The legal framework of land ownership in Indonesia

The scope of this article is a general understanding of the principles of land ownership. If you are looking for a particular focus on foreigners, see here.

Background of land law in Indonesia

Firstly it is necessary to understand the nature of land and its fundamental ownership. In the first instance, Indonesian law can be traced back to the 1838 Dutch Civil Code, which was copied from Napoleonic Law (thanks to the Napoleonic occupation of Holland), and from Dutch-Roman law. The 1838 Civil Code became the Dutch Indies Civil Code in 1847, which is now the Indonesian Civil Code (KUH Perdata), which forms the basis for most contract law.

In 1960 the Dutch land rights system were substantially reformed by the agrarian law 5/1960, which was influenced by the existing civil legal framework, the Constitution of 1945, and by Indonesian socialism. 5/1960 is here in Indonesian.

The Dutch land rights (‘recht’) were translated into Indonesian as ‘hak’, which is the word of any kind of ‘right’. The collective set of land/property ‘hak’ is refered to as ‘hak atas tanah’, which is ‘Rights over Land’, or ‘Land Rights’.

The basic principles of property ownership are governed by the agrarian law, and by various regulations pursuant to it. Regulations pursuant to a law (undang-undang) are hierarchical, with Peraturan Pemerintah (Government Regulations) expanding on, then ‘Peraturan Menteri’ is the ‘Ministerial Regulation’, contains the technical details/detailed rules.

The main property rights (primary rights) that exist in Indonesia are, with their corresponding Dutch origins, and the English translations:

• hak milik = eigendomsrecht = ownership rights
• hak milik atas satuan rumah susun = appartementsrecht = apartment rights
• hak guna bangunan (HGB) = recht van opstal (right of superficies, a right to place something on land) = building rights
• hak pakai = vruchtgebruik = usufruct (right to use and profit from) — usufructuary rights
• hak guna usaha (HGU) = erfpachtrecht = emphyteusis or cultivation rights, which under the 1960 law was limited to plantations over 5 hectares, not smallholdings. Under latest 2020/2021 law can now be leased for 35 + 25 + 35 = 95 yeers.
• hak pengelolaan =management right, a novel right created in 1965 as a positive property right owned by the state for land which it intends to provide to a third party

Moral/legal background for land ownership

In the European concept, all land has an owner, which is usually clear, and can be traced back centuries through different holders for all land in a country, and as such is uncontroversial. In Dutch this is referred to as eigendomsrecht (ownership right). Under European conception, the holder of the eigendomsrecht is the ultimate source of authority for that land, and he may create limited real rights. Limited real rights are limited in that they still recognize an owner, even if the extent of the limited rights issued on the land are such that they allow the limited rights holder to remain in perpetuity, including their heirs, subject perhaps only to an annual rent payment.

In Indonesia, the 1870 Agrarian Law issued by the Dutch allowed foreign companies (with shareholders all over the world) to open vast plantations of thousands of hectares of land which was previously virgin jungle, with no previous cultivation. Although these concessions were issued with limited rights of decades, and not as eigendomsrecht, the underlying ‘owner’ was typically held to be local Sultan, who was seen as having moral authority over the native population. In fact, this was most likely a convenient legal fiction, as the basis of the land opening was of unused land, with the Sultan’s rights merely a pretext for the legalities of the plantation. The Sultans tended to be deposed in the revolutionary period, as they were perceived as a puppet of the Dutch. Therefore, post-1945 it could be seen that vast amounts of land that had commercial value could be seen to lack eigendomsrecht/hak milik, yet still have cultivation rights pertaining to them.

Therefore, rather than a the country with land parcels all with private property rights, the state is conceptually the ultimate controller of all of the land, seas and waters of Indonesia. Land which lacks an owner in the sense of ‘hak milik’ is ‘tanah yang langsung dikuasai oleh negara’. The meaning of this is ‘land that is directly controlled by the state’. This could be shortened to ‘tanah negara’, but this term could mislead, in that for example state plantation land that people would refer to as ‘tanah negara’ (‘state land’), is in fact the subject of HGU ‘atas tanah yang langsung dikuasai oleh negara’.

So the state acts as the source of limited real rights for land that is not the subject of a hak milik. In the 1960 system, companies (following the exploitation of Indonesian land by plantation companies), and foreigners (ditto) lack the moral authority to own ‘hak milik’, so they are issued limited real rights under the authority of the state as ultimate land controller. This principle is expressed in Article 9 of the Agrarian Law, which states that all Indonesian citizens, and only Indonesian citizens have an unfettered right to obtain land rights (hak atas tanah), and only they can possess a full relationship with the land and waters of Indonesia.

The 1960 land law pledged ‘Indonesian socialism’, promising to ‘redistribute land’, to limit the amount of land owned by a person, and stating that ‘hak milik’/’eigendomsrecht’ is the exclusive right of Indonesians. Most developments since 1960 have weakened this framework: redistribution of private property is not a concept (though state land is often given to migrants), and the various limited real rights have generally been strengthened, and in certain circumstances can be converted into ownership rights.

