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Andi Refandi
Andi serves as a Senior Account Executive on Emerhub’s global team.
If you’re looking to buy property in Indonesia, your first step is to understand the legal framework that governs foreign ownership. To protect local interests, there are strict regulations and restrictions depending on property types, ownership rights and duration, which you must carefully navigate to avoid legal and financial pitfalls. Many cases of legal disputes arise from inadequate knowledge of these rules.
In this article, we will talk about laws and regulations you need to know when buying property in Indonesia as a foreigner. We will go through land ownership laws as well as regulations regarding building and construction.
Regarding Land Ownership
Basic Agrarian Law (UU Agraria)
Indonesia’s land ownership laws are clearly defined in Undang-Undang Pokok Agraria (UUPA) No. 5 of 1960 also known as the Basic Agrarian Law. It is the fundamental legal framework and is a good starting point for understanding different rights of land and property ownership in Indonesia.
| Property Ownership Rights | What is it? | Who can own? |
| Freehold (Hak Milik) | Full and indefinite land ownership. | Indonesian citizens only. |
| Right to Build (Hak Guna Bangunan) | Right to construct and own buildings on land you don’t own. | – Indonesian citizens – Indonesian legal entities – Foreign-owned companies (PT PMA) |
| Right to Use (Hak Pakai) | Right to use and benefit from land that is either controlled by the state or owned by another party. | – Indonesian citizens – Indonesian legal entities – Foreign nationals with valid residence permits (KITAS/KITAP) – Foreign-owned companies |
| Leashold (Hak Sewa) | Contractual right to lease land or property. | Anyone including foreigners and foreign entities. |
Why is this Law Important?
Under the Basic Agrarian Law, only Indonesian citizens can own land outright (Hak Milik). As a foreigner, you must navigate alternative structures such as long-term lease agreements or acquire property through a PT PMA. This law lays the foundation for understanding property ownership in Indonesia and avoiding illegal or risky ownership structures (like nominee arrangements).
Omnibus Law (UU Cipta Kerja)
The Omnibus Law (UU Cipta Kerja) aims to promote job creation and boost investment by simplifying regulatory requirements for businesses and the land acquisition process. However, it does not override property rights as outlined by the Basic Agrarian Law. Instead adds to or simplifies some provisions such as the following:
| Aspect | UUPA | UU Cipta Kerja |
| Duration of HGB (Hak Guna Bangunan) / HGU (Hak Guna Usaha) | HGB: 30 + 20 | HGB renewal extended up to 80 years. |
| Strata title ownership (condo/ apartment) | Not defined | Allows condo ownership by foreigners under limited conditions such as price thresholds, number of properties owned, and zoning requirements. |
Why is this Law Important?
UU Cipta Kerja provides legal clarity for foreigners who want to own condos or apartments in Indonesia. It provides clear legal grounds which were previously ambiguous under older Agrarian laws. Foreigners can own apartment units and condo but do not gain land ownership rights where the apartment is built. This distinction is crucial for setting realistic expectations on the types of property rights foreigners have in Indonesia.
PP No. 103/2015 and Permen ATR 29/2016
These two regulations are the most important legal basis for foreigners (without opening a PT PMA) who wish to acquire and use land or property in Indonesia. Both explicitly state the conditions, procedures, and limitations for obtaining a Hak Pakai over land exclusively for residential purposes.
Here are key provisions of PP No. 103/2015 and Permen ATR 29/2016:
| Eligibility | Foreigners with KITAS, KITAP, diplomatic visa can obtain Hak Pakai over: – State-owned land – Land owned by an Indonesian citizen – Land with existing Hak Pakai |
| Purpose of Use | Strictly residential and not for commercial use. |
| Duration of Rights | – Initial term: 30 years – First extension: 20 years – Second renewal: 30 years Total potential duration: 80 years (granted in states, not all at once) |
| Max Land Size | For landed housing up to 2000sqm |
Why is this Law Important?
PP No. 103/2015 and Permen ATR 29/2016 clarifies how foreigners can own property mainly through Hak Pakai for landed houses and strata titles for apartments. It helps you understand restrictions on ownership areas, minimum price thresholds, and ownership duration for residential properties in case you want to acquire residential properties for relocation to the country.
Regulation No. 20/2021 on Abandoned Land
This regulation specifically controls Abandoned Areas and Land (Penertiban Kawasan dan Tanah Terlantar). It defines what is considered as “Abandoned Land” and “Abandoned Zones” as well as consequences for not utilizing occupied land.
A crucial aspect of this regulation is the requirement for land to fulfill its “social function”. This means that land use must also provide benefits to the public and the environment, extending beyond merely serving the investor’s private interest (capital gain).
Why is this Law Important?
Foreign investors are at high stake at losing their land rights and investments if their property is deemed abandoned. Proper planning to cultivate, use, utilize, or preserve the land/area should be carefully done.
The regulation clearly outlines the process for the state to acquire abandoned properties. The previous holder must vacate the land within 30 days, after which assets on the land may become state assets.
Regarding Construction of Buildings
Undang-undang Nomor 28 Tahun 2002 Tentang Bangunan Gedung
Otherwise known as the Building Construction Law, governs everything built on land. It aims to ensure buildings are safe, functional, structurally sound, and aligned with urban planning. For foreign investors, this law becomes highly relevant when developing villas, hotels, commercial property, or renovations. Here are key provisions to this law:
- Definition and scope: Under this law, a building (Bangunan Gedung) is defined as a physical structure fixed to a location, either partly or fully on or in the ground or water, serving as a place for people to conduct various activities. This includes residential, religious, business, social, cultural, or special functions.
