1 Legal framework
1.1 What legislation governs real estate in your jurisdiction?
The provisions on real estate in Indonesia can be found in the following statutes:
- the Basic Agrarian Law (5/1960).
- Land title ownership and land registration:
- the Job Creation Law (11/2020);
- Government Regulation 13/2021 on the Operation of Condominiums;
- Government Regulation 18/2021 on the Right to Manage, Land Rights, Condominium Units and Land Registration; and
- Government Regulation 24/1997 on Land Registration.
- the Law on Buildings (28/2002), as amended by the Job Creation Law;
- the Law on Spatial Planning (26/2007), as amended by the Job Creation Law;
- Government Regulation 21/2021 on Spatial Planning; and
- Government Regulation 16/2021 on the Implementing Regulation of the Law on Buildings.
- Land acquisition:
- the Law on Land Acquisitions for Development in the Public Interest (2/2012), as amended by the Job Creation Law;
- Government Regulation 19/2021 on Land Acquisitions for Development in the Public Interest; and
- Government Regulation 20/2021 on the Control of Abandoned Land and Zones.
- Minister of Public Works and Public Housing Regulation 11/PRT/M/2019 on the Binding Sale and Purchase Agreement System for Houses.
1.2 What special regimes apply to different types of real estate?
Ever since the introduction of the Basic Agrarian Law, real estate in Indonesia has been governed by the same regime as the National Land Law, which derives mainly from the customary law on land. Prior to the introduction of the Basic Agrarian Law, there was a duality in Indonesian agrarian law, as there was a difference between Western rights and customary rights.
2.1 What types of ownership rights exist in your jurisdiction?
Under Indonesian law, the following rights to real estate are recognised.
Right of ownership: This title is the closest equivalent to the Western concept of freehold ownership. Subject to the regulations on spatial planning, it enables the holder to use the land for any purpose, except for the exploitation of any natural resources underneath the land. This is because in general, natural resources underneath the land are classified as state property.
Only Indonesian individuals and special legal entities appointed by the government (eg, government banks, cooperatives and religious or social bodies) may hold this land title, whose validity is unlimited (perpetual). As such, this type of land title is not available for foreign investment companies, let alone entirely foreign entities.
Right to build: The right to build gives the holder the right to occupy the land for a specific term, and to build and own buildings on state-owned land. Although a right to build is usually issued to erect structures on the land, this does not mean that the holder may not cultivate plants or maintain fishponds, provided that the main use of the land is for the construction of buildings.
This land title remains valid for up to 30 years, which may be extended for a further 20 years. Upon its expiry, the right to build can be renewed for a further 30 years.
Indonesian individuals and companies/entities incorporated and domiciled in Indonesia under Indonesian law, including foreign investment companies, may hold this title. In fact, the right to build is considered the ‘best' land title for a foreign investment company to hold in Indonesia, given its lengthy term and reasonably flexible purposes of use, as long as they comply with the applicable spatial plan.
Right to use: The right to use gives the holder the right to use the land and to reap produce grown or produced on it, subject to the limitations imposed under the decision granting the right to use.
The holders of a right to use may be:
- Indonesian individuals;
- legal entities established and domiciled in Indonesia (including foreign investment companies);
- government departments;
- regional governments;
- religious/social organisations;
- foreign individuals domiciled in Indonesia;
- foreign legal entities with representatives in Indonesia; and
- representatives of foreign countries or international agencies.
A right to use may be issued for up to 30 years, which may be extended for up to a further 20 years. This title can be renewed upon its expiry for another 30 years. Once the initial period of validity and any extensions and renewals thereto have expired, the land will be returned to the state. In such case the Ministry of Agrarian Affairs/National Land Agency has the authority to enter into new arrangements for the use, utilisation and ownership of the land, while still providing a priority to the former holder of the land right.
Right to cultivate: The right to cultivate is granted with restrictions on how the holder must use the land. Unlike the other rights outlined above, the holder of a right to cultivate must use the land for certain activities only: either agriculture, fisheries or animal husbandry, according to the designation specified on grant of the right. The right to cultivate is aimed at supporting the livelihoods of the Indonesian people.
The right to cultivate can granted only to Indonesian citizens and companies incorporated in Indonesia. This right can be granted for up to 35 years, which may be extended for up to a further 25 years. This title can be renewed upon its expiry for another 35 years.
Right of ownership over condominium unit (HMSRS): The HMSRS is issued for the ownership of a condominium unit. The HMSRS adheres to the principle of horizontal separation; this means that the HMSRS is a right to the ownership of a condominium unit of a personal nature that is separate from the common right over the common sections, common objects and common land. The common right over common sections, common objects and common land will be calculated based on the proportional value and will be attached to the HMSRS certificate.
A recent change introduced by the Job Creation Law is that foreigners can now hold a HMSRS over a condominium that is built on land under:
- a right to use or right to build on state land;
- a right to manage; or
- a right of ownership.
However, in such case, the common right over the common land will not be calculated.
Adat land: While this is not necessarily an ownership right, Indonesia also recognises adat land, which is best described as land that belongs to a local community on a collective basis, although title to parts of the land may be given to individual members of the community. For adat land to be recognised, there must be a local community which still maintains its customs and is registered with the Ministry of Home Affairs. Adat rules vary from one community to another.
2.2 What ownership structures are commonly used in your jurisdiction?
Primary land ownership right: The primary land ownership right is a right to land that is owned directly by an individual or a legal entity for a certain period, which is rendered by the state. The primary land ownership rights are:
- the right of ownership;
- the right to cultivate state land;
- the right to build on state land; and
- the right to use state land.
Secondary land ownership right: Secondary or derivative land ownership rights are rights to land of a temporary nature that arise and/or are granted on land that is subject to an existing right. This secondary ownership usually arises due to an agreement between the primary owner and the secondary owner. Secondary land ownership rights include:
- the right to build/the right to cultivate/the right to use land that is subject to a right of ownership and the right to manage land;
- the HMSRS/the right to build/the right to use/the right to manage land;
- a lease over a land right;
- a lease over a farmland; and
- a right to a security right (eg, pledge or mortgage).