Hak milik (ownership rights)

According to Article 20 of the Agrarian Law, hak milik is the strongest land right. It can be inherited, and can only owned by Indonesian citizens, or by certain legal persons as allowed for in government regulations. In practice, other rights have ended up being inheritable as well…. But as of 1960 that was the ideology, and hak milik remains the ideal.

Legal persons that can own hak milik

The legal persons [i.e. bodies that have legal personage; as distinct from real people] that can own a hak milik are defined in Government Regulation 38 of 1963.

1. Banks that were set up by the Indonesian government
2. Agricultural cooperatives legally established under Law 79/1958
3. Religious legal persons designated by the Ministry of Religion
4. Social legal persons designated by the Ministry of Social Welfare

to use for purposes directly related to their duties (e.g., a religious foundation can have ‘hak milik’ land to build a church, but cannot buy a ‘hak milik’ on a mall for investment reasons).

Item 4 is most likely to be relevant. The relevant legal person for social purposes is called a ‘yayasan’ or foundation. So for example, a yayasan for dog welfare can own a land to build a dog shelter. A yayasan must be legally registered as a yayasan. ‘John’s Facebook dog shelter’ is not a legal yayasan. There are specific laws relating to yayasans run by foreigners.

Size limits for hak milik are in Regulation 2/2013 and 18/2016:

• Agricultural land owned by individuals max 6–20 hectares depending on density
• Non-agricultural land by individuals up to 1 hectare
• Non-agricultural land by legal persons up to 15 hectares

Larger sizes than the 1/15 hectares should be possible only by presidential decree.

In connection with foreigners

A foreigner cannot own a hak milik. In certain cases they may ‘accidentally’ acquire one, e.g., on the basis of communal assets by marriage to an Indonesian. For this case, please see my separate article on foreign land ownership, as there are specific legal concerns.

Cancellation of a hak milik

The Agrarian Law is (was) quite focused on the issue of land being exploited to meet the needs of the people, and it provides that hak milik is cancelled if:

• the land is needed for public use (e.g. to build a toll road) — compensation must be paid in accordance with regulation
• it is neglected
• it is destroyed
• as mentioned above in relation to transactions involving foreigners

The obvious thing to mention here is ‘neglect’. An Indonesian who owns land and then moves overseas should maintain it, including fencing, weeding, etc.

Limited real rights

Hak guna usaha (HGU/emphyteusis)

HGU is the plantation land right. For example, two-time Presidential candidate Prabowo owns 340,000 hectares of plantation land with status HGU. Such land is available only to Indonesian citizens and companies.

In theory the land is issued over ‘state land’. However HGU can now be held for 95 years (35 + 25 + 35 years in issue, extension and renewal, and can be re-issued after that), allowing plantation companies a very long horizon, and meaning there isn’t so much distinction between HGU & and fully owned land, though in theory HGU will revert to the state eventually, and at a minimum if the state decides it wants its land back, then it can reclaim it at the end of the 95 (!) years.

The 1960 law tended to create many smallholdings, since HGU was for land over 5 hectares, only. This creates a clear divide between large, typically efficient, plantations held under HGU, and smaller parcels owned by individuals typically with lower efficiency. There is a limit of total hak milik agricultural land which can be owned by any person — limited to 6 and 20 hectares depending on how dense it is, whereas HGU land can be thousands of hectares. Since there is a priority is to prevent hak milik land becoming concentrated in any person hand’s, it follows that vast land holdings are the result of HGU.

Hak pakai (usufruct)

The Indonesian language is somewhat resistant to using complicated foreign words when simple ones will do. ‘Pakai’ means use, but ‘hak pakai’ is not a right derived from use (you don’t acquire it by merely using someone’s land), nor is it necessarily a right to use. Rather it is an usufruct, which is a right to use and profit from land, and it is issued over land which is:

• hak milik (land owned by an individual)
• hak pengelolaan (state land designated as such, for the purpose of development)
• tanah negara (i.e. without any hak below it — pure hak pakai)

The Government Regulation states that a hak pakai is with these conditions:

• for foreign embassies/consulates/international agencies and local and national government they are issued a ‘while in use’ unlimited hak pakai. The purpose of the government being able to acquire a ‘hak pakai’, is that for example where government buys/compulsorily acquires land, then it has acquired an asset, which must be accounted for in the relevant accounts. Thus, because the government can not own hak milik, and has an inherent ‘authority over the land’, the hak pakai is a statement of the fact that the land is in use by the government, not merely part of the ultimate authority of the government over the land
• for everyone else, hak pakai is issued with a period of up to 30 years, which can be extended for a period of up to 20 years, and renewed for a period of 30 years beyond that. In practice, the extension can be performed up front, but the renewal cannot. This means an initial 50 year period.

