Answer ... 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.