2.3 Are there any restrictions on real estate ownership in your jurisdiction?
One of the most essential restrictions on real estate ownership concerns the types of entities that are allowed to hold certain rights. Examples include the following:
- The right of ownership may be held only by:
- Indonesian nationals (ie, individuals); and
- special legal entities appointed by the government (eg, government banks, cooperatives and religious or social bodies);
- The right to build and the right to cultivate can be granted only to:
- Indonesian citizens; and
- legal entities incorporated under Indonesian law and domiciled in Indonesia; and
- The right to use for a certain period may be granted to:
- an Indonesian citizen;
- a legal entity incorporated under Indonesian law and domiciled in Indonesia;
- a foreign entity with a representative in Indonesia;
- a religious and social agency; or
- a foreigner.
However, an indefinite right to use may be granted only to central government agencies, regional governments, village governments and representatives of foreign countries and international bodies.
2.4 Is ownership of land and buildings constructed thereon legally separable?
Indonesian real estate law recognises the principle of horizontal separation, which means that the ownership of the land is separate from the ownership of the buildings constructed, crops planted or objects put thereon. An agreement to construct or to plant crops, such as a lease agreement, is usually entered into with the owner of the land. Upon the expiry of this agreement, the owner of the building must either demolish the building or remove the crop or leave the building or the crop as is, depending on the terms of the agreement.
If allowed by the landowner under the underlying agreement, the owner of the building may use the building as security under a fiduciary security arrangement, whereby the ownership of the building is temporarily transferred to the holder of the fiduciary security until the loan is discharged.
2.5 What security interests can attach to real estate? How are they prioritised?
The most appropriate security interest for real estate is a mortgage. As one of the proprietary securities, the mortgage has the nature of a droit de preference, which means that in the event of default by a debtor, creditors will have the right to be preferred or prioritised. This is regulated under Article 6 of the Law on Mortgages over Land and Land-Related Objects (4/1996), which provides as follows: "In the event of default by the debtor, the holder of mortgage has the first right to sell the object of Security Right through a public auction and to take their repayment of debt from such sale."
3.1 What body administers the land register in your jurisdiction?
The land register is managed by the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency. Rights to land must be registered through its vertical agency, the Land Office, which has a seat in every regency and municipality.
3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?
Yes. Article 9 of Government Regulation 24/1997 provides that the objects of land registration are as follows:
- plots of land owned under the right of ownership, the right to cultivate, the right to build and the right to use;
- land under the right to manage;
- waqf land or land granted for religious purposes;
- ownership of a condominium unit (HMSRS);
- mortgage; and
- state land.
For instance, under Articles 24, 39 and 54 of the regulation, grants of the right to cultivate, the right to manage and the right to use land must be registered with the Land Office. Those rights arise as from registration with the Land Office.
Similarly, Articles 10(2), 13(1) and (2) of the Law on Mortgages over Land and Land-Related Objects provide that the grant of security rights must be executed by the land deed officer and registered with the Land Office in order to be recorded in the relevant land book and land certificate. Such registration is necessary and mandatory, as the law states that security rights are effective as of the date of registration of the security right.
For HMSRS, the detail of division of the condominium must be registered with the Land Office, in order to obtain the HMSRS certificate (ie, the proof of ownership for HMSRS). The issue of this certificate is regulated under Article 42 of Government Regulation 13/2021. The certificate will first be issued under the name of the developer and will subsequently be transferred to the owner of the condominium unit by re-registering the transfer with the Land Office.
If the rights to land are not duly registered with the Land Office, they will be deemed incomplete and will have weaker evidentiary power before the court and with respect to third parties. Certificates (which can only be issued by the Land Office) have fundamental importance in Indonesian real estate law. Article 19(2)(c) of the Agrarian Law states that the issuance of a document of entitlement (ie, a land certificate) over a land registration constitutes strong evidence. A security right granted over land will not be created until it has been registered with the Land Office.
3.3 What are the formal and documentary requirements for registration?
The documents required to register the transfer of a right are as follows:
- an application form signed by the applicant or its authorised attorney;
- a power of attorney, if the registration is assigned to another person;
- a photocopy of the applicant's identification documentation (a citizenship ID for individuals or a deed of establishment and its legalisation for legal entities);
- a photocopy of the identification documents of the parties in the notarial deed;
- the original certificate;
- the notarial deed documenting such transfer, drawn up by the land deed official in accordance with the laws and regulations;
- approval/permission for the transfer of rights, if the transfer must be approved by certain parties (eg, the transfer of any right over a right to manage land requires approval by the holder of the right to manage); and
- notification for payable land and building tax for the current year.
3.4 What is the process for registration?
First registration for unregistered land: This process involves the following steps:
- gathering and processing of physical data;
- evidencing and documentation of rights;
- issuance of the certificate;
- provision of physical data and juridical data; and
- submission of the registration and documents to the register.
Registration of a transfer of right: The transfer of rights to land and HMSRS through sale and purchase, exchange or grant, and other transfers of rights except through auction, must be evidenced by a deed drawn up by a land deed official.
Within seven business days of the date of the notarial deed, the land deed official must deliver the notarial deed to the Land Office to be registered.
3.5 Is registered information publicly accessible?
No. According to Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Regulation 6/2013 on the Public Information Services in the National Land Agency, the land book, its letters of measurement and its documents constitute information owned by the National Land Agency and will not be made public, except in certain cases. Information can be provided at the request of the registered landowner.
4 Commercial leases
4.1 What types of commercial leases exist in your jurisdiction?
No specific Indonesian law distinguishes between different types of commercial leases. Lessors of commercial real estate usually have their own template lease agreement which is not negotiable, except for anchor tenants. Under the most common commercial lease agreement, the lessee pays the rent, service charges, utility invoices and value added tax, and withholds the income tax due from the rent payment to the lessor (unless the lessee is an individual, who is not required to withhold income tax).
4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?
There is no specific Indonesian law which sets out the required terms to be agreed under a lease agreement. However, Indonesian scholars highlight the following essential elements of a lease:
- the goods;
- the price; and
- the duration.
In other words, at a minimum, the lease agreement should include these three elements. Further provisions covering other matters may be freely agreed between the parties as long as they are allowed under the law, in accordance with the principle of freedom of contract enshrined in Article 1338 of the Civil Code.
In addition, different characteristics of the different objects of a lease may be subject to more specific regulations. For instance, if the object of the lease is a land or building that is classified as a state-owned good, the lease agreement will be subject to the relevant regulation, such as Minister of Finance Regulation 115/PMK.06/2020 on the Utilisation of State-Owned Goods, which specifies certain restrictions relating to the duration of the lease, determination of the price of the lease and the method of payment, among other things.
