Plan for Major Changes in Indonesian Land Ownership and Registration

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The Indonesian government and the House of Representative (Dewan Perwakilan Rakyat) are planning to pass a new bill on land (“Land Bill”) to complement Law No. 5 of 1960 on Agrarian Law (“Agrarian Law”). This sixty-year-old law is considered to be insufficient for addressing new and existing challenges in global development.

Facing the dynamics and complexity of land issues within the agrarian sector, the new regulation, which fits with current conditions, is essential to resolving the ongoing issues. Due to overlapping regulations that govern land matters, this bill is supposed to synchronize current regulations within the Agrarian sector.

Meanwhile, the enactment of this regulation will not revoke or replace Agrarian Law. In addition, all regulations regarding land and its existing implementing regulations remain in effect, to the extent that it does not contradict with provisions under the Land Bill. According to the latest Land Bill, per 27 September 2019, there are several key provisions that become germane (discussed further in this article).

Integrated Land and Zone Information System

Under the Land Bill, the government plans to establish an Integrated Land and Zone Information System for the purpose of integrating land data with regional data. The construction of a database for rights limit, licensing limit, and administrative boundaries shall be taken care of at least 1 (one) year from the bill’s enactment. Accordingly, the integration of all databases shall be conducted no longer than 2 (two) years from the construction of the database.

Land Bank

Pursuant to the Land Bill, the government will establish a new legal entity called the land bank that will conduct planning, acquisition, management, utilization of land for public interest. This new legal entity would be allowed to form cooperation with a third party and make a long-term investment. The land bank’s assets also would be legally separated from state assets, which provides flexibility.

The concept of land bank has been adopted by some countries such as the Netherlands, Sweden, and France. Generally, the primary initiative of a land bank is to control increases of land prices. In the Netherlands, for instance, the money generated from distributing land is used to fund the construction of public infrastructure.[1]

The fact that the government is having difficulties finding land/area for building infrastructure has become one of the reasons behind the idea of forming a land bank. Following those issues, the acquisition of land for development and public interest will be carried out by the land bank. Meanwhile, the concept of the land bank under Land Bill has been strongly criticized by the public, as this concept is viewed by the public as focusing more on the interest of business actors instead of the general public. The public is concerned that the formation of a land bank will make this institution a tool for commoditization and land markets.

Ownership Rights (Hak Milik)

This Land Bill also consolidates provisions under Government Regulation No. 24 of 1997 re. Land Registration (“GR 24/1997”), among others, the implementing regulation of ownership rights expiration (rechtsverwerking). Hence, ownership rights not being possessed, used, and utilized by the rights holder, and is being utilized by another person with good faith would potentially cease the rights of the legal owners.

We also noted there are several other provisions under GR 24/1997 that will be adopted in the Land Bill.

Extension Period for Cultivation Rights (Hak Guna Usaha/HGU) and Right to Use Building (Hak Guna Bangunan/HGB)

HGU

Previously, under Indonesian Agrarian Law, the term period for HGU is only obtainable for 25 (twenty-five) years or 35 (thirty-five) years (for a company that needs a longer time period). Afterwards, the term period may only be extended once for a period of no longer than 25 (twenty-five) years.

Currently, under Land Bill, HGU may be given a total of 90 (ninety) years, by granting a maximum time period of 35 (thirty-five) years for HGU with 2 (two) extensions. In the first extension, HGU may be given a maximum of 35 (thirty-five) years; and the second extension may be 20 (twenty) years. The matters taken into account by the Minister of Agrarian and Spatial Layout/Head of National Land Office to grant the extension period are, among others, age of the plant, type of investment (long or short term), and investment attractiveness.

HGB

The Land Bill prolongs the term period for HGB to be granted a total period of 90 (ninety) years. Initially, the HGB may be granted for 35 (thirty-five) years, with a maximum of 30 (thirty) years for the first extension and 20 years for the second extension. The approval of the second extension request is given by considering age of construction, investment type (long or short term period), and investment attractiveness. By comparison, previously HGB may only be granted a total of 50 years.

