Foreigner Real Estate Investment in Indonesia: A Legal Overview and Short Guide

​Indonesia has emerged as a prominent destination for foreign real estate investment, underpinned by its robust economic growth and increasing investor confidence. In 2024, the country recorded a foreign direct investment (FDI) inflow of IDR 232.7 trillion (approximately USD 14.94 billion) in the third quarter alone, marking an 18.6% increase compared to the same period in the previous year . This surge reflects Indonesia’s appeal, driven by its strategic location, abundant natural resources, and a growing middle class. Real estate sector in particular has emerged as one of promising sector which recorded 6% growth in 2024.

However, the Indonesian legal framework governing foreign ownership of real estate presents complexities that necessitate careful navigation. The Agrarian Law No. 5 of 1960 stipulates that only Indonesian citizens can hold freehold land titles (Hak Milik), thereby restricting foreigners to alternative rights such as Hak Pakai (Right to Use) or Hak Guna Bangunan (Right to Build) . Misinterpretation or non-compliance with these regulations can lead to significant risks. For instance, some foreign investors have engaged in nominee arrangements, wherein properties are purchased under the names of Indonesian citizens to circumvent ownership restrictions. Such practices are legally unenforceable and can result in the loss of investment without legal recourse.

​This article aims to provide a comprehensive legal overview and practical guide for foreigners considering real estate investment in Indonesia, emphasizing the importance of understanding and adhering to the country’s property laws to mitigate potential risks.​

1. Regulatory Framework Governing Foreign Ownership of Real Estate in Indonesia

Indonesia’s legal framework for land and property ownership is primarily rooted in the Agrarian Law No. 5 of 1960 (Undang-Undang Pokok Agraria, UUPA), which affirms that all land within the territory of Indonesia is controlled by the state and may only be owned by Indonesian citizens. Under this law, foreigners are explicitly prohibited from holding Hak Milik (full ownership or freehold rights), which is the strongest form of land title in Indonesia. Instead, foreign individuals and entities are limited to secondary rights, such as Hak Pakai (Right to Use), Hak Guna Bangunan (Right to Build), and Hak Sewa (Lease Rights), each of which comes with specific terms and conditions. Furthermore, specifically for foreign individual they are cannot directly own Hak Guna Bangunan due to restriction of the legal owner of Hak Guna Bangunan limited to Indonesian National or Indonesian Legal Entity. This mean foreigner need to establish a company under Indonesian Law first to own a land under Hak Guna Bangunan.

A significant development affecting foreign investment was the enactment of Law No. 11 of 2020 on Job Creation, known as the Omnibus Law, and its derivative regulation, Government Regulation No. 18 of 2021 on the Rights of Management, Land Rights, Condominium Units, and Land Registration. These regulations clarified and expanded the circumstances under which foreign nationals and foreign-owned companies (through PT PMA – Penanaman Modal Asing) may acquire certain land rights. For instance, the law allows foreigners to own condominium units (strata title) built on land with Hak Pakai status, provided the unit has a minimum price threshold and is not subsidized housing.

The legal interpretation of these provisions has evolved through implementing regulations and administrative practices issued by the National Land Agency (Badan Pertanahan Nasional, BPN) and the Ministry of Agrarian Affairs and Spatial Planning. These authorities are responsible for land title registration, issuance of building permits, and enforcement of spatial zoning policies. However, despite recent reforms, legal ambiguities and bureaucratic inconsistencies continue to affect the predictability and reliability of the real estate regulatory environment for foreign investors.

Foreign investors must also be aware of local land use plans and spatial regulations (Rencana Tata Ruang Wilayah), as these govern the permissible use of land and buildings. Failing to align real estate investments with zoning laws can result in legal disputes or cancellation of land titles. Therefore, a sound understanding of the regulatory landscape and professional legal assistance is essential to ensure compliance and mitigate investment risks.

2. Types of Property Rights Available to Foreigners

Under Indonesian land law, foreign nationals are not permitted to hold Hak Milik (Freehold Title), which is the strongest form of land ownership reserved exclusively for Indonesian citizens. However, foreign individuals and entities may legally obtain alternative forms of land tenure, most notably Hak Pakai (Right to Use), Hak Guna Bangunan (Right to Build), and Hak Sewa (Lease Rights), each governed by specific legal provisions and conditions.

Hak Pakai is the most direct legal avenue for foreign individuals to possess land in Indonesia. It allows a foreigner to use land for a specific purpose, typically residential, and may be granted for an initial term of up to 30 years, with the possibility of extension for an additional 20 years, and a further renewal for another 30 years. This right is only valid on state land or on land held under Hak Milik that is voluntarily converted for this purpose. According to Government Regulation No. 18 of 2021, foreigners can own landed houses under Hak Pakai provided the property meets a minimum investment value, which varies by province. For instance, in DKI Jakarta, the minimum property value for foreigners is IDR 5 billion.

Foreigners seeking to invest in commercial real estate or develop property projects commonly use the Hak Guna Bangunan (HGB), which is typically accessible through a foreign investment company (PT PMA). HGB allows the right holder to construct and own buildings on state-owned land for an initial period of up to 30 years, extendable for another 20 years, and renewable for an additional 30 years. This legal mechanism is popular among foreign developers and commercial investors, particularly in industrial and urban property developments. The HGB title can also be mortgaged, offering flexibility for financial transactions.