House leases for residential purposes also have their own specific requirements. Government Regulation 14/2016 (as amended by Government Regulation 12/2021) provides that a written agreement on a house lease must include at minimum:
- the rights and obligations of the parties;
- the term of the lease;
- the price of the lease; and
- a force majeure condition clause.
4.3 What are the formal and documentary requirements for conclusion of a commercial lease?
The Civil Code contains no express provisions on the documentary requirements for leases. There is not even a specific requirement for the form that a lease agreement should take; thus, a lease agreement can be executed either in writing or orally. As a matter of course, the better option is to draw up the lease agreement in writing and have the parties sign it. Furthermore, the written lease agreement need not be notarised or registered anywhere; it can be executed privately between the parties. However, different objects of a lease may be subject to more specific regulations, such as the lease of state-owned goods for the purpose of infrastructure, which must be executed through a notarial deed.
4.4 What is the process for concluding a commercial lease?
As there are no specific formal, documentary or registration requirements for lease agreements, the process is simple: the parties simply need to discuss the terms and conditions of the lease and have them drawn up in a lease agreement. However, in the case of the lease of state-owned goods, certain steps must be taken prior to the conclusion of the lease agreement, such as the following:
- a review by an internal team of the business characteristics of the manager of the goods and the user, where the lease is intended to last for more than five years;
- the calculation and determination of the basic lease tariff; and
- the issuance of a lease decree/approval prior to execution of the lease agreement.
4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?
In general, the respective minimum obligations and liabilities of the landlord and the tenant under a commercial lease can be found under the Civil Code. Breach of these obligations may result in the dispute being brought to court as an illegal act under the Civil Code or as an event of default where the following obligations (or other obligations further agreed by the parties) have been agreed under the lease agreement.
The obligations and liabilities of the landlord are as follows:
- to hand over the object of the lease to the tenant (Article 1550(1) of the Civil Code);
- to maintain the object of the lease so that it can be used for the intended purpose (Article 1550(2) of the Civil Code);
- to give the tenant the right to use the object of the lease (Article 1550(3) of the Civil Code);
- to carry out maintenance and repair, unless this is the obligation of the tenant (Article 1551 of the Civil Code); and
- to be liable for all kinds of defects on the object of lease which hinder its utilisation, even if it was not aware of those defects at the time of execution of the lease. If such defects result in a loss for the tenant, the landlord must pay compensation (Article 1552 of the Civil Code)
The obligations and liabilities of the tenant are as follows:
- to use the object of the lease properly as its own, according to the purpose of the object of the lease under the lease agreement (Article 1560 of the Civil Code);
- to pay the lease price at the agreed time (Article 1560 of the Civil Code); and
- to be liable for all kinds of damage which it causes to the object of the lease during the lease period, unless proven otherwise (Article 1564 of the Civil Code), and for all damage caused by their roommates or assignees (Article 1566 of the Civil Code)
The liability of the tenant does not cover damage in case of fire, unless the landlord can prove that the fire was caused due to the tenant's fault (Article 1565 of the Civil Code)
4.6 How are rent variations typically effected throughout the term of the lease?
This depends on what the lessor and the lessee have agreed to under the lease agreement. However, for a lease of two to three years, it is common to have the rent remain the same for the full term of the lease, especially if the rent is paid in advance. It is common for a lease of property to be paid at minimum 12 months in advance and for a commercial lease to be paid three months in advance. The lessor may increase the rent when the lease term expires if the parties wish to extend or renew the term. If the lease term exceeds three years, it is also common for the rent to be reviewed periodically.
4.7 What taxes are levied on rental income?
According to the Law on Income Tax (7/1983) (as amended), a taxpayer's income from rent over a land or building is subject to income tax at a rate of 10% of the gross amount of the rent.
4.8 Can a commercial lease be triple net?
The terms under a lease agreement are not specifically regulated under Indonesian law and can be freely negotiated between the parties according to the principle of freedom of contract. Moreover, there is no prohibition of or restraints on a triple net lease; thus, if the parties agree, this may be concluded. In practice, triple net is payable if the lease is on vacant land and the lessee develops the land.
4.9 How are landlord and tenant disputes typically resolved?
Dispute resolution is usually one of the provisions under a lease agreement.
As the lease agreement will most likely involve property in Indonesia, judicial resolution outside Indonesia should not be considered as an option, as Indonesia is not a party to any bilateral or multilateral treaties regarding the reciprocal enforcement of rulings. Therefore, if a foreign ruling calls for the payment of monetary damages, in order to obtain recovery in Indonesia, the creditor must file a new suit against the debtor in the relevant district court in Indonesia. This effectively amounts to a retrial of the dispute; and while the foreign court decision can be used as evidence, the Indonesian court will not be bound by its findings.
Given the above, the most common dispute settlement methods provided for in Indonesian lease agreements are:
- domestic litigation;
- domestic arbitration; or
- international arbitration in a country that is party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The parties may negotiate their preferred method of settling future disputes. Even if this is not provided for in the lease agreement, the landlord and tenant will usually try to resolve the dispute amicably; if that fails, any of the parties has the right to bring the matter before the competent court to be settled through legal proceedings.
4.10 What types of guarantees are market practice and required by landlords to secure the tenant's obligations
The most common form of security to protect the landlord from the tenant's failure to meet its obligations under the lease agreement is a security deposit, the amount of which is usually determined by the lessor. The deposit for a house lease is usually one month's lease; while for a commercial lease, it is three months' rent.
5 Real estate transactions
5.1 What form do real estate transactions typically take in your jurisdiction?
The most common forms are sale and purchase and lease.
5.2 Which players are typically involved in a real estate transaction in your jurisdiction?
Generally, when it comes to large-scale commercial real estate transactions, the players involved are real estate companies, in the form of either limited liability companies or foreign investment companies.
5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?
Indonesia applies the principle of freedom of contract under the Civil Code. Therefore, the parties are free to include any provisions they wish, but must include those provisions which are mandatory under Indonesian law. However, a sale and purchase deed must be in the standard form issued by the Land Office and some branches of the Land Office do not allow additional provisions. The representations and warranties in the standard form are limited to the following:
- The seller warrants that the object of the sale:
- is free from any claims;
- is free from any seizures;
- is not collateralised as security for a loan that is not registered in the certificate; and
- is free from any other liens; and
- The buyer represents that, following the land acquisition, its ownership of the land will not exceed the limit for possession of land under the regulations.
