2. "In investing, what is comfortable
is rarely profitable."
Robert Arnott, American Entrepreneur
3. Outlines
• Legal framework of land in Indonesia
• Foreign investment on real estate
• Increase of bank rate
• Authority delegation from central government to local
government on land and building taxes (PBB) and
acquisition levy of rights of land and building (BPHTB)
• Balanced occupancy rules
• Expectation on land law and acknowledgment and
protection of customary community rights
3
4. Overview of Right of Land in Indonesia
• Right of Ownership (Hak Milik)
• Right to Cultivate (Hak Guna Usaha)
• Right of Use (Hak Pakai)
• Right to Build (Hak Guna Bangunan)
• Right of Ownership over Condominium Unit (Hak
Milik Atas Satuan Rumah Susun)
4
5. RIGHT OF OWNERSHIP
Right of Ownership is the most powerful and the fullest
hereditary right which can be owned by a person over a land.
5
6. Owned by Indonesian only
Cannot be owned by foreigner and legal entity.
Except the legal entity that was appointed by
government, as follows:
a. State Bank
b. Agricultural Cooperatives
c. Religious Institutions
d. Social Institutions
Period of Time:
Indefinite
6
7. RIGHT TO CULTIVATE
DEFINITION
A right to operate the land directly controlled by
States, with certain period of time, for plantation,
fishery or animal husbandry purpose
7
8. RIGHT TO CULTIVATE
Subjects who are able to hold
Right to Cultivate
• Indonesian citizen;
• Legal entity established based on Indonesian law and
domiciled in Indonesia.
8
9. RIGHT TO CULTIVATE
Time period of Right to Cultivate
Maximum 35 (thirty five) years.
May be extended for maximum 25 (twenty five) years.
After the period and the maximum length of time is expired, right
holder may be given renewal for another 35 years (maximum).
9
11. RIGHT TO BUILD
Subjects who are able to possess
Right to Build
• Indonesian citizen;
• Legal entity established based on Indonesian law and
domiciled in Indonesia.
11
12. RIGHT TO BUILD
Time period of Right to Build
Maximum 30 (thirty) years.
May be extended for maximum 20 (twenty) years.
After the period and the maximum length of time is expired, right
holder may be given renewal for another 30 years (maximum).
12
13. RIGHT OF USE
DEFINITION
A right to use and/or to take the production of a
land which directly controlled by state or a land
which belong to other person, who grants
authority and obligation that is stipulated by
authorized officer or in the agreement with the
landlord.
13
14. RIGHT OF USE
Subjects who are able to possess
Right of Use
• Indonesian citizen;
• Foreigner domiciled in Indonesia;
• Legal entity established in Indonesia based on Indonesian law and domiciled
in Indonesia;
• Foreign legal entity that has a representative office in Indonesia;
• A religious and social entity;
• Representative from foreign country and International Organizations bodies;
• Department, Government bodies Non-Department and Regional
Government.
14
15. RIGHT OF USE
Time period of Right of Use
Maximum 25 (twenty five) years.
Extended for maximum 20 (twenty) years.
After extended, can be renewed for another 20 years
(maximum)
15
16. RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT
DEFINITION
a multilevel building which is built in an area that
is divided into sections which are structured
functionally whether horizontally or vertically that
constitutes as units in which each can be owned
and used separately, mainly for housing
complemented with common equipment,
common facilities and common land.
16
17. RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT
Time period of Right of Ownership over Condominium
Unit
The time period of the Right of Ownership over Condominium Unit
follows its underlying right of land where the condominium is built.
17
18. Condominium
can be built over
Right of Ownership
Right to Build or
Right of Use over the
State Land
Right to Build or Right
of Use over the Right
of Management
RIGHT OF OWNERSHIP OVER CONDOMINIUM UNIT
18
19. Foreign Investment on Real Estate
To conduct real estate business in Indonesia under the current law, a
foreigner or foreign legal entity must establish a limited liability
company (PMA). Currently, there is no restriction on a foreigner or
foreign legal entity establishing a wholly foreign-owned PMA
company in the real estate sector.
19
20. Industry Business Field Classification (KBLI)
KBLI Code:
68110 (Real Estate that are Owned or Leased)
Description:
This group includes the business of buying, selling, leasing, and operating the
real estate that are owned or leased, such as apartment building, residential
building and non residential building. Including the activity of the selling of land
and the operating of residential area.