- Building Construction and Utilization: The law regulates the entire building lifecycle, including planning, construction, utilization, maintenance, and demolition. Construction can be on one’s own land or land owned by others, but in the latter case, a written agreement with the landowner is necessary.
- Permitting System and Approvals: mandates obtaining permits such as Building Construction Permits (now under the newer system called “Building Approval”) before building, modifying, expanding, or repairing a building. This ensures compliance with technical standards and proper registration of building status.
- Roles and Responsibilities: stipulates the roles of building owners, construction service providers, and users. It also emphasizes the role of community participation and government supervision to ensure orderly and standardized building development.
- Building Data and Registration: Buildings must be recorded and registered with local government authorities to support orderly development and regulation.
Why is this Law Important?
This law serves as the foundational legal instrument for building development, aiming to balance safety, utility, environmental compliance, and societal needs. As a foreign investor, you must meet building and construction standards in Indonesia as well as obtain the correct building and construction permits as outlined by the Building Construction Law.
Peraturan Pemerintah (PP) No. Tahun 2021
Serves as the implementing regulation for Law No. 28 of 2002 (Building Construction Law) and introduces the PBG (Persetujuan Bangunan Gedung), replacing the IMB (Izin Mendirikan Banngunan) as the official Building Approval in Indonesia. Here are key provisions of PP No. Year 2021:
- Building Classification and Functions: Buildings are classified by function (residential, religious, business, social and cultural, and special functions). Buildings can also have mixed functions, prioritizing one as the main function.
- Technical and Administrative Requirements: Buildings must meet architectural, functional, environmental, and safety standards, ensuring harmony with surroundings and social-cultural values.
- Building approvals and permits: to meet building regulations and standards in Indonesia, you need to obtain the following:
- PBG (Building Approval): As of November 2021, IMB has been replaced by PBG as the Official Building approval before building new structures, modifying, expanding, reducing, or maintaining buildings.
- Certificate of Functionality (Sertifikat Laik Fungsi, SLF): certifies that a completed building is suitable for use according to its function. It must be obtained before a building can be legally utilized.
- Enforcement and Sanctions: details sanctions for non-compliance with PBG and SLF requirements including warnings, construction stoppage, suspension or revocation of permits and certificates, and demolition orders.
- Implementation of Building Lifecycle Management: covers construction, utilization, maintenance, modification, and demolition stages under an integrated regulatory framework.
Why is this Law Important?
PP No. 16 2021 outlines the approval and safety of building construction through the Persetujuan Bangunan Gedung (PBG) system. Compliance ensures that buildings meet Indonesian standards for safety, functionality, and environmental impact. It also enforces that need for an SLF before a building can be legally used to ensure the safety and usability of the property. Understanding this law helps avoid risk of operating illegally, facing fines, and/or becoming ineligible for tax registration.
To help mitigate these challenges, Emerhub’s local experts help you secure all the necessary permits and guide you through structuring property ownership under legally compliant models, such as leasehold agreements or through a PT PMA.
Want to invest in properties in Indonesia? Talk to our local experts about how you can own your own home or construct your own buildings in the country.
FAQs About Laws and Regulations You Need to Know When Purchasing Property in Indonesia
Foreigners cannot own land outright but may gain property rights through long-term leasehold arrangements. Here are documents required to lease property in Indonesia:
- Payment and proof of tax payments related to the lease.
- Valid passport for identification.
- Lease agreement (contract) notarized and registered with the relevant authorities.
- Power of Attorney if signing remotely or through a representative.
- Tax Identification Number (NPWP) for tax purposes.
A nominee arrangement in Indonesia is where a local Indonesian citizen holds property on behalf of a foreigner or a foreign entity who is the true owner. These arrangements are often used by foreigners to circumvent Indonesia’s strict foreign ownership restrictions, especially in sectors or properties where foreigners are not permitted to hold freehold rights directly.
Foreigners should not enter into nominee arrangements at all, considering other available avenues. These setups are illegal, unsafe, and widely abused.
Yes, there are restrictions on the types of properties foreigners can buy in Indonesia. Foreigners are allowed to purchase condominiums or apartment units under certain conditions. The regulations aim to protect national interests while still allowing foreign investment under controlled and legal frameworks.
When buying property in Indonesia, here are tax obligations for both buyers and sellers:
| Buyer | Seller |
| – Land and Building Acquisition Fee (BPHTB): 5% of the transaction value or assessed property value (whichever is higher), minus a non-taxable threshold. – Value Added Tax (VAT): 12% may apply if the seller is a taxable entrepreneur (PKP). – Notary and registration fees are also payable but are not taxes. | – Final Income Tax (PPh): 2.5% of the property’s selling price for freehold property. – For leasehold, the lessor pays an income tax of 10% on the lease value. – Annual Land and Building Tax (PBB) must be paid by the owner until the sale is completed. |
To verify the authenticity of a property’s land certificate in Indonesia, you should:
- Check the land certificate with the National Land Agency (Badan Pertanahan Nasional or BPN).
- Verify other related documents such as:
- Sale and Purchase Deed (Ajb)
- Proof of Land and Building Tax (PBB) payments
- Identity documents of the seller to ensure the owner on the certificate is legitimate.
Engage with professionals in Indonesia such as Emerhub to conduct comprehensive due diligence including ownership history, legal status, encumbrances, and government restrictions.