However, buyers – especially sophisticated buyers – often request additional representations, such as the following:
- If the seller is an entity:
- the establishment of the company is legal;
- the entity has the necessary authority to own and transfer the land;
- the entity has obtained all necessary consents and approvals required to sell the land; and
- the sale of the land does not violate its constitutional documents, approvals, licences or any contract entered into by the seller;
- The seller has paid all the tax due on the land before the transfer of title;
- The land is free and clear of any security rights, mortgages, claims or liens;
- There are no ongoing legal actions or proceedings against the seller that may prevent the sale of the land;
- If the seller is an individual, the seller has obtained the required spousal consent (if applicable), and if the land was obtained through inheritance, there is no claim from other heirs; and
- The land is free from any toxic waste.
If the seller is a sophisticated seller, it may ask for the following additional representations and warranties from the buyer:
- If the buyer is an entity:
- the establishment of the company is legal;
- the entity has the necessary authority to acquire the land;
- the entity has obtained all necessary consents and approvals to acquire the land; and
- the procurement of the land does not violate its constitutional documents, approvals, licences or any contracts entered into by the seller;
- The buyer can pay the purchase price of the land;
- There is no ongoing legal action or proceedings against the buyer that may prevent the sale of the land to the buyer; and
- If the buyer is an individual, the buyer has obtained the required spousal consent (if applicable).
No specific remedies are available to the buyer against the seller for any misrepresentation. However, under the Civil Code, if a party suffers a loss due to breach of contract, it can submit a claim to the court for damages or for cancellation of the contract. Under the principle of freedom of contract, the buyer and the seller are free to agree on remedies in the event of any misrepresentation by the seller.
5.4 What due diligence is typically conducted in a real estate transaction?
A buyer in an Indonesian land transaction is always recommended to engage local legal counsel to conduct land due diligence, which should cover the following:
- Land title search: This is necessary to ensure that the seller is the legal owner of the land and has the legal right to transfer the land title, and to check for any mortgage or claim registered over the land. The documents that need to be reviewed in the search are the land certificates. In addition, through the local counsel or notary, the buyer can ask the relevant branch of the Land Office to issue a land registration statement as evidence of the title search.
- Licences: The relevant licences associated with the land relevant to the buyer must be checked. A due diligence review usually covers:
- the term of the licences; and
- any obligations imposed with the licences (eg, reporting obligations, transfer restrictions, compliance with the requirements under the land utilisation permit, any obligation to provide public facilities or social facilities imposed by the regional government).
- Agreements: The buyer is recommended to review any agreements that the seller has entered into in relation to the land (eg, lease agreement, loan agreement and related security over the land). The buyer should also review the agreements to see whether they impose any obligations that may restrict the transaction.
- Information about the seller: The buyer is recommended to review the seller's articles of association and other corporate documents or corporate licences relevant to the transaction, if the seller is a business entity. This will enable the buyer to identify the authorised representative of the seller in the relevant transaction and the corporate authority required. If the seller is an individual, the buyer should check his or her marital status, because assets such as land obtained during a marriage are joint property and the consent of the spouse is required to dispose of their jointly owned land. If the land is sold by the heirs, the inheritance statement from the local authority or court ruling must also be reviewed.
- Other documents: These may include evidence of payment of the land and building tax for the past 10 years and utility bills for the past three months, to ensure that there are no arrears. The buyer must ensure that capital gains tax is paid by the seller, by the buyer deducting 2.5% capital gains tax and depositing it in the Tax Office account. Without payment of the capital gains tax, the land deed officer cannot draw up the transfer deed and the buyer cannot register the transfer of title.
- The buyer should also check the zoning of the land to ensure that the land can be used for the intended development. The zoning search should cover:
- the building coverage ratio or the total land area that can be built on (usually 60% to 70%); and
- the floor coverage ratio (the total number of floors that can be built).
- A zoning search will also reveal whether the land is planned to be used for a government development such as a mass rapid transit system, road expansion or toll road.
- If the land certificate was issued more than 10 years ago or has no plot identification number, the land area should be measured again to ensure that the total area of the land remains the same.
Under the Civil Code, a buyer of land acting in good faith is protected by law. Under a circular issued by the Supreme Court in 2016, one of the requirements for a buyer to be categorised as a buyer acting in good faith is that it have conducted due diligence on the land that will be bought. Therefore, the buyer must conduct due diligence on the land so that it can be protected by law as a buyer acting in good faith.
5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?
The essential document is a sale and purchase deed, which takes the form of a deed executed by the land deed officer. The transaction is complete once the sale and purchase deed has been registered with the competent branch of the Land Office. The buyer may also resort to the use of a relinquishment of right deed, through which the buyer may apply for a new right over the land.
5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?
Sales of real estate through asset deal: The asset is transferred under a sale and purchase deed with an entity or individual. The taxes, charges and fees to be paid for the sale and purchase of the land are as follows:
- The land deed officer's fee for preparing and processing the sale and purchase deed or relinquishment of right deed: Up to 1% of the purchase price stated in the deed.
- Where the area of the land must be measured: The fee according to Government Regulation 128/2015 on Non-Tax State Revenue Tariffs Applicable in the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency:
- For a land area up to 10 hectares: Tu = (L/500 x HSBKu) + IDR 100,000, where:
- Tu is the land mapping and measurement tariff;
- L is the land area in square metres; and
- HSBKu is the special cost unit price for mapping in the current year.
- For a land area of between 10 hectares and 1,000 hectares: Tu = (L/4,000 x HSBKu) + IDR14 million.
- For a land area of more than 1,000 hectares: Tu = (L/10,000 x HSBKu) + IDR134 million.
- For an investigation of the land by the Land Investigation Committee (Committee A): The fee under Government Regulation 128/2015 is Tpa = (L/500 x HSBKpa) + IDR350,000, where:
- Tpa is the land investigation tariff charged by Committee A;
- L is the land area in square metres; and
- HSBKpa is the special cost unit price for the land investigation charged by Committee A in the current year.
- For an investigation of the land by the Land Investigation Committee (Committee B): The fee under Government Regulation 128/2015 is Tpb = (L/100,000 x HSBPKpb) + IDR 5 million, where:
- Tpb is the land investigation tariff charged by Committee B;
- L is the land area in square metres; and
- HSBKpb is the special cost unit price for the land investigation charged by Committee B in the current year.
- Approval of the extension of the right to cultivate, the right to build or the right to use, or renewal of the land right for such rights, under Government Regulation 128/2015: T = (2% x land value) + IDR100,000.