20
21. Indonesia Investment Coordinating
Board (BKPM) Latest Policy on PMA
Head of the Indonesia Investment Coordinating Board (BKPM) Regulation No.5 of
2013 on Direct Investment License and Non-License Guidelines and Procedure
as amended by Regulation No.12 of 2013
21
22. Minimum Capital Investment
The BKPM Regulation now clarifies the minimum investment as well as capitalisation
requirements for PMA Companies. PMA Companies must have at least:
•minimum investment (i.e., capital, loans and retained profits) more than 10 billion
rupiahs (or its equivalent in US Dollars);
•issued and paid-up capital of at least 2.5 billion rupiahs (or its equivalent in US
Dollars).
22
Capital
23. Investment Procedures
In the new regulation, there is a removal of
Registration Procedure
23
Investors
Principle
License
Business License
24. Project Completion
24
Under Article 24 Indonesia Investment
Coordinating Board (BKPM) Regulation No.5 of
2013
• A three-year time frame for completion of projects set out in foreign investors’
business plans. Longer timescales may apply for certain specific business
sectors.
• In the event of failure to complete a project within the applicable time frame, the
BKPM will grant an audit, following which the licence will either be extended for
another single term of three years or revoked.
26. Bank of Indonesia Latest Policy
Circular Letter of Bank of Indonesia No.15/40/DKMP
(enacted on September 24, 2013)
Implementation of Risk Management for Banks Providing Loans or
Financing for Property, Loans or Property-backed Consumer Financing,
and Loans or Vehicle Financing
The background of the publication is to increase the prudential aspects of
banks related credit distribution of property
Effective as of September 30, 2013
26
27. Background
• The growth of home ownership loan (KPR)/condominium
ownership loan (KPRS) with building area more than 70m2 has
reached 25.5% and 63.3% respectively in July 2013, which is
more than the aggregate loan growth.
• According to Debtor Information System of April 2013, 35,298
debtors owning over 1 KPR with loan value of Rp 31.8 trillion.
• Therefore, BI considers it important to have a policy that can
strengthen financial sector to minimize risks that may arise,
including the excessive loan growth or property financing, and
property-backed consumer financing.
27
28. Loan to Value (LTV) or Financing to
Value (FTV) Ratio
28
Ratio between credit value or financing given by
bank against real estate value as security at the
time of credit or financing is granted according to
last appraisal value
29. Loan/Financing
and Type of
Collateral
Maximum
Facility I
LTV/FTV
Facility II Facility III
Home Ownership Loan
(KPR) Type>70m2
70% 60% 50%
Condominium
Ownership Loan
(KPRS) Type>70m2
70% 60% 50%
Home Ownership Loan
(KPR) Type 22-70m2
- 70% 60%
Condominium
Ownership Loan
(KPRS) Type 22-70m2
80% 70% 60%
Condominium
Ownership Loan
(KPRS) Type - 21m2
- 70% 60%
Ownership Loan (KP)
Home Office/Home
Store
- 70% 60%
29
30. Sample Case 1
In June 2013, A intends to purchase a condominium with a
building area of 80 sqm of Rp 1 billion. A has signed a conditional
sale and purchase agreement with the developer and has paid the
down payment. A applies for condominium ownership loan
(KPRS) for Rp 700 million (70% x Rp 1 billion). The bank obtains
information that A has already obtained home ownership loan
(KPR) for Rp 500 million from other bank (therefore,the application
is A’s second facility), the property construction will be
commenced in December 2013, and delivery date will be in July
2016. According to that information, the bank may not provide
facility to A until the physical condominium is ready or the first
facility has been fully paid.
30
31. Sample Case 2
A has obtained the home ownership loan (“KPR”) to
purchase the house in site X, with the building area
of 100m2 (one hundred square meter) in January
2012. During the term of KPR, A has applied for
another KPR facility to purchase the house in site Y,
with the building area of 150m2 (one hundred and
fifty square meter) in June 2013. In this case, the
calculation of LTV will be as follows:
31
33. Circular Letter of Bank of
Indonesia No.15/40/DKMP
•Banks are not allowed to provide loan for down payment
•Banks are allowed to provide loan if the property is physically existed and
ready to be delivered
However, there are some exceptions to this rule:
•if the facility is the first facility to the debtor;
•a cooperation agreement between bank and developer stipulating
commitment by the developer to complete the property;
•a corporate guarantee by the developer;
•the gradual disbursement of facility according to the construction progress;
•the devaluation of credit quality of the developer if it cannot complete the
property construction within a specified delivery date.
