So, you want to buy a piece of land in Indonesia? The first you should know is the land title you will get. Read this article first to know an overview of land titles in Indonesia.
The land tenure legal system in Indonesia is administered under the Basic Agrarian Law No. 5 Year 1960. Land tenures and titles are the jurisdiction of The National Land Agency (“Badan Pertanahan Nasional” or “BPN”), a government body that manages all grants, extensions, renewals of certified titles as well as running the land registration system.
Land ownership titles in Indonesia are divided into two broad categories, which is customary traditional land title (“Adat” land rights), and certified titles. The traditional land title is not registered in the BPN and is considered as having a lower degree of ownership power. Land plots containing such title are usually owned by inheritance. Other typical terminology for such land title is “girik” or “petok” or “pipil”. Girik was not actually an ownership title per se, but only the old version of the land tax bill, as compared to the modern bill called SPPT-PBB now. However, girik is considered a land title and can be the basis of a transaction. Land plots containing such “adat” title can be converted into certified titles as registered in the BPN. Buying the land with traditional land title is always riskier than with the certified titles.
Certified land titles are governed by The Basic Agrarian Law No. 5 Year 1960. They are registered at the local BPN office. The types of certified titles are as follow:
Freehold (“Sertifikat Hak Milik” or “SHM”)
This title grants absolute ownership of a plot of land. It is similar to a freehold title. This title is hereditary and may be held only by individuals (Indonesian citizens). Foreigners cannot be granted SHM.
Rights to Build (“Sertifikat Hak Guna Bangunan” or “SHGB”)
HGB title gives the right to construct and own buildings on a plot of land. The right is transferable and may be encumbered. HGB is the form of ‘freehold title’ that may be owned by Indonesian citizens and legal entities established under the Indonesian Law and domiciled in Indonesia, including foreign-owned companies and joint-venture companies. HGB title is the most common title that foreign companies use to hold real estate in Indonesia.
Banks and financial institutions will accept HGB land for mortgage and securitization purposes because it can be bought, sold and bequeathed and it is covered by the same planning and land use provisions as would apply with freehold land plots.
HGB title is granted by the National Land Agency for an initial period of up to 30 years and is extendable for a subsequent 20-year period. Upon the expiration of such extensions, new HGB title may be granted on the same land with the same terms.
This land title is actually a quasi-leasehold because it is can be renewed for infinity after it is expired. Thus, it can be sold as well as freehold and can be used for loan collateral as well as freehold. If you are a foreigner looking to own a piece of property in Indonesia, I recommend you sought this land title. You have to create a company in Indonesia, but it is better than obtaining only the SHP title.
Rights to Use (“Sertifikat Hak Pakai” or “SHP”)
This title gives right to use state-owned land or land owned by others for a specific purpose as agreed by both parties such as for social activities, religious worship, embassies and international organizations. The title can be held by Indonesian citizens, individual foreigners residing in Indonesia, foreign embassies or representative offices of foreign institutions.
The title can be granted for a maximum validity period of 25 years and is extendable for another 20 years, or in certain cases, such as land for the premise of a foreign embassy, the title can be granted for an indefinite period for as long as the embassy resides on the land.
Generally, foreign individuals or foreign companies that are not registered under current Indonesian laws enjoy only the Right of Use (‘Hak Pakai’). Since it is only given for a limited time, the value in the land is actually depreciating according to its expiry date.
Right-to-Manage (“Sertifikat Hak Pengelolaan” or “SHPL”)
This title gives right to operate state-owned land for a specific purpose as approved by the authorities. It is given exclusively to government institutions or state-owned companies for an unspecified period.
Developers can usually cooperate with the authority to obtain a SHGB over SHPL for a certain set of period. Some example of area under this arrangement is the Kemayoran Area in Jakarta.
Rights to Exploit (“Sertifikat Hak Guna Usaha” or “SHGU”)
This title gives right to cultivate or exploit state-owned land for agricultural, fishery or other purposes. Examples of the title include Hak Memungut Hasil Hutan (‘Right to Crop Forestry Products’), Hak Guna Air (‘Right of Use of Water’), Hak Pemeliharaan dan Penangkapan Ikan (‘Right to Farm and Catch Fish’).
The validity of such title is for a maximum period of 35 years and is extendable for another 25 years with an option for renewal.
This land title is usually used for plantation, including palm plantation.
Right of Strata Title Ownership on Multi-storey Building Units (“Sertifikat Hak Milik atas Satuan Rumah Susun” or “SHMASRS”)
This title is issued to the owners of residential, commercial or retail units in multi-storey buildings such as condominiums, strata-title offices and trade centers. The title’s validity period depends on the expiry date of the land right of the plot on which the building is located.
Other certified titles in variation to the above are also available depending on the purposes and arrangements between the land occupier and the land authority. Examples of other certified titles are ‘Rights to Build and Operate’, ‘Rights to Build over Rights to Manage, ‘Rights to Build over Freehold Title’, etc.
What Foreigners can Use?
Under Government Regulation No. 41/1996 issued on June 1996, individual foreigners are allowed to own residential properties. Foreigners, who provide benefits to national development, reside permanently or temporarily in Indonesia, and have immigration documents or a work visa, may purchase:
- Non-subsidized houses on land with Right of Use title;
- Strata-title apartment units on land with Right of Use title; or
- Vacant land with Right of Use title.
Some Other Arrangements
In some areas such as Bali, foreigners may team up with a local to create an arrangement called “nominee” in which the name recorded in the SHM is the local’s but it is held by the foreigner by means of a notary agreement.
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