Relevant Land Rights

The Indonesian land law is governed by the provisions of the Basic Agrarian Law (Law Number 5 of 1960) and numerous implementing regulations. An important element of the replacement of the colonial period land laws by national legislation is the registration of land envisaged under the Basic Agrarian Law. In practical terms, registration of land means that the uniform set of land tittles defined in the Basic Agrarian Law is imposed on land.

The Basic Agrarian Law specifies several types of land rights all of which offer the right to utilize the land concerned. Differences exist in duration of validity, nature of utilization, possibility to mortgage and proof in title. The most important of which are the following:

·Right of Ownership (Hak Milik)

A Hak Milik is a right of (freehold) ownership and is the fullest right a person can possess over land in Indonesia. This specific right has no time limit and extends to all fixtures on the land. It is, however, possible to have horizontal separation between the owner of the Hak Milik and the owner of a building on the land.

Only Indonesian citizens and certain Indonesian legal entities (badan hukum) may hold a Hak Milik.

A Hak Milik is freely transferable among Indonesian citizens and certain legal persons. The holder of such a right can convey the land to other persons. If the holders are foreigners including PMA companies then they must convert the Hak Milik to other rights, such as a Right to Build, Right of Use, or Right of Cultivation as discussed below.

·Right to Build (Hak Guna Bangunan or “HGB“)

A HGB is a leasehold interest for up to 30 years authorizing the holder to build and possess a building on land. A HGB can be extended for an additional 20 years with the possibilities for renewal. The title is granted by and registered at the Land Office. This right is intended for utilization of land as the location for buildings or facilities as opposed to the use of land for agricultural purposes as mentioned below.

A HGB may be held only by Indonesian citizens and Indonesian corporations incorporated in Indonesia, which have their legal domiciles in Indonesia, including PMA Companies. Investors constructing industrial projects on industrial land in Indonesia generally seek a HGB title over the land.

A HGB may be transferred to third parties during the term of its existence. A HGB is conveyed by executing a Sale and Purchase Agreement (Akta Jual Beli) in the form of a notarial deed, after which it must be registered with the Land Office.

·Right to Cultivate (Hak Guna Usaha or “HGU“)

A HGU is generally issued on the State owned land specifically granted for estate or plantation activities. It is limited in duration, usually 25 and at most 35 years, with the possibilities for renewal. The HGU title is granted and registered with the Land Office.

A HGU may be held by Indonesian individuals or legal entities, including PMA companies.

The same rules as for the transferability of HGB apply. HGU may be transferred to third parties during the term of its existence by executing a Sale and Purchase Agreement (Akta Jual Beli) in the form of a notarial deed, after which it must be registered with the Land Office which completes the transfer registration.

·Right of Use (Hak Pakai)

A Hak Pakai is the right to use and/or to collect produces from land administered by the State or owned by another person. Hak Pakai is limited in duration by the contract or decree, as the case may be, granting the right, usually for a 25-year period with the possibility for renewal, and is ordinarily subject to specific restrictions on the intended use of the land. The extent of the holder’s right and obligations is stipulated (i) for State land, in the decision granting this right by an authorized government official and (ii) for private land, in the agreement with the owner of the land.

Indonesian citizens, Indonesian corporations, foreign residents and foreign corporations can, under the Basic Agrarian Law, hold a Hak Pakai.

The transfer of a Hak Pakai over State land requires the permission of the relevant authorized officer. The transfer of a Hak Pakai over land owned by private citizens is allowed if it is so agreed in the contract granting the right.

Obtaining Land Titles by PMA Companies

For a new prospective PMA company, which requires land or real estate to conduct its business, one crucial procedure must be followed in respect of land. This regards the processing of the Location Permit.

The Location Permit allows a PMA company to acquire the land needed for its operation, and also serves as license for the transfer of rights and for utilizing the land for its investment. The Location Permit must be obtained from the Regent (Camat) with jurisdiction where such land is located. Within 12 -36 months (depending the acreage of land) after the issuance of this Location Permit, the PMA company must proceed to relinquish the land from its original land owners. If the company had previously obtained a Location Permit then it needs to cautiously observe its Permit, as the purchase of the property should be in accordance with it. The investment license issued for the company also contains provisions on the land, if any, required for the intended investment. Therefore, if the properties purchased by the company are more than the acreage stated in its investment license, this will not be allowed unless the company first files an application with BKPM for a revision of its investment license to include a larger land area. A company, having obtained a decree granting its right in the land, will be expected to utilize the land in accordance with the terms of the decree and of its investment approval.

Please note also that there is a strong policy in Indonesia against foreign ownership or control of land. Hence, the PMA companies, while granted the rights in land necessary to make their projects viable, are not allowed to hold land beyond that which is actually required and specifically licensed for their projects.

Ownership of Strata Unit/Condominium by Individual Foreigners

The ownership of strata unit by individual foreigners in Indonesia is governed by a government regulation issued in 1996 (Government Regulation Number 41 of 1996) . Under this Regulation, foreigners resident in Indonesia are only allowed to buy and own residential property if it is built upon land with Hak Pakai over State owned land.

Ownership of strata unit covers:

· joint right on parts of the condominium (Bagian Bersama);
· joint right on things attached to the condominium (Benda Bersama); and
· joint right on land which the condominium is built.

All these form a unity of rights which functionally can not be separated. Ownership will be evidenced by a Land Right Certificate (Sertifikat Hak atas Tanah) issued by the relevant land office in local regency (kecamatan). All ownership rights to a strata unit are initially issued in the name of the developer and only after the respective strata unit is bought, the transfer of right is registered through a Land Conveyancer (Pejabat Pembuat Akta Tanah or “PPAT”). The deed and the Land Certificate will be registered in the name of the buyer as the owner of the strata unit. Once it has been properly registered, the owner will be entitled to (i) use or alternatively rent such strata unit to other party (ii) secure such strata unit in the form of land mortgage (Hak Tanggungan) and (iii) transfer it to other party.

If one looks carefully, the rights of foreigners to own a residence in Indonesia are in fact quite restricted. The privilege is subject to the foreigners having Hak Pakai on State owned land (see above) title and they must sell such real estate if they cease to be residents in Indonesia. The State reserves the right to auction foreigners’ property if these conditions are breached. In addition, it is also regulated that foreigners only are allowed to possess a strata unit with the following conditions, among others:

·The foreigners must be domiciled in Indonesia which shall be evidenced by several permits to stay granted by the Government;

·They have never possessed any residence before in Indonesia, therefore, they are required to draft a statement letter in this regard.