The provisions regarding the extension of term periods for HGU and HGB under the Land Bill highlights that discussions surrounding Land Bill have failed to consider the existence of Indonesian Constitutional Court Decision No. 21-22/PUU-V/2007 (“MK Decision No. 21-22/2007”); particularly revocation of provisions regarding term periods of HGU, HGB, and HP under Law No.25 of 2007 on Investment (“Investment Law”). Previously, Article 22 paragraph 1 of Investment Law determined that HGU may be granted a total of 95 (ninety-five) years by granting and extending in advance, i.e. for 60 (sixty) years and renewed for 35 (thirty-five) years. Not long after the enactment of Investment Law, MK Decision No. 21-22/2007 revoked such provision due to consideration that by granting a long-term period in advance for HGU/HGB, the public’s access to agricultural land would be limited. Yet, the provision contradicted the purpose of agrarian reform under Agrarian Law itself.

Maximum Area Limitation for Land Ownership

The limitation of the maximum area for land ownership is in accordance with the program contained under the land reform program which was set out by Law No. 56 Prp of 1960 on Determination of Area for Agricultural Land (“Indonesian Land Reform Law”), which limits land ownership based on housing density of an area. Formerly, Indonesian Land Reform Law regulated three issues, among others:

  1. The determination of the maximum area of ownership and possession of agricultural land;
  2. The determination of the minimum area of ownership of agricultural land and prohibition to carry out actions which result in breakdown of land ownership into extremely small parts; and
  3. The return and redemption of pledged agricultural lands

However, this Land Bill only stipulates that an owner of the land, who acquires or owns land which exceeds its maximum limit, shall relinquish the land to the state or imposed tax to the intended excess of land. This provision can be seen as impunity towards landowner which violates the maximum area limitation for land ownership. The provision regarding limitation of land ownership will be excluded by considering the scale of economy, wider public participation, and national strategic interests. In addition, this provision is not in line with the spirit of the land reform program, which was determined in order to avoid the possession of land by certain groups of people.

New Branch of Court

The Land Bill introduces the establishment of a new branch of court, namely Land Court (Pengadilan Pertanahan). The Land Court will have the authority to hear civil, administrative and criminal cases that are related to land. Land Court must be established within 2 (two) years since the enactment of the Land Bill.

Criminal Sanction

The Land Bill will include criminal sanctions that aim to prevent unlawful action to procure land disputes. A landowner closing public access, preventing government officials from conducting their duty related to land and provoking a land dispute are, among others, considered to be a criminal conduct.

Transitional Provisions

To facilitate the changes made following the provisions under the Land Bill, there are several transitional provisions contained under the bill, among others:

  1. Former customary rights land shall be registered at least 2 (two) years, provided that such land shall be physically possessed. Former customary rights land that is not physically possessed but is not registered within 2 (two) years will be determined as state’s land.
  2. For land with proof of rights before Agrarian Law, the determination of rights shall be conducted through granting of state land rights.
  3. The right to manage (HPL) performed prior to the enactment of this bill shall be adjusted within 2 (two) years as of the enactment of this regulation.
  4. The holder of HGU who has not provided 20% of its land for farmers or plasma farmers nearby the HGU location, shall fulfill such obligation within 2 (two) years from the regulation’s promulgation.

The Land Bill will add clarity surrounding the land registration process by introducing an integrated electronic system and a single authority to manage the process. Further, it will also introduce an uncomplicated judicial process in cases of a dispute and increase official authority to ensure an efficient enforcement process. This Land Bill will be discussed by the government and the House of Representative (Dewan Perwakilan Rakyat) for the 2020 – 2024 term. Currently, the Land Bill is listed as a priority legislation and is expected to be enacted in the near future.

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