Agricultural investment and Trade Opportunities in Indonesia (3)

Indonesia's land legislations do not recognize the concept of freehold land rights. Instead the various right attached to the land are subdivided into separates titles.

The Basic Agrarian Law (Law no. 5 of 1960) recognizes type of rights on land of non-state-forest area, whereas state forest-area, the Law no 5 0f 1967 on forestry is applied. To foreign as well as domestic investor, the following three main rights are significant; the Land Cultivation Rights (Hak Guna Usaha, abbreviated as HSU), the Right of Building on Land (Hak Guna Bangunan, abbreviated as HGB) and the Right of Use on Land (Hak Pakai, abbreviated as HP). These rights authorize the use of land in some ways, and their differences are mainly on the duration of validity, the nature of utilization, the opportunity to mortgage (to use as asset or collateral) and proof of title:

1. The Land Cultivation Right (HGU) is the right to use a state Owned Land for the purposes of agriculture namely plantation, or cattle rising. By law the title is granted for maximum period of 35 years, but can be extended to 25 years is the land is properly used and managed. This title of right is given to Indonesian individual(s) or legal entities domiciled in Indonesia including PMA companies. It can be used as collateral or transferred to other party with the government approval.
2. The Right Building of the Land (HGU) is the right to construct and own building on a peace of land that one has purchased. The title is granted for a maximum period of 30 years and can be extended for maximum period for 20 years for Indonesian individual(s) and / or legal entities domiciled in Indonesia including PMA companies. It can be used as collateral or transferred to other party. This is also applicable and generally granted to tenants in Industrial estates.
3. Right of Use on Land (HGB) is the right to use land for a specific purpose and granted for a period of 25 years and can be extended for period of 20 years or as long as the land is used for certain (normal) utilization. Now, this right can also be used as a mortgage. In addition, it can also be transferred to other party through a government approval.

Dwelling House or a residence that can be owned by a foreign person shall be :
1. A separate house constructed on a piece of land with the right of utilization on state land or controlled on the basis of an agreement with a land holder: or,
2. An apartment constructed on a piece of land with the right of utilization on state land.

Foreign investors who obtained mining contract from the minister of Mines and Energy or the respective Governor / the District Head or forest exploitation rights and or plantation right from the Ministry of Agriculture or the Respective Governor / District Head could automatically use the land within their business license. In case investors want to use the land for different purposes, special applications should be submitted to the Ministry or the respective Governor / District Head concerned. These rights have no collateral value to the owner.

To be continued.

Source: Guide to Agricultural Investment and Trade Opportunities in Indonesia, Ministry of Agriculture, the Republic of Indonesia