Background

Land ownership in Indonesia is regulated strictly, especially when it comes to foreign ownership. In principle, full land ownership by foreign parties is not allowed, as the Indonesian agrarian law framework focuses on national sovereignty over the state’s land and the natural resources that lies within. While this aligns with the legal policy of the constitution, which emphasizes the state's control over land, this issue has, for years, posed a challenge for the Government of Indonesia (“GoI”) in luring foreign investments, which in most cases, demands a long-term certainty in terms of land ownership and land utilization.

In recent years, GoI have started to show an even greater spirit in opening their investment tab for foreign investors, especially in the context of the development of Indonesia’s new capital city, namely Ibu Kota Nusantara or Nusantara Capital City (“IKN”). To support the IKN mega-project, the GoI is trying to lure investors through reforming several policies as well as relaxations that encompass aspects like immigration, permits, taxation, and agrarian affairs. These steps were taken to ensure the success of IKN’s development, as well as other areas to achieve GoI’s vision.

One of the policies that reflects the great spirit is the Golden Visa program, which creates an ease of access for foreign investors to stay and conduct business in Indonesia. In addition, there is also an extension of the term of land utilization rights specifically tailored for IKN area and other areas through their determination as a Proyek Strategis Nasional or National Strategic Project (“PSN”). 

Overview of Indonesia's Land Ownership Structure

Indonesia’s land ownership framework is regulated by Law No. 5 of 1960 on Basic Agrarian Principles, or as we know as the Indonesian Basic Agrarian Law (“BAL”). In this case, BAL have established a hierarchy of land rights both for Indonesians and foreigners with certain parameters. 

BAL recognizes several levels of land rights, ranging from the top, is Hak Milik or Right of Ownership (“HM”), which grants full and indefinite ownership over land, allowing landowners to sell, transfer, and even pledged land as security for loans. Only Indonesian citizens are eligible for a HM. Next is Hak Guna Bangunan or Right to Build (“HGB”), which gives right owners to build and own structures on top the land for a maximum total period of 80 years (initial cycle will be given for 30 years, extendable for another 20 years, and renewable for another 30 years). Hak Guna Usaha or Right to Cultivate (“HGU”) on the other side, allows right owners to cultivate for agricultural and plantation purposes. Eligible parties for HGB title include Indonesian individuals and legal entities established, incorporated, and existing under Indonesian laws. The last is Hak Pakai or Right to Use (“HP”), which grants usage rights for particular uses and time period.

Foreign individuals can acquire HP for the purpose of residential properties, with terms for up to 80 years (initial cycle will be given for 30 years, extendable for another 20 years, and renewable for another 30 years). In relation to residential properties, there is another right called Hak Milik atas Satuan Rumah Susun (“HMSRS”) (more or less similar to Strata Title in other jurisdictions). HMSRS gives access to apartment ownership for both foreign and Indonesian nationals. At last, is the Hak Sewa or Right to Rent (“HS”). As the name suggests, it gives rights to foreign nationals to rent an establishment for the purpose of housing, for example. To add, foreign owned businesses can obtain HGB, HGU, or HP, as long as the entity is classified as foreign investment company established under Indonesian law. 

Given the brief explanation above, BAL has substantially balanced the approach between preserving Indonesia’s sovereignty over their land resources, while also trying to foster economic growth. It can also be said that over the years, BAL arguably has successfully balanced the interests of domestic and international property demands. 

However, recently the GoI has viewed that the key provisions, in this six-decade-old legal document, may not be sufficient to support its ambitions in developing the mega project; the IKN. As a result, the relaxation package for foreign ownership has been introduced to attract more investors.

Over the years, the GoI has introduced several initiatives aimed at transforming and attracting strategic investments, domestic and foreign. Especially in the context of foreign investors, one example is the initiation of the Golden Visa program, which provides foreign nationals with long-term residency that benefits their investment activities. 

Golden Visa

The Golden Visa program acts as an encouragement from the GoI for foreign investors to come and invest their money in Indonesia. The program is introduced through the enactment of Minister of Law and Human Rights Regulation No. 22 of 2023 on Visas and Stay Permits as amended by Minister of Law and Human Rights Regulation No. 11 of 2024 (“MOLHR Reg 22/2023”), which targets strategic foreign investors by offering long-term residency in exchange for their substantial economic contributions. 

