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18/05/2021

New ‘Omnibus Law’ Regulation Makes Significant Changes to Indonesian Land Law Regime

 

February 2021 saw the issuance of a raft of new Government Regulations to give effect to the reformist Job Creation Law (known colloquially as the Omnibus Law),[1] which entered into force on 2 November 2020. In this ABNR legal update, we discuss some of the notable items under Government Regulation No. 18 of 2021 on Land Management Rights, Land Titles, Apartment Units, and Land Registration.

 

Indonesia has one of the most complex and diverse land-law systems in the world, with the principal legislation in the sector continuing to be the Basic Agrarian Law, which has remained unchanged since its enactment in 1960. Given the various developments in the property sector that have taken place since then, the Government has availed of the opportunity presented by the Omnibus Law process to introduce the most far-reaching changes to Indonesian property law in at least 20 years through the issuance of Government Regulation No. 18 of 2021 on Land Management Rights, Land Titles, Apartment Units, and Land Registration (the “Regulation”).[2]

 

The Regulation entered into force on 2 February 2021.

 

General Overview

 

The principal land titles/rights and aspects that are covered by the Regulation are (a) Land Management Rights (Hak Pengelolaan / “HPL”); (b) Cultivation Rights (Hak Guna Usaha / “HGU”); Building Rights (Hak Guna Bangunan / “HGB”); Use Rights (Hak Pakai,HP”); (c) Apartment Unit Freehold (Hak Milik atas Satuan Rumah Susun / “HMSRS”); (d) HGB, HP and HPL for the space above and below land; and (e) land registration.

 

The Regulation revokes: (i) Government Regulation No. 40 of 1996 on HGU, HGB and HP;[3] (ii) Government Regulation No. 103 of 2015 on Ownership of Homes and Residential Property by Foreigners Domiciled in Indonesia;[4] and (iii) certain provisions of Government Regulation No. 24 of 1997 on Land Registration.[5]

 

The implementing regulations for each of the revoked government regulations remain in effect in so far as they do not conflict with the Regulation.

 

Land Management Right / HPL

 

Land Management Right (Hak Pengelolaan / “HPL”) is a right or title to manage state land, including to use such state land, that may be granted by the central government to a government authority or agency, including a local government or state enterprise, which may in turn sub-grant the right to use the land to a third party .

 

HPL is now governed by the Omnibus Law and the Regulation, whereas previously it was mainly dealt with by a ministerial-level regulation, which is lower in the legal hierarchy than a law. Thus, HPL now has a firm statutory basis. Other than this, the Regulation makes few changes to the existing HPL regime. Thus, the general situation as regards HPL may be briefly summarized as follows:

 

 

HPL over state land may be granted to central government bodies, local governments, state and local-government enterprises, state and local-government legal entities, the new national Land Bank Agency, and legal entities designated by central government.

 

An HPL holder may use the land itself or in collaboration with a third party; and is entitled to determine the fee or other contribution to be paid or made by the third party. If HPL land is managed in collaboration with a third party, a land utilization agreement must be entered into by the HPL holder and the third party. In such circumstances, the third party may be granted a derivative land title (HGU, HGB or HP) over the HPL land – the derivative title in effect “piggybacks” on the HPL title. Legal acts involving the derivative title (such as the grant of a security interest over the derivative title or the transfer of the derivative title to a third party) must be accompanied by a recommendation from the HPL holder.

 

 

 

Right to Cultivate (HGU), Right to Build (HGB) and Right to Use (HP)

 

HGU is a title that is normally granted over state land to facilitate plantation development. It may be granted to an Indonesian citizen or legal entity (which includes foreign investment companies (“PT PMA”)). The maximum term of grant is 35 years, extendable for another 25 years. Upon expiry, there is a right to renew for another 35 years, thus giving 95 years in total.

 

HGB is a title that may be granted over state, HPL or freehold (hak milik / “HM“) land to an Indonesian citizen or legal entity, including a PT PMA, for the purpose of erecting and using a structure on the land. The maximum term of grant of HGB is 30 years, extendable for another 20 years. Upon expiry, there is a right to renew for another 30 years, thus giving 80 years in total.

