INDONESIA: An Introduction to Real Estate

Level of Activity, Trends, and Developments 

With a diverse archipelago nation of 17,000 islands populated with around 250 million people from more than 300 ethnic groups, it is to none’s surprise that Southeast Asia’s largest and most populous country economy has continued to rise at an impressive pace with strong economic growth despite recovering from the effects of COVID-19. Indonesia stands as the world's fourth most populous country and boasts an enormous consumer market that holds the tenth position in terms of its economy's purchasing power parity, underscoring its significant demographic and economic standing on the global stage.

With the continuous development of Indonesia’s new capital, Nusantara, the current landscape of Indonesia's Agrarian sector is defined by a surge in infrastructure projects, urbanisation initiatives, and a growing emphasis on renewable energy. These dynamics present significant opportunities and challenges within the sector with the goal of achieving net-zero emissions and the ambitious goal to achieve carbon neutrality by the year 2045 continuous to spark a surge of heightened activities in construction, investment, and agrarian acquisition. Indonesia's commitment to environmental sustainability and achieving net-zero emissions have continued to compel investors to incorporate stringent considerations of environmental regulations and robust community engagement into their projects. The commitment to achieving net-zero emissions by 2050 and the development of Nusantara as a carbon-neutral city by 2045 underscore Indonesia's dedication to innovative and sustainable approaches within its Agrarian sector. Investors are urged not only to adhere to existing regulations but also to proactively engage in environmentally conscious practices and community-oriented development in their projects.

Agrarian law in Indonesia continues to stand as a pivotal and foundational factor that exerts a profound influence on the dynamics and scale of investment, significantly impacting not only on the decisions and strategies of domestic investors but also on the considerations and risk assessments made by foreign stakeholders venturing into the Indonesian market. Endeavouring to achieve this objective involves government policies designed to foster an investment-friendly environment conducive to conducting business activities, facilitating smooth production, and expanding employment opportunities.

Notable Legislation Impacting Clients  

The first recent legislative developments in Indonesia which have had a significant impact on the landscape of agrarian acquisition and development are notably the enactment of the Omnibus Law on Job Creation in 2020 (“Omnibus Law”) and its numerous governmental regulations such as No.18 of 2021 on Right-to-Manage, Land Titles, Multi-storey Housing Units, and Land Registration. The Omnibus Law aims to improve the investment climate by amending numerous existing laws hindering investment. The Omnibus Law introduces a risk-based approach for business licensing, amongst other matters, simplifies environmental requirements and building certificates, and establishes a priority investment list. With a focus on streamlining the land acquisition process for infrastructure projects, the legislative initiative aims to ease administrative burdens on investors as well as foreigner(s) investors.

Furthermore, pushing the notion of Nusantara and carbon neutrality, the government further provided incentives to the investors intending to engage in business in Nusantara by passing the Government Regulation No. 12 of 2023 concerning the Granting of Business Licences, Ease of Doing Business, and Investment Facilities for Business Actors in the Nusantara Capital City. There are some incentives that have been set to increase competitive investment in Nusantara, particularly regarding land ownership. Agrarian acquisition in Nusantara will be charged with 0% BPHTB (Land and Building Acquisition fee) with competitive ownership/usage rights for foreign investors as follows:

Implementation of Land/Real Estate Incentives (Nation-wide applicability): 
- HGU – Land usage rights up to 60 years (35 years + 25 years of extension); 
- HGB – Building usage rights for 50 years (30 years + 20 years of extension); and 
- HPL – This is a special form of title relating to operating industrial or housing estates and is not available to foreign investors with Government institutions or State-owned companies as qualified holders.

New Implementation of Land/Real Estate Incentives (specific to land within the Nusantara City region): 
- HGU – Land usage rights up to 95 years (35 years + 60 years of extension); 
- HGB – Building usage rights up to 80 years (30 years + 50 years of extension); and 
- HPL – Management rights up to 80 years.

Potential Hurdles and Overcoming Challenges  

Whilst the government has enacted promising laws and regulations attracting all forms of investment within the Agrarian sector, it must be noted that 2024 will mark a dramatic shift in potential policies as the nation welcomes a new president. The forthcoming change in leadership may introduce an additional layer of complexity to various processes, including land acquisition. A notable concern is the uncertainty surrounding the legal framework governing land acquisition. With a new administration, there may be shifts in policies, priorities, and decision-making frameworks, all of which can impact the trajectory of land acquisition initiatives. The uncertainties associated with the transition to a new president will require further emphasis on the need for careful consideration and strategic planning in navigating the challenges that may arise during the land acquisition process.

Despite the potential hurdles posed by the political landscape in 2024, it is essential to acknowledge that the future of land acquisition appears promising considering Indonesia's strong commitment to infrastructure development. The nation has demonstrated its dedication to enhancing its infrastructure which further suggest a positive trajectory for Agrarian acquisition initiatives. The government's focus on advancing the country's overall development and connectivity underscores the importance of overcoming challenges associated with Agrarian acquisition. While uncertainties in the legal framework may exist, the wider framework of Indonesia's infrastructure commitment creates an optimistic outlook for the future. Stakeholders involved in Agrarian acquisition efforts should remain attuned to evolving political dynamics while also recognising the overarching national commitment to propel the country's growth through robust infrastructure development.

Conclusion  

Indonesia's economic climate is a critical determinant for prospective investors. Within a thriving economy marked by robust GDP growth and a surge in investments within the Agrarian sector, Indonesia continues to position the nation as a global player. The nation's sustained economic growth, propelled by a burgeoning consumer base, abundant natural resources, and a strategically advantageous geographical location, serves as a magnet for investors seeking promising prospects. The Omnibus Law on Job Creation and incentives for Nusantara highlights the government's commitment to a favourable investment climate. With the ambitious nature of Nusantara's Sustainable Forest City project, aiming for carbon neutrality by 2045, it emphasises Indonesia's dedication to sustainability. However, despite potential hurdles within the Agrarian law, the nation's steadfast focus on infrastructure development promises a positive outlook. In this dynamic landscape, stakeholders are urged to navigate challenges strategically, embracing the numerous opportunities within Indonesia's evolving real estate and land sector. It is pertinent to ensure that legal professionals engaged in the domain of Agrarian law are well rehearsed with the nuances of the complexities of land transactions that will equip all clients with the informed and definitive strategical land investments.