- Registration of the transfer of title to the land for an individual or legal entity under Government Regulation 128/2015: T = (1% x land value) + IDR50,000.
- Registration of the title and issuance of the land book and certificate: IDR50,000 per title.
- Applicable taxes (see question 5.8).
Sale of real estate through share deal: A share deal does not involve the transfer of title to land from one party to another, as the shares to be sold must be in a company that owns real property. In general, without taking into account any specific transaction structure, the following taxes and charges are usually payable on a share deal:
- the notary public's fee for processing the notarial deed stating the company's approval for the share transfer, and the fee for preparing the share sale and purchase deed if the sale of the shares constitutes a change of control; and
- applicable taxes (see question 5.8).
5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?
Indonesian contract law is based on the principle of freedom of contract and thus the buyer and seller may negotiate their respective obligations and liabilities under the agreement, as long as these do not violate the prevailing laws and regulations. Under the Civil Code, the essential obligations of a seller under Article 1474 are:
- to hand over the object of the sale and purchase to the buyer; and
- to guarantee that the object of the sale and purchase is free from any encumbrances and not related to any legal proceedings.
The essential obligations of a buyer are:
- to pay the agreed price in a timely manner through the agreed method;
- to examine the object of the sale and purpose that is handed over by the seller; and
- to receive delivery of the object of the sale and purpose.
However, for a transaction involving a house or condominium unit, Minister of Public Works and Public Housing Regulation 11/PRT/M/2019 on the Binding Sale and Purchase Agreement System specifies the minimum provisions that the binding sale and purchase agreement must contain. Under the regulation, the obligations of the developer include the following:
- to conduct the development according to the site plan and licences;
- to complete the development in a timely manner;
- to inform the buyer of the progress of the development;
- to provide the necessary infrastructure, facilities and utilities according to the relevant licence and to hand them over to the regional government;
- to provide an opportunity to the buyer to study the binding sale and purchase agreement;
- to provide clear information and explanations to the buyer on the content of the binding sale and purchase agreement; and
- specifically for condominium units:
- to facilitate the formation of an owners' and tenants' association, according to the prevailing laws and regulations;
- to carry out the necessary maintenance during the transition period before the formation of an owners' and tenants' association in the development of the condominium; and
- to explain the common sections, common objects and common land.
The obligations of the buyer include the following:
- to make the payment according to the price and schedule as agreed under the binding sale and purchase agreement;
- to bear the costs incurred from the sale and purchase, including the land and building acquisition tax;
- to use the house according to its designations;
- to form an owners' and tenants' association (for condominium unit buyers);
- to comply with the rules set out by the developer; and
- to comply with the terms of the binding sale and purchase agreement in good faith.
5.8 What taxes are payable on a real estate transaction?
Sales of real estate through asset deals:
- Land and building acquisition tax amounting to 5% of the acquisition value of the taxable object, to be paid by the buyer;
- Income tax at a rate of 2.5% of the total gross value of the transfer of the right over the land, to be paid by the seller; and
- Value added tax (VAT) at a rate of 10% of the purchase price (applicable if the seller is a real estate company).
It is normal for the buyer to bear the costs and fees of the sale and purchase of the land, although in some cases the buyer and seller may agree to split the land deed officer's fee between them.
An exemption from VAT is available for the sale of:
- a simple house or a very simple house with a total area of up to 36 square metres; and
- a simple apartment unit with a total area of between 21 and 36 square metres.
Exemptions from land and building acquisition tax are available for:
- diplomatic representatives and consulates;
- the state, to exercise a government function or develop the public interest;
- international agencies and bodies as determined by the Ministry of Finance; and
- transfers to a religious institution to be used as land for worship.
An exemption from land and building acquisition tax is also available for a land transaction if the acquisition value of the untaxable tax object is not more than IDR 60 million.
To facilitate land transactions during the COVID-19 pandemic, the government has reduced the rate of the land and building acquisition tax by 10% for land transactions executed between 1 May and 30 June 2021; and for land registrations for the first time, the tax will be reduced by 30% at the request of the applicant.
An exemption from the income tax to be paid by the seller can be granted:
- to an individual whose income is below the untaxable income threshold for a transfer of land with a gross transaction value of less than IDR 60 million;
- for the grant of land by an individual to a family member, religious entity, educational entity or social entity for non-commercial purposes;
- for the transfer of land in conjunction with the merger, consolidation or expansion of a business, if the transaction value is determined by the Ministry of Finance based on the book value;
- to an individual or entity in order to transfer land to implement a build-operate-transfer agreement or to utilise state land/or buildings; and
- to an individual or entity that is not categorised as an Indonesian tax subject.
Sale of real estate through share deals:
- A final tax of 0.1% of the transaction value on the sale of shares on the Indonesian Stock Exchange; and if the seller is a founding shareholder, an additional income tax of 0.5% of the company's share value at the closing of the stock exchange at the end of 1996 (as from 1 January 1997, the value of the shares is calculated as the value at the initial public offering);
- If the seller is a foreign shareholder in a limited liability company with foreign shareholdings, capital gains tax at a rate of 5%, unless an exemption applies under a relevant tax treaty;
- The notary public's fee for processing the notarial deed for corporate approval, and for preparing the share sale and purchase deed if the sale of the shares constitutes a change of control; and
- Stamp duty of IDR 10,000 on each agreement or document.
In addition, withholding tax at a rate of 20% is charged on dividends paid to foreign shareholders, subject to the provisions of any relevant tax treaty.
6 Real estate finance
6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?
The most common providers of real estate finance in Indonesia are banks and international lenders.
6.2 What forms of real estate finance are available in your jurisdiction?
Financing for commercial real estate, for either large real estate portfolios or companies that hold real estate, takes the following forms:
- Loans from third parties: Real estate companies in Indonesia may obtain funding from third parties, including banks and international lenders. Individuals may also obtain funding for real estate purposes from banks, such as the Housing Loan Credit and the Apartment Loan Credit.
- Internal funding: Real estate companies can also use their own capital (eg, paid-up capital or retained earnings).
- Listing on the Indonesia Stock Exchange (IDX): Many real estate companies in Indonesia have obtained funding by going public and listing some of their shares on the IDX.
