Indonesia: Omnibus Law - Real Estate Cluster

In brief

As previously mentioned in our other client alerts, the Parliament approved the job creation law on 5 October 2020 (RUU Cipta Kerja or commonly known as the "Omnibus Law"). The Omnibus Law was created to make structural reforms and accelerate economic transformation.

Specifically in the real estate sector, the Omnibus Law amends a number of existing laws, among others, Law No. 20 of 2011 on Apartments ("Apartment Law"), Law No. 28 of 2002 on Buildings ("Buildings Law"), Law No. 1 of 2011 on Housing and Residential Areas ("Housing Law"), Law No. 26 of 2007 on Spatial Planning ("Spatial Planning Law") and Law No. 2 of 2012 on Land Procurement for Development of General Interest ("Land Procurement Law").


Essential Changes

Changes to the Apartment Law, Buildings Law and Related Issues

Existing Obligation to Construct Public Apartments

Under the Omnibus Law, commercial apartment developers are still required to provide public apartments with a minimum of 20% of the total floor area of the commercial apartments being constructed. This obligation may be met outside the area of the commercial apartment in the same district or city. However, the Omnibus Law provides an alternative to convert the obligation to become providing funds to construct public apartments. The funds will be managed by the Housing Acceleration Agency (Badan Percepatan Penyelenggaraan Perumahan).

Building Construction Permit No Longer Required

A Building Construction Permit (Izin Mendirikan Bangunan) is no longer required for the construction of apartments, and as a condition for the signing of a conditional sale and purchase agreement for apartment units, and has been replaced with a Building Approval (Persetujuan Bangunan Gedung) as a new administrative requirement. This is subject to a government regulation that will be issued to further regulate this matter.

The Buildings Law sets out a set of requirements for buildings' aspects, such as building reliability, safety, health, comfort and ease of access. These requirements however, have been removed completely by the Omnibus Law. We do not think this means buildings no longer need to meet a certain standard of reliability, safety, and such; but it may be the government's intention to regulate this in an implementing government regulation.

Simplification of Process

The Omnibus Law simplifies two major causes of delay in the issuance of the ownership document of apartment units, i.e.:

  1. approval from the regional government for the building specification (pertelaan), which is the main document that describes and specifies the unit, common area, common object and the common land, is no longer required; and
  2. the drawings for the separation deed of the apartment are no longer a condition for the determination of the proportional index (nilai perbandingan proporsional), strata title certificate or strata building certificate or the conditional sale and purchase agreement for the marketing of apartment units.

Right for Foreigner to Own a Right to Own Strata Title of an Apartment

Apart from the amendment to the Apartment Law, the Omnibus Law now allows (i) foreign citizens with relevant permit, (ii) foreign legal entities with representative office in Indonesia, (iii) representatives of foreign countries and (iv) international institutions to own strata title right of ownership of apartment units or SHMSRS - sertifikat hak milik atas satuan rumah susun.

Previously, foreigners (with stay permits) were only able to own strata title right to use apartment units SHPSRS (i.e. ownership of strata title on top of a Right to Use (Hak Pakai) of the common land where the apartments are constructed).

In theory, foreigners can now own a portion of the Right to Build (Hak Guna Bangunan) land, which is contrary to what was stipulated in prior (but still prevailing) agrarian and land regulations.

Validity Period of the Underlying HGB Common Land

The extension of the validity period of the underlying Right to Build (Hak Guna Bangunan) land can be granted as soon as the Certificate of Eligibility to Function (Sertifikat Laik Fungsi) for the apartment building is issued, i.e. an "upfront" extension.

Changes to the Housing Law

Building Construction Permit No Longer Required

A Building Construction Permit (Izin Mendirikan Bangunan) is no longer required to process housing construction, and as a condition for the signing of a conditional sale and purchase agreement for houses, and has been replaced with a Building Approval (Persetujuan Bangunan Gedung). This is subject to a government regulation that will be issued to further regulate this matter.

Planning of Infrastructure and Facilities

The Omnibus Law removes the requirement for the validation of planning of infrastructure, facilities and public facilities by the regional government.

Housing Acceleration Agency

As mentioned above, the Omnibus Law introduces the Housing Acceleration Agency (Badan Percepatan Penyelenggaraan Perumahan), a government body specifically established by the central government to manage funds for the purpose of constructing public housing and public apartments.

Obligation To Construct Public Residences

Similar with the one in the apartment sector, companies in the industry of constructing residential complexes are still required to fulfil a balanced housing ratio of low cost, medium and luxury houses in the same area or within the same regency/city. However, the Omnibus Law provides an alternative to give choice for developers to either construct public apartments in the same area as the residential complex or provide funds for the purpose of constructing public residences. The funds will be managed by the Housing Acceleration Agency (Badan Percepatan Penyelenggaraan Perumahan).