 

HP is a right to use land and/or harvest produce on it. HP may be granted to Indonesian citizens and legal entities; foreign legal entities with representative offices in Indonesia; religious and social/charitable bodies; and foreign citizens. It can be issued over state land, HM land or HPL land.

 

With regard to a grant of HP over state land and HPL land, the maximum term is 30 years, extendable for another 20. Upon expiry, there is a right to renew for another 30 years (giving a total of 80 years). Previously HP could be granted for a maximum of 25 years, extendable for another 20 years, and then could be renewed for another 25 years (70 years in total). 

 

The Regulation introduces a new provision under which, subject to certain conditions, an existing titleholder (HGU, HGB or HP) should be granted priority to obtain new land title over the same plot of land after the existing title has expired. However, the Regulation does not specify whether such new title must be the same as the existing title or whether it may be some other title.

 

An application to extend the term of an HGU, HGP or HP title must be made prior to its expiry, whilst an application for renewal of any of these titles must be made within 2 years of expiry.

 

The Regulation also requires an HGU, HGB or HP holder to commence activities on the land (cultivation, building construction or use of the land) within 2 years of title being granted. If not, then the title may be revoked.

 

Rights of Non-Indonesians to Own Apartments and Landed Houses

 

The Regulation expressly extends the right to own Apartment Unit Freehold / HMSRS to non-Indonesians who possess the required immigration documents, and foreign legal entities with representative offices in Indonesia. Further, foreigners who hold the required immigration documents may own landed houses built on HP land and apartment units built on HP land or HGB land. Therefore, it is possible for foreigners to hold HMSRS built on HGB land.

 

However, foreigners may only acquire HMSRS title to apartments in special economic, free trade or free port, industrial, or other economic zones. ”Other economic zone” is defined as an urban or suburban zone, tourism zone, or a zone that is suitable for vertical housing development, and which has a positive economic impact for the public.

 

As was also previously the case, the Regulation stipulates that properties that may be owned by foreigners are subject to restrictions in terms of minimum price, floor space, land area and number of apartment units (as the case may be); and zoning (they must be in areas zoned for residential purposes). Currently, minimum-price restrictions are set out in Minister of Agrarian Affairs Regulation Number 29 of 2016 .[6] For example, the minimum price currently for an apartment unit permitted to be owned by foreigners in Jakarta Province is IDR 3 billion (approx. USD 200,000).[7]

 

Unfortunately, there are a number of provisions of the Regulation relating to the new right of foreigners to acquire HMSRS that appear to conflict with other, pre-existing laws and regulations. In particular, it is difficult to see how an HMSRS certificate can be issued to a foreigner in the case of an apartment that is located in a block built on HGB land as in such case an HMSRS certificate can only be issued to those who are legally qualified to hold HGB title. Since non-Indonesians are not allowed to hold HGB title, logically it should not be possible to issue them with a HMSRS certificate for an apartment built on HGB land.

 

Land Rights to Space Above and Below Land 

 

The Omnibus Law introduced the concept of land rights (in the form of HGB, HP or HPL) for the space above and below land for the first time. Such rights may be granted to third parties, i.e., parties other than the holder of the title to the land itself.

 

The Regulation further provides that the utilization of the space above land is restricted to the height limit stipulated in the building coefficient ratio (koefisien dasar bangunan) and the floor-space coefficient ratio (koefisien lantai bangunan) set out in the relevant spatial plan; while use of the space below the land is limited to the depth prescribed in the spatial plan or, in the absence of a limit, up to 30 meters below the surface.

 

The rules governing the subject matter, duration, encumbering, transfer and cancellation of HPL, HGB and HP also apply, as relevant, to circumstances where these titles attach to the space above and below land.

