Indonesia is on the verge of significant legal reform with a draft amendment (“Proposed Amendment”) to Government Regulation Number 18 of 2021 (“Regulation 18/2021”), which governs the Right to Manage (Hak Pengelolaan or “HPL”), land rights, multistory housing, and land registration. The proposed amendment is poised to reshape Indonesia’s land management landscape by updating the legal framework, spurring economic growth, boosting foreign investments, and promoting sustainable environmental practices.

This article delves into the background of the proposed amendment, highlighting the key provisions of the proposed amendment, and analyzing its potential impact on businesses, investors, and environmental sustainability.

Addressing Ambiguities and Unlocking Economic Potential

Regulation 18/2021 was originally crafted to tackle several complex issues surrounding land ownership and development in Indonesia. However, ambiguities and inefficiencies emerged over time, particularly in issues such as land rights, environmental compliance, and business activities. These challenges prompted the Indonesian government to discuss the proposed amendment aimed at:

• enhancing the economic value of land to drive sustainable development;
• improving Indonesia's investment climate, particularly within the real estate and housing sectors;
• simplifying land-right acquisition for individuals and corporations while ensuring robust environmental protection; and
• providing clearer legal certainty in the management and transfer of land rights.

By addressing these points, the proposed amendment seeks to provide a streamlined, more transparent process for both local and foreign investors, ultimately positioning Indonesia as an attractive destination for real estate and infrastructure development.

Expanding Land Rights and Simplification Processes

The proposed amendment brings forward several notable changes that will shape the future of land rights, property development, and sustainability efforts in Indonesia.

1. Redefining Land Titles

One of the most significant changes introduced by the proposed amendment is the redefinition and expansion of land titles, particularly the HPL:

• Broader Scope for State Land: State land (Tanah Negara) is redefined to encompass not only surface land but also underground and aboveground spaces. This update is expected to encourage more flexible urban development strategies, particularly in densely populated areas.
• New Land Classifications: Lands resulting from waivers of rights, reclaimed lands, abandoned territories, ex-mining areas, and lands emerging from state border agreements are now categorized as state lands, further broadening the opportunities for economic and infrastructure development.

2. Simplified Land Rights Extension

Another critical provision is the introduction of simplified procedures for land rights extensions and renewals, which is especially beneficial for developers of multistory housing units:

• Extended Land Tenure: The tenure for Right to Build (Hak Guna Bangunan or “HGB”) and Right to Use (Hak Pakai or “HP”) for multistory housing units can now be extended for up to 80 years in a single approval, compared to the previous cap of 30 years with staged renewals. This change is likely to attract long-term foreign investment by offering enhanced legal certainty.
• Removal of Public Interest Constraints: The proposed amendment eliminates the requirement that land cannot be used for public interest purposes, thus providing developers more freedom to utilize land for private projects.
• Flexible Renewal Timelines: Developers now have the option to submit renewal requests during the extension period or up to two years after the expiration of land rights, offering much-needed flexibility.

3. Environmentally Conscious Land Use: Aligning Development with Ecological Goals

The proposed amendment introduces stringent environmental provisions, particularly for the Right to Cultivate (Hak Guna Usaha or “HGU”), to ensure that land use aligns with Indonesia’s long-term environmental sustainability goals:

• Green Land Use Criteria: Agricultural and fisheries lands under HGU must now contribute to greenhouse gas emission reductions and ecosystem preservation efforts. Special attention is given to preserving critical areas such as mangroves and rainforests, reflecting the government’s commitment to ecological conservation.

The Ripple Effect: How Will the Amendment Impact Businesses, the Environment, and Investors?

The proposed amendment is set to bring about significant transformations across various sectors of the economy, with both immediate and long-term effects.

1. Easing Processes for Businesses

The proposed amendment promises to simplify the process for businesses, particularly those in real estate, agriculture, and fisheries:

• Reduced Bureaucracy: Businesses can expect a faster and more efficient process when acquiring land rights, reducing the red tape traditionally associated with such procedures.
• Increased Investor Confidence: The extended HGB and HP periods of up to 80 years provide developers, especially foreign investors, with greater certainty for long-term housing and infrastructure projects.

2. Environmental Sustainability

The proposed amendment reflects a growing emphasis on environmentally sustainable practices:

• Encouragement of Sustainable Development: By requiring businesses to adopt land use practices that reduce emissions and preserve natural ecosystems, the amendment ensures that economic growth is not achieved at the expense of environmental degradation.

3. Legal Certainty for Foreign Investors

Foreign investors, particularly those in property development industries and real estate investment, may be more keen to invest in Indonesia due to the following changes implemented by the proposed amendment:

• Streamlined Investment Process: The ability to secure long-term land rights in one approval significantly enhances Indonesia’s attractiveness as an investment destination.
• Stronger Legal Protection: By providing clear and long-term legal certainty for land use, Indonesia strengthens its position as a prime location for foreign capital.

In Conclusion: A Forward-Looking Framework for Growth and Sustainability

The proposed amendment to Regulation 18/2021 represents a significant shift in Indonesia’s approach to land management. By focusing on streamlined processes, extended land tenure periods, and sustainable land use practices, these changes create a future-proof framework that balances economic growth with environmental protection. Businesses, investors, and environmental advocates alike stand to benefit from the amendment’s clear, transparent, and investor-friendly provisions, paving the way for robust and sustainable development across Indonesia.

It is to be noted that the proposed amendment is still a draft, and yet to be brought into effect. Although significant changes to its core provisions are not expected, we will continue to monitor developments closely and provide updates as they arise.