Who can own hak pakai

The law says ‘those that can own hak pakai’ for a limited period of 30 + 20 + 30 years are:

• Indonesian citizens
• Certain foreign citizens — see my separate article on foreign land ownership.
• Legal persons established under Indonesian law yang berkedudukan di Indonesia
• Foreign legal persons that have a representative in Indonesia
• Social and religious bodies [this appears to allow for a social/religious body that does not have legal personage to acquire hak pakai]

Hak pakai over other hak

In this case of ‘hak pakai’ that was converted from ‘hak milik’, ‘hak pakai’ is considered to be on ‘land directly controlled by the state’, because the hak milik is deleted in order to maintain the principle that foreigners cannot own ‘hak milik’.

‘Hak pakai’ can also be issued on someone’s hak milik or on a hak pengelolaan. In these cases, the owner of the hak milik or hak pengelolaan still owns a superior hak, and the foreigner owns a depreciating asset with no right of conversion to hak milik.

Hak Guna Bangunan (building rights/right of superficies)

Hak guna bangunan (HGB), or building rights, is the right to use land for the purpose of building, or to use buildings on land. There are two types of HGB (PP 18/2021):

1. that which is issued directly (i.e. ‘on state land’) or on ‘hak pengelolaan’ (state land the state is actively developing) for 30 years, extended for 20, then renewed for 30. After this expires the status reverts to hak pengelolan in that case, or where there is no hak pengelolaan, then new rights are determined by the Minister considering proper usage of the land. There is a formula for the cost of the extension, which is 4.5% of the then value of the land. The renewal costs 6.75% of the then value of the land.
2. Over a hak milik, in which case the term is 30 years, which can be renewed with a new deed of HGB. The HGB is registered and binding when it is recorded with the land office, and a land certificate issued.

Originally a HGB (right of superficies) was distinguished from hak pakai (usufruct) in that the latter is conceptually the ownership of the buildings without owning the land underneath, while the latter is the right of use and profit from land. This meant that a HGB could be mortgaged and a hak pakai. However this distinction originating from European law has now been abolished, and both can now be mortgaged.

HGB can be owned by Indonesian citizens, or Indonesian legal persons (including e.g., PT PMA). Therefore the distinctions between HGB and hak pakai are:

• hak pakai is the only route for a foreigners to own a house. Indonesians can own a house under HGB, hak pakai or hak milik.
• HGB is not for agricultural land, hak pakai is.
• The historical (until 1996) inability to mortgage a hak pakai, has meant that developers tend to prefer HGB, but there is no longer any real distinction as far as building developments are concerned.

HGB owners are subject to various obligations. This includes carrying out the requirements in the deed of issue of HGB within 2 years (so e.g., starting to build).

HGB can be sold to another party.

Conversion of HGB and hak pakai on state land to hak milik

The convertibility of land from HGB/HP to HM is relevant where you own or develop a house that is HGB/HP, in that it can be converted to ‘hak milik’, will be more valuable. The conversion only applies to land without an underlying hak milik (i.e. hak pengelolan or ‘tanah negara’). The ability to convert recognizes that while housing is likely to be developed on the basis of a large development under HGB by a contractor, when the individual houses are sold, then there should be a route to HM, to reflect that individuals can own land and companies cannot.

Conversion can be done in four cases:

1. If the land exceeds 600 square metres, is HGB/HP, and was given to a civil servant by the government, under Decision 2/1998.
2. If the land exceeds 600 square metres, is HGB, part of a housing complex and was originally purchased for less than 30 million rupiah. Decision 9/1997, as modified by 15/1997 and 1/1998.
3. If the land is up to 2000 square metres and is HP or HGB, in accordance with Decision 6/1998. The owner cannot own more than five houses with hak milik, or exceed 5000 square metres of housing hak milik.
4. Where land was purchased (meeting price etc. requirements) by a foreigner from hak milik, it is converted to hak pakai upon purchase, and then converted back automatically when they sell back to an Indonesian. Therefore such land will typically not undergo any manual conversion — the hak pakai is a device so that the sacred principle that foreigners cannot ‘own’ is not violated.

The main route is item 3 above.

In the case where the land is 601–2000 square metres, the requirements are as per Agrarian Ministerial Regulation 9/1999, which means that there are some land measurement fees and a Risalah Pemeriksaan Tanah (konstatering Rapport) must be completed — it is treated as a new rights issue.

If they are up to 600 square metres, the requirements are simpler:

• pay a 50,000rp fee to the state.
• either an building permit (IMB) designating the land as for a residential house, OR if there was no IMB, a letter from the village head stating that it is being used for that purpose
• proof of latest payment of SPPT (land tax), where the land is over 200 square metres
• a declaration by the person doing the conversion that the conversion will not result in them owning more than 5 plots of land for/with housing or more than 5000 square metres of such land

In general the issue of any rights is a taxable event, subject to BPHTB (land rights acquisition duty). This however is regulated on a regional level, so you would have to check the regional regulations. However, in the case where there is no change in owner, the regulations usually provide that the rate is zero. In the case e.g. of a transfer from foreign spouse (as hak pakai converted automatically from hak milik) to Indonesian spouse (automatically back to hak milik) then this is inherently taxable on the basis of ‘different owner’, and you would have to check if there is any exemption available in the local regulations for transfers between spouses.

Apartment rights

See my separate article.