Understanding the fundamental legal principles and keeping up with continuous reforms are the primary challenges faced by every legal practitioner in the real estate business. Given the importance of a legal framework, this overview provides recent updates on the real estate business in Indonesia.
On December 2022, the Indonesian Government enacted government regulation in lieu of Law no. 2 of 2022 on job creation (‘GRL 2/2022’) which replaced and revoked Law no. 11 of 2020 on job creation (‘job creation law’). GRL 2/2022 essentially restates the provisions stipulated in the job creation law along with the amendments to some provisions, including on land rights. GRL 2/2022 also states that the implementing regulations of the job creation law are still valid and effective for as long as they do not contradict with GRL 2/2022.
Basic framework for land title
A. General framework on land rights
Primarily, ownership of land in Indonesia is regulated under Law no. 5 of 1960 on basic agrarian law and its implementing regulations, including government regulation no. 18 of 2021 on management rights, land rights, apartment units, and land registration (‘GR 18/2021’).
The highest form of land right in Indonesia is the right to own (Hak Milik or ‘HM’) as it is not subject to a limited time period. A HM can only be enjoyed by Indonesian citizens, certain religious and social organisations, or government bodies in Indonesia. Hence, private companies (national or foreign) or foreign individuals are not eligible to obtain a HM. In order to carry out their business activities, companies may obtain the right to build (Hak Guna Bangunan – ‘HGB’), right to cultivate, right to use (Hak Pakai or ‘HP’), and other form of land rights. Another type of property title is the right to manage (Hak Pengelolaan or ‘HPL’), which can only be held by state-owned businesses or governmental/public entities.
B. Right to build (HGB)
A HGB may be granted to Indonesian citizens or a legal entity incorporated under Indonesian laws, which can also include a foreign direct investment company. A HGB holder may use its land to build and own a building constructed on the land. A HGB holder may also transfer its ownership over the HGB to another person or encumber all or part of such land. The HGB is granted by the relevant land office for a maximum of 30 years and may be extended for a period not exceeding 20 years.
C. Right to use (HP)
A HP may be granted to: (a) Indonesian citizens; (b) an Indonesian legal entity which is located in Indonesia; (c) a foreign legal entity that has a representative in Indonesia; (d) religious and social organisations; (e) foreign citizens; (f) government institutions; and (g) local government. The validity of a HP title is divided into two categories: (i) temporary HP title; and (ii) HP title on use. The temporary HP title itself is divided into three types: HP title on state land, HP on HPL land, and HP on HM land. The HP title on state land and HPL land may be granted for a maximum period of 30 years with the extension of 20 years and may be extended for a period not exceeding 30 years. A HP title on HM land may be granted for a maximum period of 30 years and may be renewed. A HP title on use is granted for an unspecified period of time for as long as the land is used and utilised.
D. Strata title
A strata title (Hak Milik Satuan Rumah Susun or ‘HMSRS’) is governed under Law no. 20 of 2011 on multi-story house (as amended from time to time) (‘Law 20/2011’), and further regulated by GR 18/2021 and GRL 2/2022. A HMSRS is an ownership right over a multi-story unit which is separated from the joint right over the common part, common objects, and common lands, and may be granted to: (a) Indonesian citizens; (b) an Indonesian legal entity; (c) foreign citizens who have already obtained the license based on the prevailing laws; (d) a foreign legal entity that has a representative in Indonesia; and (e) a representative of a foreign country and international organisations.
Pursuant to Law 20/2011, a multi-story house may be built on a plot of land if the developer holds the following title: a HM over a land, a HGB or HP over a state land, and a HGB or HP over HPL. Additionally, the HGB for a multi-story building that has been granted a certificate of feasibility (sertifikat laik fungsi) may be issued concurrently with its extension time, ie, for a total of 50 years at once.
A. Land title on foreign ownership
Previously, foreigners with stay permits could only possess a right to use over strata titles (Hak Pakai Atas Satuan Rumah Susun) over an apartment unit (a strata title on top of a HP) of the land where the units are built. However, since the enactment of the job creation law, a foreigner (a citizen with the relevant permit, legal entities with a representative office in Indonesia, representatives of foreign countries, and international institutions in Indonesia) is allowed to own a HMSRS. The HMSRS for foreign citizens and foreign legal entities would only be granted in a special economic zone, free trade zone, industrial zone, and other economic zones.
B. Verticale accessie
GRL 2/2022 also regulates the land rights over the space above and below the land. The government may grant a HGB or HP for these spaces to different owners. Hence, the spaces above and below the land may be owned and used by different persons and for different purposes.
C. Electronic certificate
The Ministry of Agrarian and Spatial Utilisation of the Republic of Indonesia regulation no. 1 of 2021 on electronic certificate introduced the process of issuing electronic certificate/e-certificate through an electronic system in the form of an electronic document. This process can be conducted both for the land registration of unregistered lands and for the replacement of physical land certificate into e-certificate for registered lands. However, the current electronic system through the ‘Sentuh Tanahku’ application only covers electronic examination, mortgage recordation, and removal of mortgage recordation (roya). It has not developed further features for the issuance of an e-certificate.