 

The provisions of the Regulation on the granting of title over the space above or below land to third parties (i.e., people or entities other than the holder of the title to the surface land) give rise to a potential conflict with the Basic Agrarian Law, under which HGB and HP are established as land titles, meaning that, at least in theory, they should attach to the land. From the conceptual perspective, therefore, it is rather difficult to understand how independent HGB or HP title may be granted over the space above and below the land to someone other than the holder of title to the land itself.

 

Land Registration

 

The Regulation pays particular attention to electronic land registration, in line with the Government’s efforts to digitalize land administration throughout Indonesia. To provide certainty, the Regulation confirms that electronic data and information, or printouts thereof, are admissible as evidence in court, provided that they are validated by an authorized official. It further provides that deeds produced by a land conveyancer (Pejabat Pembuat Akta Tanah) may be created electronically.

 

The Regulation reduces the requisite period for the announcement of land registration (to allow for objections) from 30-60 days to 14-30 days. It also provides for the publication of land registration data on the Ministry of Agrarian Affairs’ website.

 

As we reported in a previous ABNR Legal Update on electronic land registration [click here], it is expected that all data, information and documentation related to land, such as scale diagrams (gambar ukur), land parcel maps (peta bidang tanah), spatial maps (peta ruang) and electronic land certificates will eventually be processed and stored electronically.

 

ABNR Commentary

 

The Regulation, which arguably represents the most significant shakeup to Indonesia’s land regime in more than 20 years, is to be warmly welcomed as it represents another significant step towards the establishment of orderly land administration in Indonesia. However, there are a number of concerns.

 

In particular, as mentioned earlier, there are concerns over the consistency of the Regulation with other existing laws and regulations, such as the Basic Agrarian Law and Law No. 20 of 2011 on Apartments (“Apartment Law”). It is to be regretted that the government failed to avail of the “once in a lifetime” opportunity provided by the Omnibus Law to deal with these potential inconsistencies.

 

With regard to the rolling out of electronic land registration, there are some doubts as to the readiness of the National Land Agency (Badan Pertanahan Nasional / “BPN”) in this regard. Nonetheless, given the frequent media reports of forgery of title documents and other abuses, electronic registration is clearly the way forward if efficient and orderly land administration is eventually to be achieved.

 

Finally, the Regulation mandates the issuance of ministerial-level regulations for the implementation of its provisions, and further confers wide discretion on the Minister to issue additional regulations and policies to facilitate implementation, should these be required. Given the broad scope and, at times, lack of clarity of the Regulation, it is to be hoped that this power will be availed of proactively so as to iron out at least some of difficulties that the Regulation could give rise to in practice.

 

By partner Mr. Nafis Adwani (nadwani@abnrlaw.com) and senior associate Mr. Danny Tanuwijaya (dtanuwijaya@abnrlaw.com).

 

[1]Undang-Undang Nomor 11 Tahun 2020 tentang Cipta Kerja.

[2] Peraturan Pemerintah Nomor 18 Tahun 2021 tentang Hak Pengelolaan, Hak Atas Tanah, Satuan Rumah Susun, Dan Pendaftaran Tanah

[3]Peraturan Pemerintah Nomor 40 Tahun 1996 tentang Hak Guna Usaha, Hak Guna Bangunan dan Hak Pakai atas Tanah.

[4]Peraturan Pemerintah Nomor 103 Tahun 2015 tentang Pemilikan Rumah Tempat Tinggal atau Hunian oleh Orang Asing yang Berkedudukan di Indonesia.

[5]Peraturan Pemerintah Nomor 24 Tahun 1997 tentang Pendaftaran Tanah.

[6]Peraturan Menteri Agraria dan Tata Ruang/ Kepala Badan Pertanahan Nasional Nomor 29 Tahun 2016 tentang Tata Cara Pemberian, Pelepasan, Atau Pengalihan Hak Atas Pemilikan Rumah Tempat Tinggal Atau Hunian Oleh Orang Asing Yang Berkedudukan Di Indonesia.

[7]At an exchange rate of IDR 15,000 per USD.

 

This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.