The non-fulfilment of the above requirement remains subject to the same administrative sanctions, with one additional sanction where the government can force developers to re-develop the area in accordance with the above requirements.

Changes to the Spatial Planning Law

Centralized Authority

The Omnibus Law has unified the standards of the regional and provincial government with regards to spatial planning and shifted the authority of specific ministries to the central government. The authority of regional and provincial governments has to conform to the norms, standards, procedures and criteria set out by the central government.

Change in Evaluation

Provincial and regional zoning can now be evaluated more than once every five years, among other things, if there are changes to the national policy that are strategic in nature.

Space Utilization Permit Is No Longer Required

A Space Utilization Permit (Izin Pemanfaatan Ruang) is no longer required for utilization of space, and has been replaced with an approval in the form of Suitability of Space Utilization (Kesesuaian Kegiatan Pemanfaatan Ruang), which will be issued by the central government.

In relation to the sale and purchase of land title, the Omnibus Law specifically stipulates that a Suitability of Space Utilization approval must be obtained prior to transferring the land rights to other parties. After that, the parties can sign the land transfer deed before a land deed official (pejabat pembuat akta tanah).

Integration of Detailed Spatial Plan

The Omnibus Law provides an obligation for the central government to integrate the Detailed Spatial Plan (Rencana Detail Tata Ruang) into the electronic Business Licenses system. Business actors can only apply for a Business License once the business activity has been confirmed to be in line with the Detailed Spatial Plan.

Affirmation of the Right to Manage

Previously, Right to Manage (Hak Pengelolaan) was never stipulated at a "law" level but was rather stipulated under various implementing regulations of the Agrarian Law and was only granted to state-owned companies and government agencies. The Omnibus Law broadens the potential holders of Right to Manage  to also include legal entities appointed by the central government.

Right to Manage  can be jointly used with third parties through land use agreements.

In the event that part of Right to Manage  is granted with Right to Own (Hak Milik), the portion of the Right to Manage  will be automatically removed. This Right to Own  will only be given for public housing and transmigration purposes.

A government regulation will be issued to further regulate this matter.

Land Titles over Underground Space

Land titles in the form of Right to Build (Hak Guna Bangunan), Right to Use (Hak Pakai) and Right to Manage (Hak Pengelolaan) can now be granted over underground space. The limit of land ownership will be given according to the depth of use (batas kedalaman pemanfaatan), floor ratio (koefisien dasar bangunan), plot ratio (koefisien lantai bangunan), and spatial plan of the relevant development based on the applicable laws.

In light of the above, the Omnibus Law clearly stipulates that the utilization of land on the ground and underground can be given to separate land title holders, which can be granted with the right to build, right to use or right to manage. A presidential regulation will be issued to further regulate this matter.

Introduction of Land Bank Concept

As a new concept under the Omnibus Law to finally introduce a Land Bank (Bank Tanah) in Indonesia with the aim of ensuring the availability of land for public interests. The Land Bank is a specialized government body which will manage the land in Indonesia. The main function of the Land Bank is to plan, acquire, procure, manage, utilize and distribute the land.

Land managed under the Land Bank will be in the form of Right to Manage (Hak Pengelolaan). Other land titles in the form of Right to Build (Hak Guna Bangunan), Right to Use (Hak Pakai) and Right to Cultivate (Hak Guna Usaha) can be granted on top of the Right to Manage.

Specifically for Right to Build title, the period can be extended and renewed if the land has been used in accordance with the purpose for which the rights were granted.

As an institutional body, the Land Bank consists of a committee, board of trustees and implementing agency that will be further regulated under a presidential regulation. A separate government regulation will be issued to further regulate the Land Bank as a whole.

Implementing Regulations

The Omnibus Law provides that the relevant implementing regulations, including government regulations, must be issued at the latest three months after the enactment of the Omnibus Law.

The existing implementing regulations of the Apartment Law, Buildings Law Housing Law and Spatial Planning Law remain effective to the extent they do not contradict the provisions under the Omnibus Law. These implementing regulations must be harmonized with the provisions under the Omnibus Law at the latest three months after the enactment of the Omnibus Law.

Readers should be aware of the possibility of certain provisions of the Omnibus Law being challenged before the Indonesian Constitutional Court.

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This Client Alert was prepared based on a draft of the Omnibus Law that we received from different sources. We have not been able to obtain confirmation that the draft we received is the final text of the Omnibus Law. Even though the House of Representatives passed the Omnibus Law on 5 October, the government has not issued the official final text of the Omnibus Law. We assume the draft that we have received materially reflects the final version of the Omnibus Law, but we are waiting for the government to issue the final ratified Omnibus Law. Therefore, this Client Alert is subject to change and will be updated accordingly.

This client alert was issued by HHP Law Firm (Hadiputranto, Hadinoto & Partners), a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome."


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