New Provisions Relating to the Agrarian Sector Introduced in the Omnibus Law

October 26, 2020

On October 5, 2020, the House of Representatives passed the Job Creation Law (or publicly known as the Omnibus Law) which introduces and/or amends certain provisions under the agrarian sector, namely:

Amendments to the provisions under Law No. 1 of 2011 dated January 12, 2011 on Housings and Residential Areas;
Amendments to the provisions under Law No. 20 of 2011 dated November 10, 2011 on Multi Storey Housings;
Introduction of a “Land Bank” concept;
More detailed provisions on the Right to Manage (Hak Pengelolaan) title;
Multi-storey housing ownership by foreigners;
Granting of land rights on the above and/or below land space.

At the time this newsflash is issued, the Omnibus Law is not effective yet as it still needs to be signed by the President and promulgated. If the President does not sign the Omnibus Law in 30 days from October 5, 2020, the Omnibus Law becomes effective then by law. Accordingly, the final draft we reviewed may not be promulgated verbatim, and we should expect changes in the latest version of the Omnibus Law that is enacted.

In this newsflash, we will be discussing items (c) to (f) above and you may find our discussion on items (a) and (b) in the upcoming weeks.

INTRODUCTION OF THE LAND BANK

The Indonesian Government finally materialized the concept of a land bank under the Omnibus Law. The Indonesian Government was trying to introduce this concept in the past few years under the Land Law Bill, which was intended to complete and elaborate the provisions under Law No. 5 of 1960 dated December 24, 1960 on Basic Agrarian Principles. In accordance with the Omnibus Law, the Government will form a Land Bank that functions as a non-profit special agency that manages state land. This includes planning, acquisition, procurement, management, utilization and distribution of land.

Having considered the nature of the Land Bank as a non-profit agency as well as its duties in managing the state land, it still remains to be seen as to how the Land Bank implements its duties. For instance, how the Land Bank cooperates with private sectors for the development of private business activities or public-private partnerships in Indonesia. Further provisions relating to the formation of Land Bank will be regulated under a Government Regulation.

Under the Omnibus law, the Government ensures that at least there will be a minimum of 30% of state land that will be managed by the Land Bank. In managing the land, the Land Bank will be granted Right to Manage (Hak Pengelolaan) title. Furthermore, land with such Right to Manage(Hak Pengelolaan) title may be granted Right to Cultivate (Hak Guna Usaha), Right to Build (Hak Guna Bangunan) and Right to Use (Hak Pakai) title.

RIGHT TO MANAGE (HAK PENGELOLAAN) TITLE STRENGTHENED

The relevant provisions with respect to Right to Manage (Hak Pengelolaan) title have been regulated since 1999 under the State Minister of Agrarian/Head of National Land Agency Regulation No. 9 of 1999 dated October 14, 1999 on Procedure of Granting and Revocation of Right over State Land and Right to Manage. However, it does not provide any provisions on the entitlements and/or authorities that the Right to Manage (Hak Pengelolaan) title holders may have.

Through the enactment of the Omnibus Law, there are certain key additions to the existing provisions of the Right to Manage (Hak Pengelolaan) title, among others:

With the introduction of the Land Bank concept under the Omnibus Law, land with Right to Manage (Hak Pengelolaan) title may be granted to the Land Bank;
Right to Manage (Hak Pengelolaan) title gives the authority for the holder to:

(i) form the land designation, usage and utilization of the land in accordance with the spatial layout plan;
(ii) use and exploit all or part of the land for its own purposes or to be cooperated with third party(ies) by way of entering into a land utilization agreement (perjanjian pemanfaatan tanah); and
(iii) determine tariffs and receive income/compensation and/or annual mandatory payment from third party(es) in accordance with an agreement.

In the event that the utilization of the land with Right to Manage (Hak Pengelolaan) title is conducted by a third party, then such thid party may be granted with Right to Cultivate (Hak Guna Usaha), Right to Build (Hak Guna Bangunan) an/or Right to Use (Hak Pakai) title in accordance with the applicable laws and regulations. In this case, the relevant period of the Right to Build (Hak Guna Bangunan) title may be extended and/or renewed subject that the utilization of such land is in accordance with the purpose of the granting of such Right to Build (Hak Guna Bangunan) title.
In the event that a plot of land with the Right to Manage (Hak Pengelolaan) title is granted with a Right to Own (Hak Milik) title, then such Right to Manage (Hak Pengelolaan) title will automatically cease to exist. Please note that this provision is only applicable for public housings and transmigration purposes.

OWNERSHIP OF MULTI STOREY HOUSINGS FOR FOREIGNERS

Prior to the enactment of the Omnibus Law, foreigners with the relevant stay permit in Indonesia may own house or multi-storey housing in Indonesia for residential purposes with a Right to Use (Hak Pakai) over such houses or multi-storey housing. With the enactment of the Omnibus Law, foreigners with the relevant stay permit in Indonesia may have multi-storey housing unit in Indonesia with a Right to Own (Hak Milik) title.

The Omnibus Law also provides that the Right to Own (Hak Milik) title over such multi-storey housing unit may be transferred and secured as a security in the form of mortgage.

In addition to that, the Omnibus Law now prohibits the development of multi-storey housings on the land with Right to Own (Hak Milik) title. Instead, multi-storey housings are now only permitted to be built on the following:

Land with Right to Build (Hak Guna Bangunan) or Right to Use (Hak Pakai) title over state land; or
Land with Right to Build (Hak Guna Bangunan) or Right to Use (Hak Pakai) title over Right to Manage (Hak Pengelolaan) title.

This may be intended to accommodate the fact that multi-storey housings in Indonesia are commonly developed by real estate companies where they are only entitled to own land with Right to Build (Hak Guna Bangunan) title instead of Right to Own (Hak Milik) title.

GRANTING OF LAND RIGHTS / RIGHT TO MANAGE (HAK PENGELOLAAN) TITLE ON THE ABOVE LAND SPACE AND THE BELOW LAND SPACE

The Omnibus Law provides that land or space formed on the above and/or below land space and utilized for certain activities may be granted with Right to Build (Hak Guna Bangunan), Right to Use (Hak Pakai), or Right to Manage (Hak Pengelolaan) title.

The introduction of this provision provides further clarity to the agrarian sector in Indonesia. Under the current regime, the applicable laws and regulations in the agrarian sector are silent on the provisions regarding the applicable land title for above and/or below land space. With the recent construction development trend in Indonesia that takes place on the above and/or below land space (e.g. construction of mass rapid transportations, light rapid transportations, flyover roads, tunnel roads), it is expected that this would give legal certainty in terms of the land ownership as well as any rights attached over such above and/or below land space.

Further provisions with respect to this matter will be regulated under a Presidential Regulation.

***

October 26, 2020