INDONESIA: An Introduction to Real Estate

Key Changes in 2024

Economic and developmental progress

Indonesia’s economic and developmental achievements in 2024 mark a significant leap forward in establishing its strong presence in South-East Asia and the world. Indonesia has maintained its trajectory of strong growth, driven by structural reforms, expanded infrastructure investments and its proactive approach to attracting foreign direct investment (FDI). Indonesia’s real estate and property sector, a cornerstone of the economy, has undergone subtle yet key changes, fuelled by changing market dynamics and regulatory advancements.

The development of Nusantara, the nation’s new capital, serves as a testament to Indonesia’s commitment to modernising its urban infrastructure while addressing environmental sustainability. The mega-project is a clear signal of the government’s intention to decentralise economic activity from Jakarta, foster regional development, and incorporate sustainability measures into its urban planning.

Economic indicators and market dynamics

Indonesia's economy has performed well in 2024, with GDP growth surpassing 5.5% annually, driven by increased domestic consumption and a surge in FDI. This impressive performance is supported by a growing middle class and rapid urban migration, which have fuelled demand for affordable housing, particularly in secondary/satellite cities and areas surrounding Jakarta and Nusantara. Additionally, the government’s emphasis on green and inclusive development has further invigorated the real estate market. Policies promoting renewable energy integration in construction projects align Indonesia’s property sector with global sustainability trends, enhancing its appeal to environmentally conscious investors and developers.

Legal reforms and regulatory developments

This past year, 2024, has been a landmark for legal advancements in Indonesia’s real estate and property sector. These advancements have addressed historical challenges in land management, improved investor confidence, and created an environment conducive to sustainable growth. Among the most significant developments has been the proposed amendment to Government Regulation Number 18 of 2021 (“Regulation 18/2021”), which governs the right to manage (Hak Pengelolaan or “HPL”) land rights, multi-storey housing and land registration, and which is set to introduce reforms in land rights and registration processes.

Key aspects of the proposed amendment to Regulation 18/2021

The proposed amendment introduces several critical changes, underscoring the government’s intention to modernise and simplify land-related regulations.

• Redefinition of land titles and state land scope:
  • State land (Tanah Negara) would now explicitly include surface, underground and above-ground spaces. This redefinition creates opportunities for vertical urban development, particularly in densely populated cities like Jakarta, Surabaya and Nusantara.
  • Newly classified land categories, such as reclaimed lands and abandoned areas, would expand the economic utility of previously under-utilised territories.
• Simplified and extended tenures for land rights:
  • The amendment would permit the extension of land rights (such as in Hak Guna Bangunan or “HGB” and Hak Pakai or “HP”) for up to 80 years in a single approval, compared to the earlier cap of 30 years with staged renewals.
  • The flexibility in renewal timelines would allow developers to renew during or after the extension period, alleviate administrative hurdles and increase investment certainty.
• Alignment with environmental goals:
  • The proposed amendment incorporates provisions for environmentally conscious land use, mandating that projects involving agricultural, forestry, or fisheries land contribute to emissions reduction and ecosystem preservation.
  • This alignment reflects Indonesia’s broader commitment to achieving carbon neutrality by 2050 and strengthens its position as a leader in sustainable urban development.

Analysis of regulatory impact

The proposed changes introduce a framework that addresses longstanding issues in land registration and management while emphasising environmental sustainability. By providing clearer legal certainty and extending tenure periods, the amendments reduce risk for foreign investors, who have often been deterred by bureaucratic delays and inconsistent regulations. Furthermore, the focus on sustainability reflects the government’s recognition of the global shift towards environmentally responsible investments, further enhancing Indonesia's appeal as a prime real estate destination. However, challenges persist, particularly in ensuring effective implementation at the regional level, where governance structures can vary significantly in efficiency and transparency.

The Nusantara project: a model for sustainable urbanisation

The development of Nusantara encapsulates the government's vision for a forward-thinking, sustainable urban landscape. This project has significantly influenced investment trends, with foreign and domestic stakeholders eyeing opportunities in the infrastructure, residential and commercial property sectors.

Nusantara’s regulatory framework provides unprecedented incentives, such as:

• Extended land rights – HGB rights extend up to 80 years, with Hak Guna Usaha (HGU) rights reaching 95 years, fostering long-term planning and investment.
• Tax waivers – a 0% Land and Building Acquisition Fee within Nusantara makes property acquisition more accessible for investors.
• Focus on green infrastructure – renewable energy integration and carbon-neutral policies make Nusantara a benchmark for sustainable city planning.

Regional growth and secondary markets

While Nusantara is capturing global attention, secondary cities like Surabaya, Medan and Makassar are also witnessing increased investor activity. These regions offer lower entry costs and growing populations, creating fertile ground for real estate development.

• Affordable housing: as urbanisation accelerates, the demand for affordable housing has surged, prompting developers to adopt modular and prefabricated construction methods to reduce costs.
• Commercial spaces: e-commerce growth has spurred demand for warehouses and logistics hubs, with major players investing in facilities outside Jakarta.

Challenges and strategic considerations

Despite notable progress, Indonesia's real estate and property sector faces certain challenges, particularly with the political transition in 2024. The change in leadership on national and regional levels could disrupt policy continuity, as the incoming administration may prioritise new agendas. This shift could lead to delays in ongoing land acquisition processes and infrastructure projects, creating uncertainty for investors and developers. Such transitions underscore the need for adaptability and planning to mitigate potential disruptions, while staying true to Indonesia's long-term economic goals.

The effectiveness of Indonesia’s legal reforms will depend on consistent and strong enforcement of regulations. Continued digitisation of land registration systems is crucial to reduce delays and improve transparency, ensuring that stakeholders experience a more efficient process. Additionally, capacity building through targeted training programmes for regional officials can promote uniform application of laws and minimise inconsistencies.

Balancing development with environmental goals

While Indonesia’s regulatory framework includes strong environmental provisions, enforcement remains challenging in practice. Developers face stringent compliance requirements, which can impact project viability and budget constraints. To address this, fostering public-private partnerships can be a vital strategy. Such collaborations ensure easier compliance with legal frameworks with access to private sector funds, enabling stakeholders to meet sustainability benchmarks more effectively. Moreover, the adoption of green building technologies, such as solar panels and energy-efficient designs, offers innovative solutions that align with Indonesia’s long-term ecological goals. Striking a balance between ambitious development and environmental sustainability will be key to maintaining investor confidence while advancing the nation’s green agenda.

The road ahead: a future-ready real estate sector

Indonesia’s legal and economic landscape in 2024 reflects a nation at the forefront of transformation. Legislative reforms, such as the proposed amendment to Regulation 18/2021, have set the stage for a transparent, sustainable and investor-friendly real estate sector. While challenges persist, particularly in implementation and political transitions, the trajectory is one of progress and innovation.

For investors, developers and legal professionals, understanding and leveraging these changes is critical. The future of Indonesia’s real estate market lies in its ability to balance growth with sustainability, ensuring that development meets the needs of today without compromising the opportunities of tomorrow.