights held under this category will eventually be converted to certified titles.
b) Certified land, the title to which is governed by the Basic Agrarian Law of 1960 and is registered at the local land office. There are five principle types of land rights held under the Agrarian Law. These are:
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds to a fee simple orfreehold title in common law jurisdictions. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as State Banks, agricultural cooperatives, religious bodies, and social foundations may hold this right subject to certain restrictions. This right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and hypothecated (mortgaged).
Right to Build (Hak Guna Bangunan - HGB)
This is the right to construct a building on land for a period of 20 or 30 years (renewable for another term of 20 years). This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA company. ( now the period been adjust to 70 years and then renewable every 20 years )
Right to Rent (Hak Sewa Bangunan)
This is the right to use land owned by another private party (the lessor) for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. The law does not stipulate a period for such lease agreements and whether this can be transferred or not depends on the original agreement between the parties.This right may be held by a foreigner permanently domiciled in Indonesia or a foreign legal entity having a representative office in Indonesia. It cannot be mortgaged.
Right of Use (Hak Pakai)
This is the right to use State-owned or other land by public or private persons or entities for a definite period or occasionally for an indefinite period. This land right cannot be sold, exchanged or transferred unless explicitly provided in its grant or agreement.This right may be held by an Indonesian individual or entity, certain foreign individuals or a foreign legal entity with a representative office in Indonesia.
Right of Exploitation (Hak Guna Usaha)
This is the right to exploit State-owned land for agriculture, fishery or husbandry purposes for a period of up to 35 years with a possible 25 years extension.This right can be held by Indonesian individuals/entities as well as government approved PMA companies. The certificate can be mortgaged.
RENEWAL OF RIGHTS
Renewal or extension of rights on expiry of the initial term is via an application to the National Land Agency and is subject to payment of a fee. An application must be submitted one year before expiry of the term. Although the law is silent in regard to the period after the expiry of the extended term/s, the consensus is that a land right can be extended if there has been no infringement of the conditions attached to its
usage.
Procedures for Property Acquisition
All transactions of land rights must be via deeds executed before a land deed official at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located and must be registered in the regional office of the National Land Agency. The PPATs are privately managed offices (usually run by a notary) authorised by the National Land Agency to handle land acquisition matters.
Although there is no regulation that contracts have to be in Indonesian language, we recommend having contracts and agreements always drawn up and executed in Behasa Indonesia to prevent later arguments that the local partner did not fully understand the content.
About The Property Laws in The Republic of Indonesia
All property matters, except for those pertaining to the mining and forestry sectors fall under the jurisdiction of the national land agency (Badan Pertanahan Nasional, or BPN for short), which was formed to administer all matters relating to the basic "Agrarian Law of 1960", such as the registration of the use of land. The Indonesian land legislation is based on the basic Agrarian law number 5 of 1960.
The Basic Agrarian Law recognizes several types of rights over Real Estate, all of which are outlined below. However, to the foreign investor, the following three main rights are relevant:
1. Right of exploitation ( Hak Guna Usaha HGU)
2. Right of building (Hak Guna Bangunan HGB)
3. Right of use (Hak pakai)
These rights all authorize the use of land. The differences lie in the duration of validity and nature of utilization and the opportunities for obtaining a mortgage. The right of ownership is an inheritable right that can be held only by Indonesian citizens.
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen, not a corporate entity whether local or foreign. Certain legal entities designated by the government, such as a state bank, agricultural cooperatives, religious bodies, and social right of ownership is held in perpetuity. It can be sold, transferred, bequeathed, and mortgaged.
Right to Rent (Hak Sewa)
This is the right to use, leasing land owned by another private party for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents.
The law does not stipulate a period for such lease agreements and whether this can be transferred or not depends on the original agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.
Right to Build (Hak Guna Bangunan)
Better known by its abbreviation, "H.G.B.", this is the right to construct a building/s on a plot of land for a period of 20 or 30 years, and which can be renewed on consideration of policy of the regional government. This right can be sold, exchanged, transferred, and mortgaged, and can be held directly by any corporate entity whether it is a local company or a government approved PMA (joint venture) company.
If a joint venture company needs a land for a factory, storage, employee housing or whatever, the company can be granted the right of building (HGB) in accordance with existing regulations.
Right of Exploitation (Hak Guna Usaha)
This is the right to exploit state-owned land for agricultural, fishery or animal husbandry purposes. Title is normally granted for a period of 35 years, which may be exended for a maximum of 25 more years, conditional that the company is still operational and sound. This right can be held by Indonesian individuals/entities as well as government approved PMA (foreign joint venture) companies, and may be mortgaged.
Foreign investors who have obtained mining rights from the Minister of Mines and Energy or exploitation rights from the Minister of Agriculture or the Minister of Forestry have automatically obtained the right to use the land within their concession boundaries for purposes directly connected with the operations of the enterprise.