6.3 What formal, documentary and other requirements do lenders typically require of borrowers?
Financial Services Authority Regulation 40/POJK03/2019 on the Valuation of the Quality of Assets of Commercial Banks requires Indonesian banks to assess the borrower's business prospects, performance and ability to pay. The assessment of its business prospects includes an assessment of:
- its potential for growth;
- the conditions of the market and the position of the borrower compared to the competition;
- the quality of the borrower's management and any employment issues;
- the support available from the borrower's business group or affiliates; and
- the measures that the borrower has taken to preserve the environment.
Real estate companies that do not meet the requirements for banks to maintain the quality of their assets under the regulation find it difficult to secure financing from Indonesian banks.
Generally, lenders will examine the borrower's capability according to the ‘5C' principles which are common in the banking field, with the prospective borrower required to provide the relevant documentation to demonstrate each, as follows:
- Character: This is demonstrated through the personality and lifestyle of the borrower (in the case of individuals), or its corporate documents (in the case of legal entities) (eg, deed of establishment, articles of association and business profile.
- Capacity: The capacity to do business of prospective borrowers can be evidenced through their education, business or occupation (in the case of individuals) or their business records, financial statements, tax returns and client lists (in the case of legal entities).
- Capital: The worth of prospective borrowers can be demonstrated through their income statement, capital structure, shareholding composition, return of equity, return on investment and so on.
- Collateral: The prospective buyer must be able to show that it has something of value to guarantee its repayment capability – whether in the form of property (proprietary guarantee), which then can be proven with the certificate of right to such property, or another party that is willing and able to guarantee the loan (personal guarantee).
- Condition: This concerns all external factors that may affect the business of the prospective borrower.
6.4 What type of security interests are typically required by lenders?
The most common types of security interests preferred by lenders are those classified as proprietary security – that is, fiduciary, pledge or mortgage – as they have the nature of a droit de preference. In Indonesia, the main form of security interest over land is a mortgage. The land titles that can be secured under a mortgage are:
- the right of ownership;
- the right to build;
- the right to cultivate;
- the right to use granted over state land; and
- the right of ownership over condominium units.
The security interest must be drawn up in a deed executed before a land deed officer and registered with the branch of the Land Office at the place where the land is located. A mortgage certificate confirming the creditor(s) as a mortgage holder will be issued by the relevant branch of the Land Office upon completion of registration. The mortgage gives the holder (creditor) priority in the repayment of the loan over other creditors from the sale of the property.
In addition to a mortgage over land and buildings on the land, the Law on Fiduciary Security (42/1999) allows a building constructed on a plot of land to be owned by a different party from the landowner, although this cannot be encumbered under a mortgage as the object of fiduciary security. This is because Indonesian law adopts the principle of horizontal separation, under which the owner of the building on a plot of land can be different from the owner of that plot of land.
6.5 What is the process for obtaining real estate finance? What costs are payable?
While there are no specific regulations on this matter, the procedure is usually simple:
- The borrower applies to the bank for a loan;
- The bank carries out due diligence of the applicant; and
- The loan agreement is executed.
The bank will commonly charge an application fee and a provisional fee for the initial processing of the loan application. This is because the bank, as lender, will have to conduct an initial examination/due diligence of the prospective borrower. Once the application is approved, a notary service fee will also be incurred if the loan agreement is notarised. The notary fee is usually offset against the provisional fee charged at the beginning of the process. The creditor will also insure the land with the banker's clause because the mortgage is automatically forfeited if the object of the mortgage no longer exists. The creditor will also insure the borrower so that if the borrower dies, the loan will be repaid from the insurance proceeds. The costs of such insurance are borne by the creditor.
6.6 How is security enforced in case of any breach?
Fiduciary security: Under the Law on Fiduciary Security (42/1999), the assets can be enforced in the following ways:
- enforcement of the executorial title of the certificate of fiduciary security. The Fiduciary Registration Office will issue a fiduciary certificate upon registration of the fiduciary security deed. Under Article 15(2) of the Fiduciary Security Law, the certificate is conferred with an executorial title under which the fiduciary security has the same power as a final and binding court decision, subject to obtaining a court order from the relevant district court;
- sale of the fiduciary object at public auction;
- private sale by agreement between the parties if the highest possible price favourable to the parties can be achieved through a private sale. The private sale can go ahead one month after the borrower and/or lender notifies the related parties and publishes an announcement in at least two local daily newspapers; or
- in the case of commodities or securities which are tradable in a market or an exchange, sale on the relevant market or exchange.
Mortgage: Under the Law on Mortgages (4/1996), a mortgage can be enforced in the following ways:
- enforcement of the executorial title of the mortgage certificate;
- sale by the secured parties acting on their own at public auction; or
- private sale by agreement between the parties if the highest possible price favourable to the parties can be achieved through a private sale. The private sale may be conducted one month after written notice from the grantor and/or holder of the mortgage is delivered to the relevant parties and an announcement is published in at least two newspapers with circulation where the object of the mortgage is located and/or local mass media (radio, television), if there are no objections from third parties. The purpose of this requirement is to protect the holder of a second, third or subsequent mortgage (if any).
Similar to fiduciary security, a mortgage certificate is issued with an executorial title, and the mortgage holder can sell the secured assets at public auction after obtaining a court order.
Pledge: According to the Civil Code, a pledged asset can be enforced by way of:
- sale at public auction;
- sale in a manner determined by the court at the request of the pledgee; or
- in the case of commodities or securities which are tradable on a market or an exchange, sale on the relevant market or exchange through two broker dealers.
Under the Civil Code, the pledgee is also entitled to ask the court to authorise its acquisition and ownership of the pledged assets for a price to be determined by the court, up to the amount of the outstanding debt plus any interest and costs. For the retention and sale, the pledgee must notify the pledgor at the latest the day following the issuance of the court's decision.
7 Real estate investment
7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?
The most common investors in real estate in Indonesia are real estate or construction companies – either local companies, local companies with foreign shareholdings (foreign investment companies) or foreign companies. Foreign investment companies and foreign companies must take into consideration the restrictions on foreign ownership set out in Presidential Regulation 10/2021 on Investment when investing in Indonesia, as different business fields may be subject to different foreign ownership percentage restrictions. Private equity companies also often invest in real estate.
7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?
The Indonesian domestic investors that can hold real estate assets can be:
- non-legal entities (ie, limited partnership); or
- legal entities such as limited liability companies (PTs), cooperatives and foundations.
Under the Law on Capital Investment (25/2007), foreign investors must establish a limited liability company with foreign shareholdings (PT PMA).
All of the above entities can acquire real estate, but in the current business environment, a PT or PT PMA is generally preferred.