33
34. Land and Building Tax & Acquisition
Levy of Right of Land and Building
Legal Basis:
Law No.28 of 2009 on Local Taxes
New changes to local tax law
as a follow-up to the regional autonomy policy and fiscal decentralisation.
34
35. Effective as of January 1, 2014
35
0.5% Maximum of 0.3%
Land and Building Tax Rate
36. 36
Acquisition Levy of Right of Land and
Building Rate
5% Maximum of 5%
Effective as of January 1, 2011
37. Balanced Occupancy
Legal Basis:
Regulation of the Minister of Housing No.10 of 2012 on Implementation
of Housing and Settlement Area With Balanced Occupancy
Balanced Occupancy is a housing and residential areas built in
balanced with a certain composition in the form of a single house and
row house between the modest house, middle house and luxurious
house, or in the form of public and commercial condominium.
Balanced Occupancy on Condominium is housing and residential
areas built in balanced between commercial and public condominium.
37
38. No. Location of Balanced
Occupancy
Scale
1. Housing at least 15 (fifteen) houses to 1,000 (one thousand)
houses
2. Settlement at least 1,000 (one thousand) houses to 3,000 (three
thousand) houses
3. Occupancy Area at least 3,000 (three thousand) houses to 10,000
(ten thousand) houses
4. Settlement Area more than 10,000 (ten thousand) houses
LOCATION REQUIREMENTS FOR BALANCED OCCUPANCY
38
39. COMPOSITION OF BALANCED OCCUPANCY ON HOUSING
The comparison based on the number of houses
It means the comparison of modest house, middle
house and luxurious house.
The comparison is in the scale of 3:2:1.
The comparison is 3 (three) or more modest houses against 2
(two) middle houses against 1 (one) luxurious house.
39
40. COMPOSITION OF BALANCED OCCUPANCY ON HOUSING
The comparison based on the area of the land.
It means the comparison of area for modest house
against total land area.
The area of land for a modest house is at least 25% (twenty five
percent) from the total land area with the amount of modest
houses at least equal to amount of luxury houses plus amount of
middle houses.
40CONT’D
41. Developed proportionally between commercial condominium and public
condominium.
It means at least 20% (twenty percent) from the
total floor area of commercial condominium.
The public condominium may be developed in a separate building
from the commercial condominium; or
Built within the area of commercial condominium.
COMPOSITION OF BALANCED OCCUPANCY ON
CONDOMINIUM
41
42. COMPOSITION OF BALANCED OCCUPANCY ON HOUSING
Developers who only develop medium houses.
Develop modest houses at least 1 ½ times of the number of
medium houses to be built.
42CONT’D
44. Land Law
This regulation will complement and enhance operational
of Law No.5 of 1960 on Principle Provisions on
Agrarian
This regulation will stipulate:
•the formation of a court for the resolution of disputes
related to land;
•agrarian reform;
•acquisition of the land ownership based on customary;
•the use of space above and beneath the land.
44
45. Acknowledgment and Protection of Customary
Community Right
45
National Legislation
Program (Prolegnas) 2012
to provide certainty for customary community in
order to be recognized as a legal subject of land
rights.
46. Acknowledgment and Protection of Customary
Community Right
46
This regulation will stipulate:
1.The scope of recognition and protection: identification,
verification, and determination of customary community;
2.Rights and obligations of customary community;
3.The presence of customary institution and committee to
support the conservation, development and empowerment;
4.Dispute settlement mechanism through mutual consent,
customary institution and customary court.
47. Concluding Pointers
47
• Understand the legal framework of land and building law in
Indonesia;
• Foreign investment on real estate is 100% opened;
• Increase of bank rate offers challenges to developers;
• Authority delegation from central government to local
government on land and building taxes (PBB) and acquisition
levy of rights of land and building (BPHTB);
• Balanced occupancy is a must;
• Expecting land law and acknowledgment and protection of
customary community rights.