Based on Presidential decree number 34 of 1992 concerning the use full of right of exploitation (HGU) and the right of building (HGB) for the joint venture company, stated that in the joint venture company that established on Indonesian Law and domiciled in Indonesia. Those HGU that kept by the joint venture company can be used as collateral and can be transferred after having permission by the Chairman of BPN.
Right of Use (Hak Pakai)
A question often asked is how foreigners can buy property in Indonesia; "Can I as a foreigner buy properties in Indonesia, under my own name? "
The good news is YES , and answer is Right of Use (Hak Pakai) property ownership status, as summarized below.
The full details of Hak Pakai can be found in Presidential Decree No. 41 of 1996, which is the preferred referral document of many public notaries and one which is the reputable Public Notary, Evi Susanty Panjaitan, SH , who adds the following comment:
"Hak Pakai is the right of use over state-owned land or property owned by public or private person/entity for a specific purpose, for (generally) a finite period, explained further below, and occasionally for an indefinite period.
Hak Pakai can be sold, exchanged or transferred, under the specific period, explained further below.
Hak Pakai may be held by an Indonesian individual or entity (PT. Local), foreign individual, or a foreign legal entity (PT. PMA) with a representative office in Indonesia, e.g., foreign Banks, embassies, etc Hak Pakai is not necessarily restricted to apply only to foreigners domiciled in Indonesia.
The BPN/ Badan Pertanahan Negara (National Land Office) would only require the immigration (arrival) stamp proof on the foreign owner's passport."
For documentation purposes, while not domiciled in Indonesia, the foreign owner's address may be the address of the land/house to be purchased or another existing permanent residential address in Indonesia, excluding a hotels.
Properties under Hak Pakai status are mortgageable. With the Hak Pakai a foreigner could be granted the right of use for a period of 90 years.
- Right of Use initially will be granted by the government for 25 years and extendable for another 20 years, which then is renewable for the same period of time (another 25+20 years).
- The fees involved (for the extension) will be 2% of the NJOP/ Nilai Jual Objek Pajak (Government's Land & Building Valuation), to be paid 2 years prior to the expiry date.
In short, while the said foreigner does not stay in Indonesia, the land property must be managed and/or be leased out for a long period of time.
What happens if a property with Hak Pakai status needs a villa rental permit (to be run as a rental villa)?
The only difference is the original NJOP/ Nilai Jual Objek Pajak (Government's Land & Building Valuation) will be adjusted to be close to the market transaction value. Please be informed that, the NJOP of a property is usually much less than the market transaction value. Nobody would be able to give a certain how much less as the value really varies from one area to another.
Assist you every step
Bintan Real can give you solid and unambiguous advice on all the aspects of land and home ownership and we have a pool of associate lawyers that can assist you every step of the way. With a well deserved reputation for experience, reliability and integrity, Bintan Real, based on the island of Bintan, Pantai Impian, offer a truly one stop solution to foreign investors by providing fully integrated services from agriculture land, resort, residential plot, to real estate acquisition.
Bintan Island is the perfect island holiday destination for all ages offering something for everyone. This tropical paradise has a unique blend of modern tourist facilities combined with wonderful shopping and a rich past and heritage. Some of the best beaches can be found on the Northen side of the island whilst conversely the eastern side is a wonderful haven for families, with beautiful white sand beaches and gentle seas.
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Registration
The system of land registration in Indonesia includes measuring, mapping and recording the land dimensions, registering the land title (which includes a public announcement) and, finally, the issuance of the land certificate under the applicant’s name.The advantages of registration
include that the applicant is entitled to the title he or she acquires without any interference from other parties. The legal effect of recordation in a land registration book and land certificate varies depending on when the certificate was issued.
1997 Government Regulation on Land Registration
Prior to the 1997 Government Regulation on Land Registration, any land certificate issued constituted presumptive evidence that the rgistered holder of the certificate is the owner of the land covered thereby. This means that it was possible to set aside the certificate and title
if another person claimed rights to the land and could successfully challenge the rights of the certificate holder.
This may have occurred if, for example, in the course of the land relinquishment process, the notary/land deed official failed to adequately ensure that all persons with customary law rights were included in the relinquishment.This created legal uncertainty in the certification process, and as a result the Government of Indonesian adopted the Government Regulation mentioned above. Under this Regulation, the
presumptive evidence of a certificate issued after October 8, 1997 becomes conclusive on the 5th anniversary of the date of the certificate. Failure to register means that there is no legal certainty as to land ownership. As mentioned above, the registration of the land by issuing the land certificate constitutes presumptive evidence of land ownership.