7.3 How are these vehicles established and administered in your jurisdiction?
No specific governance requirements apply to real estate companies. In general, the following governance requirements apply to PTs and PT PMAs under the Companies Law:
- A PT must have at least two shareholders at all times; if it has only one shareholder for more than six months, it will lose its limited liability status and the lone shareholder will become personally liable;
- A PT must have at least one director and one commissioner;
- The shareholders must convene the annual general meetings to ratify the annual report of the company for the preceding financial year, among other things; and
- The purpose and objectives of a PT PMA must comply with the requirements set out in the Positive List of Investment under Presidential Regulation 10/2021 on Investment, which sets different foreign shareholding limits for companies engaged in real estate/real property activities, depending on their activities.
In addition, as part of good governance, a PT must obtain all necessary licences and approvals to engage in its business activities, including:
- a business identification number;
- a business licence;
- a tax registration number; and
- other relevant licences or approvals issued by the relevant regional government or government agency in charge of the specific sector.
8 Planning and zoning
8.1 How is land use regulated in your jurisdiction?
The use of land must conform with the applicable detailed spatial plan (RDTR) issued by the municipal/regency government of the place where the land is located. According to Government Regulation 5/2021 on Risk-Based Business Licensing, in order to commence operations, a new business must obtain a confirmation of spatial use activity, which confirms that the business location conforms with the RDTR. If the relevant regional government has not issued an RDTR, the central government will confirm the business location according to the applicable spatial plan (RTR). According to Government Regulation 21/2021, there are a few types of RTRs, including:
- the national RTR;
- island RTRs;
- national strategic zone RTRs;
- provincial RTRs; and
- municipal/regency RTRs.
Under the Law on Buildings (28/2002) (as amended by the Job Creation Law), a similar provision states that the building function as stated in the building approval must conform with the location designation under the applicable RDTR.
In the case of land acquisitions for development in the public interest, the applicable RDTR and/or RTR must also be taken into account when the land acquisition plan is drawn up, according to Government Regulation 19/2021.
8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?
As a result of the introduction of the Job Creation Law, this process is simple and low cost, as it is conducted through the Online Single Submission (OSS) system. The process is a part of the application for a business identification number: the planned business location must be submitted when filling out the business profile. The OSS system, which is integrated with the National Land Agency system, will automatically crosscheck the submitted location against the available digital RDTR or RTR, and will:
- confirm the conformity of the business location with the RDTR or decline the business location; or
- have the minister of agrarian affairs issue confirmation of the conformity of the business location with the RTR.
If a digital RDTR is available, the process should take less than one day. If not, the process of approving the location against the RTR should take at most 20 days.
In the case of land acquisitions for development in the public interest, the process is somewhat longer and results in the issuance of a permission in the form of a location determination. According to Government Regulation 19/2021, this involves the following steps:
- A land acquisition plan is drafted based on the RDTR and/or RTR and the development priority, involving the National Land Agency and related technical institutions.
- The land acquisition plan is submitted to the local governor.
- Public awareness events (direct or indirect) are hosted by the preparation team established by the governor to inform the public of the land acquisition plan.
- An initial record of the location of the planned development is made and data on the rightful party (ie, the party holding the rights to the land) is collected by the preparation team.
- A public consultation is held on the development plan, with re-consultation if the first consultation fails to reach agreement.
- If there are still objections, they will be examined by a review team formed by the governor and the governor will review the results of the examination within 14 days.
- If the governor accepts the objections, the development plan must be relocated.
- If there are no objections or if the objections are dismissed by the governor, the minutes of agreement on the development location will be submitted to the governor along with the application for location determination. The governor will issue the location determination decree within 14 days of submission.
8.3 Can a planning decision be appealed?
If it is determined that the business location is not in conformity with the applicable RDTR or RTR, the business must re-submit its application for a business identification number from the beginning. There is no means of appeal in this regard.
In the case of land acquisitions for development in the public interest, an objection against the amount of compensation to be paid to the rightful party may be brought before the competent district court. However, as long as a location determination decree has been issued, the development may still take place in parallel with the legal proceedings. Government Regulation 19/2021 includes no legal measures to object to an issued location determination decree; however, as a written product issued by a state administrative body, the decree may be regarded as an object of dispute in the state administrative court.
8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?
Without the necessary planning permission – whether a confirmation of conformity of spatial use activities for businesses or a location determination decree for land acquisitions for development in the public interest – the parties may not proceed with their planned business/development.
If a party proceeds without confirmation of conformity of spatial use activities, or obtains such confirmation but fails to comply with the spatial use under the applicable RDTR or the RTR itself, resulting in a change to the spatial use, it will be subject to administrative sanctions under Government Regulation 21/2021. The administrative sanctions can take the following forms:
- written warning;
- administrative fine;
- temporary suspension of activities;
- temporary suspension of public services;
- location shutdown;
- revocation of the confirmation of conformity of spatial use activities;
- cancellation of the confirmation of conformity of spatial use activities;
- demolition of the building; and/or
- restitution of the spatial use.
8.5 Is expropriation of land possible in your jurisdiction?
Under Law 2/2012 (as amended by the Job Creation Law), and further under Government Regulation 19/2021, the government can procure or acquire land only for the purposes of development in the public interest. The designation of land acquired through this method is restricted under law to the following:
- national defence and security;
- public roads, toll roads, tunnels, rail lines, railway stations and railway operating facilities;
- reservoirs, dams, dikes, irrigation, drainage and sanitation, and other irrigation structures;
- seaports, airports and terminals;
- oil, gas and geothermal energy infrastructure;
- power plants, transmission facilities, substations, grids and/or distribution facilities;
- telecommunications and informatics networks of the government;
- landfills and waste treatment sites;
- hospitals of the central and regional governments;
- public safety facilities;
- public cemeteries of the central and regional governments;
- social facilities, public facilities and public green open spaces;
- nature reserves and cultural sites;
- offices of the central and regional governments, or villages;
- urban slum planning and/or land consolidation, and rented low-income earner housing, including the development of common houses and specific houses;
- educational infrastructure and schools of the central and regional governments;
- sports infrastructure of the central and regional governments;
- public marketplaces and public parking spaces;
- upstream and downstream oil and gas industrial buildings initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises;
- special economic zones initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises;
- industrial areas initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises;
- tourism areas initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises;
- food security areas initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises; and
- technology development areas initiated and/or controlled by the central and regional governments, state-owned enterprises and region-owned enterprises.
