An Overview of Property and Land Ownership in Indonesia

During a global crisis, Indonesia’s economy stands strong, and the local property industry is on an upward trajectory. Land ownership in Indonesia is flourishing, with property credit surging by 15% compared to 2015. This growth is further bolstered by the recent enactment of Regulation No. 103/2015, signed by President Joko Widodo last year, which addresses property ownership for foreigners residing in Indonesia.

This new regulation regarding property and land ownership in Indonesia should positively impact foreigners (find out the details about land and apartment ownership in Indonesia).

Land Titles in Indonesia

According to Government Regulation No. 5 of 1960, which outlines Basic Agrarian Principles, various rights are associated with lands and properties in Indonesia. Let’s explore the types of land titles or rights that can be applied to foreigners or legal entities owned by foreigners in Indonesia:

1. Cultivation Rights On Land (Hak Guna Usaha)

Article 28 of Act No. 5/1960 dictates that the government directly oversees the right to cultivate land for agricultural purposes. This land title is valid for up to 25 years and can be extended for 35 years.

It should be registered with the National Land Agency (Badan Pertahanan Nasional), covering land measurement, registration of rights over land, and certificate issuance. This right is available to Indonesian citizens and legal entities registered in Indonesia.

2. Building Rights On Land (Hak Guna Bangunan)

Building rights on land grants individuals the ability to establish and own buildings on land they do not own. This right remains valid for up to 30 years, with an option for a 20-year extension, and it can be transferred to another party. Registration with the National Land Agency is required, and this right can be legalized through government resolution or an authentic agreement between the landowner and the tenant.

3. Rights Of Use (Hak Pakai)

To utilize and exploit land, one must obtain the rights of use through land registration. In this case, the land is owned by the government or other private parties. The terms and conditions are specified by government resolution or agreement with the owner as long as they align with the provisions of the law.

Under the latest government regulation (No. 103/2015), foreigners legally residing in Indonesia can own landed houses for a maximum of 80 years.

4. Rights Of Lease Building (Hak Sewa Bangunan/SHGB)

Individuals or legal entities in Indonesia can lease land and use it for building purposes by paying the owner a predetermined sum, as outlined in Article 44 of Act 5/1960. This right is available to Indonesian citizens, foreigners, and legal entities registered in Indonesia.

5. Right of Freehold (Hak Milik / SHM)

This right is exclusively granted to Indonesian citizens and is given to the rightful owner of a plot of land or property. Foreigners cannot obtain this type of certificate.

6. Right to Manage (Hak Pengelolaan / SHPL)

This right allows the management of land owned by the state for specific approved purposes. Builders typically collaborate with the government to obtain an SHGB over SHPL for a defined period.

7. Rights of Strata Title Ownership on Multi-storey Building Units (Hak Milik atas Satuan Rumah Susun)

This type of right is awarded to the owner of a private business or entity within a multi-story building, such as apartment suites or offices. The validity duration depends on the land or building it pertains to, enabling you to rent and utilize your land and property for business purposes.

Find out how to set up a company in Indonesia.

Given the limitations on foreign property and land ownership, an alternative method for owning real estate or land in Indonesia is through a business entity. Foreign investors can purchase property through a company, and InCorp Indonesia can assist in setting up such a venture.

How Foreigners Can Own Property In Indonesia?

For the Indonesian government to implement a land investment program open to foreign investors, a clear master plan is essential. Key considerations include the location of the investment, the minimum investment amount, and the minimum land area required. The latest regulation permits foreigners to own landed houses and apartments in Jakarta, Bali, Batam, and various other regions in Indonesia.

When foreigners acquire property in Indonesia, they receive a certificate valid for 30 years, extendable by an additional 30 years, culminating in an 80-year tenure. Foreign investors must provide their KITAS and passport to secure the correct certification.

In the case of investments through local limited companies, the certificate is a land rights certificate (known as HGB) with a maximum duration of 30 years, extendable for up to 20 years. The certificate for all properties acquired by foreign investors is a land rights certificate (HGB) issued by the national land agency, with validity periods as described above.

Find out how to get a visa and work permit in Indonesia.

Land and Property Investment Benefits in Indonesia

Some of the benefits gained by the government program include:

• Ownership of property by foreign investors has the potential to increase tax revenue by Rp. 24 trillion. The value of tax revenue derived from multiplying the minimum house price for foreigners amounted to USD 500,000. Over 10,000 units are sold annually with a 40 percent property tax component.

This tax component consists of

• 11 percent VAT, PPH 5 percent (the 5% tax applied for the seller, not the buyer).
• 5 percent BPHTB (BPHTB is imposed on the acquisition of land and buildings or the amount of 5% of the price of the land after acquisition value reduced object is tax. You can contact a local notary to obtain more detailed information.)
• Sales Tax on Luxury Goods 20 percent (luxury goods are goods that do not staple goods generally consumed by high-income people, such as Luxury Residential Property Group as Luxury Homes, Apartments, condominiums, townhouses, etc.)
• Many types of jobs could grow if the domestic property could be owned by foreigners, such as engineering, architecture, transportation business, and building raw material suppliers. The tourism sector will also grow due to the influence of an increase in foreigners coming to Indonesia and having a place to stay.
• Other than that, the tax may vary depending on the property type.

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