It should be noted that under Indonesian law, any actions related to land must be processed by a Land Deed Official (Pejabat Pembuat Akta Tanahor “PPAT). Most notaries are PPAT officials but PPAT officials need not be notaries. In rural areas, PPAT officials are often local government officials, such as the “camat” (a district head) or the head of the Land Office (BPN), who has jurisdiction in the district in which the property is situated.
The Government Regulation on Housing Ownership by Foreigners Domiciled
in Indonesia issued in 1996 states that foreigners who reside in Indonesia can purchase a home, apartment or condominium as long as it is not a part of a government-subsidized housing development.However, there are restrictions. Foreigners can only hold land with a Hak Pakai title, and a Hak Pakai title may only be granted for a maximum of 25 years and can be extended for a further maximum of 20 years. In certain special cases (i.e., religious organizations etc.), such title may be granted for an indefinite period as long as the land is utilized for
certain specified purposes.While the GOI has made repeated overtures of relaxing all restrictions on foreign ownership of land and
property, we do not anticipate such regulatory changes in the near future.
Foreign Investment
The Agrarian Law provides that a foreigner can only acquire the Hak Pakai title for land if they reside in Indonesia. If foreign investors wish to engage in business in Indonesia, they must establish a PMA Company. As stated at the outset, the PMA Company is able to acquire a HGB or a Hak Pakai title, while foreign individuals can only possess the Hak Pakai title.
As mentioned , the HGB or Hak Pakai title may also be placed “over” the seller’s pre-existing Hak Milik or Hak Pengelolaan title. Under the applicable regulation, individual foreigners are allowed to own residential property under the Hak Pakai title. Specifically, foreigners who provide benefits to national development, reside permanently or temporarily in Indonesia and have proper immigration documents can purchase the following:
Adat Land
Issue arises if a foreign investor acquires traditional or customary land (known as Adat land). In Indonesia (particularly in rural areas) large areas of land exist which usually are held through a traditional joint community ownership structure and which have not been registered and certificated with the relevant land office under the Agrarian Law. The rights to these areas are still governed by Adat or customary law. Adat rules vary significantly from one area to another within Indonesia.
Possession of uncertificated land is most often evidenced by a letter (either a Surat Girik or Surat Petuk Pajak Bumi) issued by the Head of the relevant Sub-District/Village (Lurah/Kepala Desa) to the“landowner” evidencing their payment of local land taxes.
Girik (also known as Letter C) is not evidence of land title ownership (the tax authority – i.e. the Land and Building Tax (PBB) office stopped using Girik in 1994). These days, PBB receipts, constitute the only evidence of payment of property tax.
In terms of purchasing the land, when “uncertificated land” is transferred, the buyer must apply for a registered title pursuant to the Agrarian Law and obtain a formal certificate of title. To obtain a land certificate, Adat-based proprietary rights must be relinquished by the original owner to the State by signing a Right Relinquishment Deed in favour of the buyer. With the APH, the buyer can then apply to the State
for one of the primary titles to the land.
Public Amenities
Another issue affecting the ownership of property by investors (whether local or foreign) is the presence of public areas or amenities. For example, if there is a river, a public cemetery, or a public road within the land area, there may be special rules governing right of use by other individuals.
Likewise, if the intended land is located in a protected forest area, construction upon such land can usually not be carried out without proper licenses and/or permission from the relevant government institutions and community surrounding such areas.
Foreign Investment on Property Development/Investment Sector
Currently in Indonesia, there is no limitation for the foreigner or foreign entity to establish an Indonesia legal entity, fully owned by foreigner or foreign entity, which has main business in property development/investment sector. This matter is regulated under the Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment as
amended by Regulation of President of the Republic of Indonesia Number 111 of 2007 on Amendment to Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment.
As it is said earlier above, the Right to Build can be owned by Indonesia legal entity. A PMA company is also regarded as an Indonesia legal entity. Further, for property development/investment sector, there is no limitation for a foreigner or foreign entity to establish a PMA company. Therefore, a foreigner or foreign entity, through a PMA company, can own a property or a strata title building which is built over the land of the Right to Build.
The system of land registration in Indonesia includes measuring, mapping and recording the land dimensions, registering the land title (which includes a public announcement) and, finally, the issuance of the land certificate under the applicant’s name.The advantages of registration
include that the applicant is entitled to the title he or she acquires without any interference from other parties. The legal effect of recordation in a land registration book and land certificate varies depending on when the certificate was issued.
1997 Government Regulation on Land Registration
Prior to the 1997 Government Regulation on Land Registration, any land certificate issued constituted presumptive evidence that the rgistered holder of the certificate is the owner of the land covered thereby. This means that it was possible to set aside the certificate and title
if another person claimed rights to the land and could successfully challenge the rights of the certificate holder.