For vertical housing (apartments or condominiums), the law permits foreign individuals to own strata title units (Sertifikat Hak Milik atas Satuan Rumah Susun or SHMSRS) under certain conditions. These include being legally resident in Indonesia and purchasing units built on land with Hak Pakai or HGB status. The Omnibus Law reforms aim to encourage this form of ownership by providing greater clarity and easing administrative procedures.

Foreigners may also lease land or property through Hak Sewa (Right to Lease), a contractual right governed by private agreement and not requiring land registration. This option is frequently used for temporary or short-term stays, and it does not confer any proprietary rights over the land itself.

Despite these pathways, the legal acquisition of property in Indonesia by foreigners is often misrepresented or misunderstood, leading to the use of informal arrangements such as nominee ownership, which are legally precarious and unenforceable under Indonesian law. Consequently, understanding these property rights and utilizing legitimate legal vehicles, such as a PT PMA or licensed lease agreements, is critical for safeguarding investments and ensuring long-term legal protection.

3. Procedures for Foreigners to Acquire Real Estate

Foreigners who wish to acquire real estate in Indonesia must navigate a structured process governed by the national land and investment laws. The procedure varies depending on whether the individual is purchasing property personally under Hak Pakai, or through a corporate vehicle such as a foreign investment company (Perseroan Terbatas Penanaman Modal Asing or PT PMA), which is necessary to obtain Hak Guna Bangunan for commercial property development.

For individual foreign buyers, the most direct route is to acquire residential property under Hak Pakai. The process begins with verifying eligibility, which includes proving legal residence in Indonesia—typically through a valid stay permit (KITAS or KITAP). The foreigner must also ensure the property is located on state land or land converted for Hak Pakai, and that it meets the minimum price threshold established by the Ministry of Agrarian Affairs and Spatial Planning, which varies by region. A public notary (Pejabat Pembuat Akta Tanah or PPAT) facilitates the sale and purchase agreement (Akta Jual Beli), and the transaction is registered at the local land office.

For foreign entities, the acquisition process begins with the establishment of a PT PMA, which must be registered with the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal, BKPM) and the Ministry of Law and Human Rights. Once established, the PT PMA must secure business licenses through the Online Single Submission (OSS) system, which streamlines licensing across sectors. Only upon proper registration can the PT PMA acquire land under Hak Guna Bangunan (HGB) for commercial use.

Due diligence is a critical component of the acquisition process. This includes verifying the authenticity and status of land titles, ensuring that the land is not subject to disputes, zoning violations, or encumbrances, and confirming compliance with spatial planning regulations (Rencana Tata Ruang Wilayah). It is advisable to engage a reputable legal consultant or law firm with experience in land transactions to conduct this verification.

Upon signing the sale and purchase agreement, the transaction is formalized by the PPAT, and the deed is submitted to the local land office (Kantor Pertanahan) for title registration. Taxes and administrative fees must be paid at this stage. These include the Land and Building Acquisition Duty (Bea Perolehan Hak atas Tanah dan Bangunan, BPHTB), which is generally 5% of the transaction value, and Value Added Tax (VAT) of 11% for purchases from developers, along with notarial and registration fees.

Failure to comply with procedural and documentation requirements can result in the rejection of the transaction by the land office, legal nullification of the contract, or exposure to future disputes. Therefore, foreign investors are strongly advised to work with licensed professionals and maintain transparent, well-documented transactions to secure legal certainty.

Conclusion: The Role of Indonesian Law Firms in Supporting Foreign Real Estate Investment

As Indonesia continues to liberalize aspects of its real estate and investment regulations, the opportunities for foreign investors are becoming increasingly attractive. However, this evolving legal landscape remains complex, particularly due to the nuanced nature of land tenure systems, regulatory compliance requirements, and regional variations in implementation. Missteps in understanding these legal frameworks can result in serious consequences, ranging from administrative penalties to invalid property claims.

In this context, engaging a reputable Indonesian law firm is not only advisable but essential. Law firms that specialize in real estate and investment law are well-positioned to provide tailored legal advice that aligns with both national regulations and local practices. Their expertise includes verifying land title validity, structuring transactions in compliance with land and investment laws, and assisting with the establishment of foreign investment companies (PT PMA). Moreover, law firms can represent foreign investors in interactions with government agencies such as the Investment Coordinating Board (BKPM), the Ministry of Agrarian Affairs and Spatial Planning, and local land offices, ensuring that all licensing, registration, and due diligence processes are properly conducted.

In addition, legal practitioners play a critical role in risk mitigation by helping foreign clients avoid informal practices such as nominee arrangements, which are not recognized under Indonesian law and expose investors to legal and financial vulnerabilities. With comprehensive legal support, foreign investors can navigate the Indonesian property market with greater confidence, transparency, and protection—laying the groundwork for secure and profitable long-term investments. If you need help with your real estate investment in Indonesia please do not hesitate to contact us at advokat@azralaw.com.