8.6 Is confiscation of land possible in your jurisdiction?
The state will not confiscate land which is legitimately owned by a person/entity. However, if an area of land or zone is deliberately not exploited, used, utilised and/or preserved according to the terms of its permit for a certain period, the state may declare that land or zone as abandoned under Government Regulation 20/2021. An area of land or zone that is declared abandoned will be controlled by the state, and may be stipulated as an asset of the Land Bank or transferred to another party through a transparent and competitive mechanism.
9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?
Based on the risk level of the business, an environmental approval may be required under Government Regulation 22/2021.
Some types of real estate businesses, such as hotels, are subject to Minister of Environment Regulation 5/2014 on Wastewater Quality Standard (as amended). Certain residential real estate businesses, such as housing and condominiums which generate domestic wastewater, are subject to Minister of Environment and Forestry Regulation P.68/MENLHK/SETJEN/KUM.1/8/2016 on Domestic Wastewater Quality Standards.
Activities involving the development, use and occupation of real estate must not pollute the ambient air, and the ambient air must comply with the quality standards under Attachment VII of Government Regulation 22/2021.
Activities involving the development, use and occupation of real estate must comply with the disturbance quality standards set out in Government Regulation 22/2021. Further regulations on the disturbance quality standards will be issued in the form of a ministerial regulation, although this has not yet been issued to date.
Activities involving the development, use and occupation of real estate must further comply with the Standard Criteria of Environmental Damage under Government Regulation 22/2021.
9.2 Who can be held liable for environmental contamination and how are clean-ups effected?
Under Indonesian law, liability for violations of the Environmental Law and regulations rests with the party that causes the environmental pollution. The following sanctions can be imposed on such parties under the Environmental Law:
- Administrative sanctions: These include:
- written reprimands;
- coercive measures taken by the government;
- suspension of the environmental licence; and
- revocation of the environmental licence.
- Criminal sanctions: These may be imposed for wilfully engaging in activities that breach the quality standards that apply to the ambient air, water, seawater or environmental damage levels. If the environmental crime is committed by or on behalf of a business entity, the criminal charge and the sanction will be imposed on the business entity or the person who gave the order to commit the crime or who served as the executive at the time when the crime was committed.
- Civil liability: This is borne by those responsible for a business or activity that causes pollution or damages the environment, with the result that others suffer losses or the environment is harmed. They must pay compensation or take certain actions accordingly.
If it is not known who caused the environmental pollution, the owner or occupier of the land may be held liable. It is therefore advisable to conduct soil tests, especially before the acquisition of a site, where the seller engages in industrial activities which may produce contaminants; and to include representations and warranties on environmental pollution in a side agreement with the seller.
9.3 What environmental provisions and considerations should be factored into real estate transactions?
The legal provisions outlined in question 9.2 must be considered, as occasionally international lenders have been sued in the Indonesian courts or abroad for financing a project which has harmed the environment. Among other things, Article 11 of Financial Services Authority (OJK) Regulation 51/POJK.03/2017 requires banks to submit an action plan for sustainable financing and a sustainability report to the OJK. Non-governmental organisations can point to this provision to claim that lenders must ensure that borrowers comply with the environment requirements. However, creditors can argue that they have satisfied this obligation if they impose such a requirement under their loan documents. We have not heard of any creditor being held liable for financing a borrower which caused pollution or any other harm to the environment.
9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?
Several regulations have been issued in order to endorse the development of green buildings and energy efficiency, such as Minister of Public Works and Public Housing Regulation 02/PRT/M/2015 of 2015 on Green Buildings and Governor of DKI Jakarta Regulation 38/2012 on Green Buildings. These regulations generally provide that the technical requirements for green buildings cover:
- energy efficiency
- water efficiency;
- indoor air quality;
- land and waste management; and
- observation of safety, work health and environment, and water conservation measures when undertaking construction activities.
Additionally, Indonesia implements the Clean Development Mechanism (CDM), which generates emission credits through projects that reduce greenhouse gas emissions in various sectors. The CDM is one of the mechanisms under the Kyoto Protocol, which actually expired on 31 December 2020; its continuation has not yet been discussed. A Presidential Regulation on the State Action Plan to Reduce the Greenhouse Effect was issued in 2011, which specifies:
- various activities which may directly or indirectly reduce the greenhouse effect in agriculture, energy and transportation, forestry and peat land areas, industrial areas and waste management areas; and
- how to monitor and report greenhouse gas emissions.
9.5 What types of environmental certifications apply in your jurisdiction?
The requisite environmental certification/licence in Indonesia is simplified as an environmental approval that takes the form of either an environmental feasibility decree or a statement of capability in environmental management which has been approved by the central government or a regional government.
10 Trends and predictions
10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Real estate is one of the sectors that has been most significantly affected by the introduction of the Job Creation Law in late 2020 and the issuance of its implementing regulations in 2021. Major and minor changes have been made to many regulations pertaining to real estate, with the aim of creating an easier and more comfortable investment environment. For instance, the very protective rights to property have been relaxed under the new regime. Foreign individuals used to be highly restricted in terms of real estate ownership, as they were only allowed to own a right to use and to lease. Moreover, foreign individuals were also only allowed to purchase units in condominiums built on right to use land. If they purchased a condominium unit built on land under a right to build or a right to manage, the original certificate for right of ownership of a condominium unit had to be directly converted into a certificate for right to use of a condominium unit, which not only extended the procedure, but also left the foreign individual with a less valuable type of ownership. Thus, investments in condominiums proved less attractive to foreigners, despite the inflows and outflows of foreigners entering and exiting Indonesia for work. As a result of the changes introduced under the Job Creation Law, a foreigner with the proper immigration documents may hold a right of ownership of a condominium unit that is built on right to build or right to use land in:
- a special economic zone;
- a free trade or free port zone;
- an industrial area; or
- other economic zones.
This new regulation – together with the long-awaited long stay permit, which is also under discussion – is expected to increase interest in condominium investment in Indonesia.
11 Tips and traps
11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?
One of the most crucial matters that investors should consider concerns the land acquisition of the real estate in question. How was the land acquired? How was the acquisition concluded? What type of right is involved and what rights and obligations does it entail? Land acquisition can be a very sensitive matter in Indonesia, especially when it comes to a large-scale acquisition that involves an obligation to pay compensation to the rightful parties. Rigorous land due diligence may take time and be costly, but it must be conducted in order to avoid potential problems in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.