This may have occurred if, for example, in the course of the land relinquishment process, the notary/land deed official failed to adequately ensure that all persons with customary law rights were included in the relinquishment.This created legal uncertainty in the certification process, and as a result the Government of Indonesian adopted the Government Regulation mentioned above. Under this Regulation, the
presumptive evidence of a certificate issued after October 8, 1997 becomes conclusive on the 5th anniversary of the date of the certificate. Failure to register means that there is no legal certainty as to land ownership. As mentioned above, the registration of the land by issuing the land certificate constitutes presumptive evidence of land ownership.
It should be noted that under Indonesian law, any actions related to land must be processed by a Land Deed Official (Pejabat Pembuat Akta Tanahor “PPAT). Most notaries are PPAT officials but PPAT officials need not be notaries. In rural areas, PPAT officials are often local government officials, such as the “camat” (a district head) or the head of the Land Office (BPN), who has jurisdiction in the district in which the property is situated.
The Government Regulation on Housing Ownership by Foreigners Domiciled
in Indonesia issued in 1996 states that foreigners who reside in Indonesia can purchase a home, apartment or condominium as long as it is not a part of a government-subsidized housing development.However, there are restrictions. Foreigners can only hold land with a Hak Pakai title, and a Hak Pakai title may only be granted for a maximum of 25 years and can be extended for a further maximum of 20 years. In certain special cases (i.e., religious organizations etc.), such title may be granted for an indefinite period as long as the land is utilized for
certain specified purposes.While the GOI has made repeated overtures of relaxing all restrictions on foreign ownership of land and
property, we do not anticipate such regulatory changes in the near future.
Foreign Investment
The Agrarian Law provides that a foreigner can only acquire the Hak Pakai title for land if they reside in Indonesia. If foreign investors wish to engage in business in Indonesia, they must establish a PMA Company. As stated at the outset, the PMA Company is able to acquire a HGB or a Hak Pakai title, while foreign individuals can only possess the Hak Pakai title.
As mentioned , the HGB or Hak Pakai title may also be placed “over” the seller’s pre-existing Hak Milik or Hak Pengelolaan title. Under the applicable regulation, individual foreigners are allowed to own residential property under the Hak Pakai title. Specifically, foreigners who provide benefits to national development, reside permanently or temporarily in Indonesia and have proper immigration documents can purchase the following:
- vacant land with a Hak Pakai title;
- apartments on Hak Pakai title as its underlying title;
- non-subsidized houses on Hak Pakai title; and
- any of the above with the lease right as evidenced by the lease documents entered into with the landowner.
Adat Land
Issue arises if a foreign investor acquires traditional or customary land (known as Adat land). In Indonesia (particularly in rural areas) large areas of land exist which usually are held through a traditional joint community ownership structure and which have not been registered and certificated with the relevant land office under the Agrarian Law. The rights to these areas are still governed by Adat or customary law. Adat rules vary significantly from one area to another within Indonesia.
Possession of uncertificated land is most often evidenced by a letter (either a Surat Girik or Surat Petuk Pajak Bumi) issued by the Head of the relevant Sub-District/Village (Lurah/Kepala Desa) to the“landowner” evidencing their payment of local land taxes.
Girik (also known as Letter C) is not evidence of land title ownership (the tax authority – i.e. the Land and Building Tax (PBB) office stopped using Girik in 1994). These days, PBB receipts, constitute the only evidence of payment of property tax.
In terms of purchasing the land, when “uncertificated land” is transferred, the buyer must apply for a registered title pursuant to the Agrarian Law and obtain a formal certificate of title. To obtain a land certificate, Adat-based proprietary rights must be relinquished by the original owner to the State by signing a Right Relinquishment Deed in favour of the buyer. With the APH, the buyer can then apply to the State
for one of the primary titles to the land.
Public Amenities
Another issue affecting the ownership of property by investors (whether local or foreign) is the presence of public areas or amenities. For example, if there is a river, a public cemetery, or a public road within the land area, there may be special rules governing right of use by other individuals.
Likewise, if the intended land is located in a protected forest area, construction upon such land can usually not be carried out without proper licenses and/or permission from the relevant government institutions and community surrounding such areas.
Foreign Investment on Property Development/Investment Sector
Currently in Indonesia, there is no limitation for the foreigner or foreign entity to establish an Indonesia legal entity, fully owned by foreigner or foreign entity, which has main business in property development/investment sector. This matter is regulated under the Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment as
amended by Regulation of President of the Republic of Indonesia Number 111 of 2007 on Amendment to Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment.
As it is said earlier above, the Right to Build can be owned by Indonesia legal entity. A PMA company is also regarded as an Indonesia legal entity. Further, for property development/investment sector, there is no limitation for a foreigner or foreign entity to establish a PMA company. Therefore, a foreigner or foreign entity, through a PMA company, can own a property or a strata title building which is built over the land of the Right to Build.