For Indonesia’s Golden Visa program, independent foreign investors aiming to establish a company in Indonesia must invest either IDR 38 billion (USD 2.5 million) for a 5-year visa or IDR 76 billion (USD 5 million) for a 10-year visa. Foreign corporations establishing a company need to invest IDR 380 billion (USD 25 million) for a 5-year visa, applicable to their directors and commissioners, or IDR 760 billion (USD 50 million) for a 10-year visa. For independent foreign investors not establishing a company, a 5-year visa requires an investment of IDR 5.3 billion (USD 350,000), and a 10-year visa requires IDR 10.6 billion (USD 700,000) in government bonds, public shares, or deposits.

What differentiates Izin Tinggal Terbatas or Limited Stay Permit (“ITAS”) and Izin Tinggal Tetap or Permanent Stay Permit (“ITAP”) with Golden Visa?

In this case, ITAS and ITAP work visas are for foreigners employed by Indonesian companies. Regarding ITAS, it is generally issued for a term 6 to 12 months, while also requiring employer sponsorship and targets foreigners with specific job functions. Meanwhile ITAP offers longer-term residency for those with ITAS or Indonesian family ties. Unlike Golden Visa, which requires direct investment, both options require renewals and has dependency on employment or family factors. Therefore, investors and businesspersons can clearly benefit from the Golden Visa's independence from job-based sponsorship and long-term flexibility, while Indonesian companies require work visas for certain job roles.

How Golden Visa intersect with Land Ownership in Indonesia

Golden Visa does not change any land ownership rights to foreign parties; nevertheless, it can indirectly stimulate demand for residential and commercial purposes. The demand for land leases and partnerships with local landowners could be on the rise if more foreign investors and companies establish a presence in Indonesia. In the process, foreign investors frequently seek long-term and stable arrangements. This demand has the potential to stimulate additional development, elevate land values, and establish a competitive leasing market that is advantageous to both investors in search of operational bases and local property owners who benefit from increased leasing fees and improved infrastructure development.

Besides the introduction of the Golden Visa program, Presidential Regulation No. 75 of 2024 on the Acceleration of the Development of the Capital City of Nusantara (“PR 75/2024”) also creates incentives for potential investors, domestic or foreign on a certain area in IKN.

IKN

The kick-off of the IKN project it has shapeshifted Indonesia’s land ownership policies, though limited just for the IKN area. In IKN, GoI has introduced some fine-tuned legal instruments that foster investor’s interests. These changes include expedition of land acquisition process and extended land rights, aimed to encourage the private sector’s involvement.

One of the examples of a development of land ownership policies in IKN is the extended cycle of HGU, HGB, and HP. In the current Indonesian regime, GoI grants HGU to right owner a first cycle for 35 years, which is extendable for another 25 years and renewable for another 35 years (second cycle), totaling 95 years. Meanwhile, for both HGB and HP, initial cycle will be given for 30 years, extendable for another 20 years, and renewable for another 30 years (second cycle), totaling 80 years period.[4] Meanwhile in the IKN regulatory regime, the initial cycle of HGU is 95 years and is extendable for another 95 years (second cycle) subject to evaluations; totaling 190 years. On the other hand, both for HGB and HP, an initial cycle of 80 years, which is also extendable for another 80 years (second cycle); totaling 160 years, subject to evaluations as well.[5] 

The evolving landscape clearly creates a more flexible approach that is intended to meet the needs of local and foreign investors while still allowing GoI control over strategic areas. The most important thing is that it creates a new precedent that has the potential to pave the way for more accommodating land ownership models in other regions across Indonesia.

Land Acquisition Process in Indonesia

In Indonesia, the process of land acquisition is very intricate and is strictly regulated to balance public interest and private investment needs. Through the enactment of Government Regulation No. 21 of 2021 on the Organization of Spatial Planning (“GR 21/2021”), the GoI introduced Ketentuan Kesesuaian Kegiatan Pemanfaatan Ruang or Conformity of Space Utilization Activities (“KKPR”), previously referred to as the location permit. As the name suggests, KKPR aims to ensure that every activity that are carried out above the land within a designated spatial zoning plan is aligned with Indonesia’s spatial planning objectives. 

