With the rapid development of foreign investment and business in Indonesia, many foreigners seek to secure a place in Indonesia, in the form of land, buildings, or even private property. There are several purposes in securing such places, whether it is to establish a functional office, a project location, or even just securing a place to live in the country.
Foreign Ownership of Land and Property in Indonesia is regulated in Law No. 5 of 1960 concerning Basic Agrarian Principles (“Agrarian Law”). While the basic principles remain the same since 1960, there are some new developments and updates that must be noted by foreign individuals and/or entities looking to secure land and/or buildings in Indonesia.
There are 2 (two) types of foreign ownership in Indonesia:
- Ownership by Foreign Individuals and/or Foreign Entities. The individuals and/or entities mentioned here are 100% foreigners/foreign entities.
- Ownership by Foreign Investment Companies (Perusahaan Modal Asing or “PMA”). As stipulated in Law No. 25 of 2007 on Investment (“Investment Law”), PMA are companies established and domiciled in Indonesia under Indonesian law with foreign shareholders (individuals and/or entities) in its shareholding composition.
Because PMA is an Indonesian legal entity, even with foreign shareholders, it has more options in obtaining rights over Indonesian land and/or buildings than foreign individuals and foreign entities. The comparison between the two are as follows:
|TYPE OF OWNERSHIP||FOREIGN INDIVIDUALS AND FOREIGN ENTITIES||FOREIGN INVESTMENT COMPANIES (PMA)|
|Direct Ownership via Rights of Ownership (Hak Milik)||X||X|
|Building Rights on Land (Hak Guna Bangunan)||X||√|
|Cultivation Rights on Land (Hak Guna Usaha)||X||√|
|Rights of Use (Hak Pakai)||√||√|
|Lease Agreement (Perjanjian Sewa)||√||√|
Foreign individuals and entities are prohibited to own land and property in Indonesia directly via an Ownership Right (Hak Milik). In the midst of 2015, there were plans from the government to revise the regulations in Indonesia so that foreign individuals can own luxurious apartments with the minimum value of IDR 5 billion (approximately USD 365,000) in Indonesia as their property.
However, until the issuance of this article, no further steps have been taken regarding the implementation of such plans by the Indonesian government. The Minister of Land Affairs and Spatial Planning, Ferry Mursyidan Baldan, has since confirmed that the luxurious apartments will be owned by foreign individuals under Rights of Use (Hak Pakai) instead of Rights of Ownership (Hak Milik).
For business purposes, PMA can obtain various Rights of Land, such as Building Rights (Hak Guna Bangunan) and Cultivation Rights (Hak Guna Usaha). Those Rights of Land become important because they can be used to secure a loan under Indonesian laws and regulations, by delivering the certificates to the lender. They can also obtain Rights of Use (Hak Pakai).
A comparison summary of the different Rights over Land and Property in Indonesia which allowed Foreign Ownership:
|TYPE OF RIGHTS||CHARACTERISTICS|
|Building Rights on Land
(Hak Guna Bangunan)
|– Right to build, possess, and use a structure (including buildings) on land owned by others
– Validity Period of 30 years, extendable for another 20 years
– Can be used to secure a loan
|Cultivation Rights on Land
(Hak Guna Usaha)
|– Right to cultivate on state land for agriculture and other farming enterprises
– Validity Period of 25 years, extendable for another 35 years
– Can be used to secure a loan
|Rights of Use
|– Right to use (as a building site or for agricultural purposes)
– Apply to 2 (two) types of Lands:
1. State Land (via authorized deed from government)
Validity Period of 25 years, extendable for another 20 years (extension request at the latest 2 years prior)
2. Private Land (via agreement)
Validity Period of 25 years, extendable for another 25 years (extension stated in separate agreement)
|– Right to lease a building/office for professional purposes
– Rendered in Lease Agreement with Indonesian individual and/or Indonesian Legal Entity
– Valid Period as stipulated in Lease Agreement and may include options to extend as agreed upon by the Parties
From our experience, most PMA’s in Indonesia rent their office space via Lease Agreements with Indonesian individuals/legal entities for a set amount of time with options to extend. It must be noted that for PMA’s who moved their project and/or office location, they are required to update BKPM and amend their license in accordance with the valid project and/or office location.
DISCLAIMER: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact SMART Legal Consulting.
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