Indonesia’s Omnibus Law: Relaxed Foreign Ownership Laws on Real Estate
Indonesia has made it easier for foreigners to own real estate in the country through Government Regulation 18 of 2021 (GR 18/2021), which will trigger the largest changes to Indonesia’s property laws in the last 20 years.
GR 18/2021 makes amendments to the principal land rights/titles that cover:
- Right to manage (Hak Pengelolaan, HPL);
- Right to cultivate (Hak Guna Usaha, HGU);
- Right to use (Hak Pakai, HP);
- Right to build (Hak Guna Bangunan, HGB)
- Right of ownership over stacked units (Hak Milik Atas Satuan Rumah Susun, HMSRS);
- Rights for underground and overground space; and
- Land registration.
A notable provision under GR 18/2021 stipulates that foreigners and foreign legal entities can now own apartments and landed houses. However, foreigners will only be able to own apartments located in special economic zones, free trade zones, industrial estates, and other economic zones. Further, the property must be worth more than the minimum threshold – which differs depending on the province where the property is located.
To view more articles in our omnibus series, click here.
Right to use, right to build, and right to cultivate
There are two types of right to use (HP) titles:
- Right to use within a certain period; and
- Right to use for land used for specific purposes.
This land title usually refers to the right to use/harvest land directly owned by the state or private land. This land could also be used for a building site in addition to agricultural purposes.The right to use the title for a certain period can be granted to foreign legal entities that have a representative office, foreign citizens, as well as local entities and citizens. This encompasses state land, freehold title land, and the right to manage land.
If granted for state land and the right to manage land, the title is for a maximum term of 30 years and extendable for another 20. Once the time period expires, the title can be extended for another 30 years (total 80 years). Previously, an HP title could only be granted for 25 years, and extended for another 20 years, before another renewal of 25 years (total 70 years).
The right to build (HGB) is a title that is granted overstate or freehold land to Indonesian citizens and foreign companies (PT PMA) for the purpose of erecting or using a building on the land. The maximum term for an HGB title is 30 years and is extendable for another 20 years. Once this expires, it can be renewed again for another 30 years (80 years in total).
The right to cultivate (HGU) is normally granted to state land for the development of plantations and can be granted to foreign companies. The maximum term for this land title is 35 years and is extendable for another 25 years. Upon expiry, this can then be extended by another 35 years.
GR 18/2021 requires that HGU, HGB, and HP title holders must commence activities on the land, whether building construction, cultivation, or other use of land, within two years of the title being granted.
Right of foreigners to own apartments and landed houses
Under GR 18/2021, foreigners can now own apartment units under the right of ownership over stacked unit’s land titles (Hak Milik Atas Satuan Rumah Susun, HMSRS).
Foreigners can only acquire HMSRS titles to apartments located in special economic zones, free trade zones, industrial zones, or other economic zones (tourism zones, suburban zones, or urban zones). Moreover, foreigners can also own landed houses built on land with HP titles and apartments units built on land with HP or HGB titles.
The properties owned by foreigners are subject to certain restrictions such as:
- Minimum price;
- Land area and number of apartment units;
- Residential zoning; and
- Land space.
The minimum price for landed houses and apartment units varies between provinces.
New electronic land registration service
Through this regulation, the government has introduced an electronic land registration service to encourage the digitalization of land certificates throughout Indonesia.As such, the electronic information or printouts thereof are admissible in court as long as they are validated by an authorized official. Given the frequency of forgery of land titles in Indonesia, this is seen as a welcome development to eradicate such abuse.
Rights for underground and overground space
This is a new development introduced under GR 18/2021, which provides land rights (in the form of HPL, HP, or HGB titles) for overground and underground space, such as for the development of underground crossing facilities, underground shopping centers, or mass rapid transit services, among others.
The utilization of the overground space is limited to the height limit stipulated in the building coefficient ratio, while the use of underground land is limited to the depth described in the spatial plan or up to 30 meters below the surface.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Esen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at email@example.com or visit our website at www.dezshira.com.