KKPR mandates strict compliance with GoI’s specific spatial zoning plans, which directly influence how land can be acquired and developed. Under these circumstances, investors, either local or foreign are required by law to obtain KKPR approval before they can start developing projects, especially in sectors such as infrastructure, energy, even housing, as those sectors are essential to achieve Indonesia’s development goals.

Despite the strict regulation, one notable aspect of KKPR in the context of land acquisition is its function as a document that secures the right to acquire the land before finalizing the land purchase. This allows investors to lock-in the land’s intended use within the spatial planning zone, ensuring that no other party can claim the land until the KKPR expires, as the KKPR can only be issued once for the covered area.

Furthermore, there are more of added ‘conveniences’ in regard to land acquisition in the context of PSN. Through Rekomendasi Kesesuaian Kegiatan Pemanfaatan Ruang or Recommendation for the Conformity of Space Utilization Activities (“RKKPR”) mechanism. GoI allows RKKPR holders a longer-term permit duration, valid for 3 years, with the possibility of unlimited extensions as long as it remains in alignment with permit holder’s land acquisition plan documents. Meanwhile for KKPR, the standard validity of the permit is 3 years, and may be extended for another 2 years by taking into account the project’s progress as well as compliance with the spatial plan requirements.

Implications for Future Investments, Legal Framework, and Other Challenges

As the GoI have started initiatives to developments, such as IKN investment incentives which includes adjustments in land ownership policies, it surely has broad effect for future investment as well as the legal framework of land acquisition in Indonesia. At the same time, the relaxation of stringent requirements of land rights in strategic areas like IKN, and the introduction of long-term residency for foreign investors may represent a significant chance for growth. These initiatives could clearly contribute to investor’s confidence, simplifying land acquisition processes, and thus promoting a stable, long-term economic contributions. 

The IKN project, which has a more flexible approach to land acquisition, offers a valuable example of how land acquisition processes can be streamlined to encourage investor’s confidence. By relaxing complex land rights requirements, IKN is creating a model for future strategic areas. These changes aim to simplify land acquisition, making it easier for investors to access land for infrastructure and development projects. The success of these policies in IKN could serve as a blueprint for other regions, demonstrating how a more investor-friendly approach can promote economic growth, attract foreign investment, and facilitate long-term, sustainable development. 

While IKN project can be seen as a step forward, GoI’s future decisions regarding land acquisition regulations, especially beyond the IKN area, will be crucial in determining how effectively these initiatives can promote a widespread investment and development across Indonesia, particularly in addressing more diverse land issues, including uncertified land and traditional land rights.

Moving on to the issues, Indonesia’s vast archipelagic landscape with a diverse population of over 277 million that comprised 1,340 ethnic groups, and covering 1,905 sq.km. of land area,[6] brings unique complexities to land utilization and ownership. Many communities, especially indigenous ones have managed to inhabit and utilize land based on their unique set of customary laws, rather than formal titles. The lack of certification often leaves these lands to vulnerable legal dispute and outside claims, as Indonesia’s formal land registration system does not fully recognize traditional rights. The disparity continues to create challenges and difficulties which affects the broader social and economic stability.

The issue above is aggravated after the enactment of Government Regulation No. 18 of 2021 on Right-to-Manage, Land Titles, Multistory Housing Units, and Land Registration (“GR 18/2021”). Historically, traditional documents like Girik or Customary Land Rights (“Girik”) and Akta Jual Beli or Deed of Sale have served as informal proof of ownership,[7] but they lack the legal security of official land titles, unlike the Sertifikat Hak Milik or Certificate of Ownership. In this case, the GoI has increasingly emphasized and pursued formal land certifications, with the goal to mitigate legal disputes, protect landowners, and to provide potential investors with greater certainty over land ownership.

The transition from traditional land documentation to formal land certifications is still a big issue, which involves intricate processes that usually do not align with longstanding customary claims. These factors have created legal vulnerabilities, and have the potential to hinder stability. At the same time presenting risks to investors intending to acquire land.

Conclusion

As Indonesia seeks to balance economic growth through investment opportunities by tweaking their existing legal frameworks, the IKN project is reshaping the land ownership possibilities, while the Golden Visa program paves the way to lure investors. As a result, stakeholders face both opportunities and challenges. To adapt to these changes, the GoI must exercise extra caution in planning a new legal framework ecosystem for future land investments, ensuring it is sustainable and, most importantly, mutually beneficial for both Indonesians and foreign parties.