Things you need to consider before purchasing land in Indonesia

Summary Checklist of Purchasing Land in Indonesia:

• Only Indonesian citizens are entitled to full land ownership rights or Freehold Rights (Hak Milik). Do not bother if someone tells you differently. 
• If you are a foreigner we strongly advise you to incorporate a company that will hold the land because land ownership rights under a company are stronger than any individual rights a foreigner can obtain. 
• Check for proof of land ownership in the form of a certificate. Make sure the landowner possesses a valid certificate of land ownership.
• If the landowner has the certificate, you must examine the following things:
  • The name(s) of the owner. If there are a few names stated on the certificate, make sure that they all are in agreement with and have signed the Deed of Sale and Purchase. 
  • Land area. Make sure the land meets the minimum area requirements for your business, e.g. villa management — most regions require an area of at least 1,000 square metres to be eligible for a Business Permit.
  • The land allotment. In the event that the land is specifically reserved for agriculture, you have to ask the local National Land Agency (BPN) if it can be rezoned to fit your business. 
• Before purchasing land, make sure the land is free from any disputes involving family members, relatives, etc. 
• Make sure the land meets the zoning requirements. If the land is located in a no-build zone, in a natural disaster-prone area, or in an area where commercial activities are prohibited, you will not be granted the Building Permit (Izin Mendirikan Bangunan or IMB) nor can the land allotment be changed.
• If your business involves the sale of alcoholic beverages ensure the land is situated at a certain distance from schools, mosques, churches, temples and other religious buildings. The distance requirements vary by region.
• Find a reputable notary who will take care of the following things while purchasing land:
  • Make the Deed of Sale and Purchase. 
  • Change the name(s) of the former owner to your company’s. 
  • Convert the Freehold Right (Hak Milik) to the Right of Building (Hak Guna Bangun or HGB) under your company if you have purchased the land from an individual landowner.

—

Introduction

In our previous article, we explained the different types of land rights available in Indonesia. Only Indonesian citizens (WNI) can have true land ownership rights (Hak Milik)[i]. Foreign individuals (WNA) and foreign corporate entities with local representation who own land in Indonesia, may be granted one of the following land rights:

• The Right of Exploitation (Hak Guna Usaha or HGU), usually granted to mining and logging industries for a period of 25 years, and maybe renewed for another 25 years;

• The Right of Building (Hak Guna Bangunan or HGB), right to build and own buildings on the land for a period of 30 years and can be extended for another 20 years.

• The Right of Use (Hak Pakai) which is valid for a period of up to 30 years and may be extended for an additional 50 years;

Land ownership is a complicated subject and this article will discuss the four most useful tips to consider purchasing land in Indonesia.

Tip 1: Check for Proof of Land Ownership

If you purchasing land from an individual landowner, you need to find out whether or not he/she possesses the certificate of land ownership. Proof of land ownership is given in the form of a certificate[ii] and only about 53% of land in Indonesia has officially been certified[iii]. There are three circumstances to consider:

1. The landowner does not possess the certificate of land ownership due to various reasons, e.g financial incapability: In this case, you need to prepare to pay to obtain the certificate for the land.

2. The landowner has the certificate: In this case, you must thoroughly examine the following things in the certificate:

   • The name(s) of the owner. Note: If there are a few names stated on the certificate, make sure that they all are in agreement with and have signed the Deed of Sale and Purchase;

   • Land area. Make sure the land meets the minimum area requirements for your business, e.g. villa management — most regions require an area of at least 1,000 square metres to be eligible for a Business Permit.

   • The land allotment. In the event that the land is specifically reserved for agriculture, you have to ask the local National Land Agency (BPN) if it can be changed to fit your business. Otherwise, you will only be permitted to conduct agricultural business on the land. 

3. The land is occupied by someone claiming to be the “Sole Owner” when in fact the land belongs to another party e.g. forest areas owned by the government, or disputes within family members: In this case, buying land is NOT recommended at all.

Remember that only Indonesian citizens are entitled to full land ownership rights or Freehold Rights (Hak Milik). Do not bother if someone tells you differently or suggests using a nominee to get a Freehold Right. It is simply not possible. 

Tip 2: Make Sure the Land Meets the Zoning Requirements

Each province in Indonesia has its own zoning regulations. You need to research in advance if the land is in the right zone to run the business you intend to. You can request the National Land Agency (BPN) representative in your area to check the zoning requirements and make sure the land is fit for what you plan to do with it. If it turns out that the land is located in a no-build zone or in a natural disaster-prone area, you will not be granted the Building Permit (Izin Mendirikan Bangunan or IMB). Unfortunately, many foreigners have purchased land in Indonesia only to discover later that they cannot build anything on it.

If your business involves selling alcoholic beverages, the land must be situated at a certain distance from schools, mosques, churches, temples and other religious buildings to be eligible for a Business Permit. Again, the distance requirements vary by region. 

Tip 3: Check the Requirements for Obtaining a Building Permit (IMB)

If the land is located in a zone permitted to do business and construction and you want to build on it, you must obtain a Building Permit (IMB). Make sure to check the requirements you must fulfil in order for the IMB to be issued. The IMB is extremely important because if a building does not have it, the local government has the legal right to demolish the building at any time.

Note that IMB regulations vary by region so spend some time researching what is permitted prior to constructing a building. For instance, in Buleleng, Bali, there are several interrelated regulations that you must observe to obtain the IMB, namely:

1. The Regional Regulation of the Regency of Buleleng No 9/2013 concerning the Spatial Planning of the Regency of Buleleng.

2. The Regional Regulation of the Regency of Buleleng No 2/2012 concerning Licensing. 

3. The Regional Regulation of the Regency of Buleleng No 1/2015 concerning Buildings.

Tip 4: Use a Reputable Notary for Purchasing Land

If the land meets the above-mentioned criteria and can be used as a place of business in accordance with the zoning regulations, you may consider a purchase. Note that purchasing land should only be done with a notary based on where the land is located. When you have purchased the land, carried out the transaction, and received the certificate from the landowner, it does not mean that the land automatically belongs to you or your company. There are a few other hurdles you still have to go through with the help of the notary.

Be mindful that certain notaries and agents sometimes do not act in good faith and avoid disclosing these issues in order to execute the transaction quickly and get paid right away. Be mindful that even though notaries are public officials, they may not always follow the law. Like any profession, the quality and integrity of notaries can vary widely. You must also ensure that the Sale and Purchase Agreements are in compliance with Indonesian law and regulations. Consult with a trusted advisor to address these matters and make sure you choose your notary wisely.

Closing Thoughts of Purchasing Land in Indonesia

These are our top four tips with respect to purchasing land in Indonesia If you need assistance in purchasing land or have other questions that have yet been addressed in this article, please reach out to us via email at anita@permitindo.com or simply by filling out the contact form.

References of Purchasing Land in Indonesia

[i] Agriculture Law No 5/1960
[ii] Government Regulation No 24/1997
[iii] 59 Juta Bidang Tanah Belum Bersertifikat, Pemerintah Targetkan Selesai 4 Tahun ke Depan https://www.pikiran-rakyat.com/nasional/pr-01343083/59-juta-bidang-tanah-belum-bersertifikat-pemerintah-targetkan-selesai-4-tahun-ke-depan

Photo by Laurentiu Morariu

Any questions? Contact us!