Omnikabus Law Indonesia: Simplification of foreign real estate ownership rules

Indonesia has recently seen a major change in real estate law through Government Regulation 18/2021 (GR 18/2021), which will be the most significant change in the last 20 years. GR 18/2021 makes changes to basic land rights/titles including: management right (Hak Pengelolaan, HPL); right to cultivate land (Hak Guna Usaha, HGU); right of use (Hak Pakai, HP); construction right (Hak Guna Bangunan, HGB); apartment ownership (Hak Milik Atas Satuan Rumah Susun, HMSRS); above and underground rights; and land registration.

One of the significant provisions of GR 18/2021 is that foreigners and foreign legal entities can now own apartments and country houses. However, foreigners will only be able to own apartments located in special economic zones, free economic zones, industrial zones and other economic zones. In addition, the value of the property must exceed a minimum threshold, which varies depending on the province in which the property is located.

The main types of right of use (HP), right to build (HGB) and right to cultivate land (HGU) are presented in the legislation. There are two types of right of use (HP): The right of use for a fixed period of time and the right to use land for specific purposes. The right to use land can be granted to foreign legal entities with a representative office, foreign citizens, and local legal entities and citizens. The term of granting this right for state lands and lands assigned to the right of management is a maximum of 30 years, with the possibility of extension for another 20 years. After the expiration of this term, the right may be extended for another 30 years. Previously, the term of the right of use was 25 years, renewable for another 20 years and then renewable for another 25 years (70 years in total).

The Right to Build (HGB) is granted to Indonesian citizens and foreign companies (PT PMA) on state-owned or freehold land for the construction of buildings. The maximum term of the HGB is 30 years, renewable for another 20 years.

The right to cultivate land (HGU) is usually granted to state land for plantation development and can be granted to foreign companies. The maximum term of this right is 35 years, renewable for a further 25 years. Once the term expires, it can be renewed for another 35 years. According to GR 18/2021, all HGU, HGB and HP owners must commence activities on the land, whether construction of buildings, land cultivation or other land use, within two years of the granting of the right.

According to GR 18/2021, foreigners can now own apartments under the ownership of apartment buildings (HMSRS). Foreigners can only acquire ownership of apartments in special economic zones, free economic zones, industrial zones or other economic zones (tourist zones, suburban or urban zones). In addition, foreigners may also own country houses built on land plots with the right to use or the right to build. Ownership of real estate by foreigners is limited by certain restrictions such as minimum price, land area and number of apartments, zoning division and plot size.

GR 18/2021 also introduced a new electronic land registration service, which promotes the digitalization of land certificates throughout Indonesia. Such electronic documents are admissible in court if attested by an authorized person. This is met with approval as land titles are often forged in Indonesia.

The legislation also introduced a new provision on the right to above-ground and underground space, such as the development of underground passages, underground shopping centers or mass transit services, through land rights (in the form of HPL, HP or HGB titles). The use of aboveground space is limited to the height limit set in the development 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.