Land Ownership for Foreigners in Indonesia: Understanding HGB, HM, and Other Rights

4/25/20256 min read

Aerial view of Sanur, Bali

Investing in ASEAN

Indonesia's Foreign Real Estate Investment Market: Navigating Legal Complexities in a $95.4 Billion Market

Indonesia remains a compelling destination for foreign real estate investors, with the market reaching $95.4 billion in 2024 and projected to grow to $151.7 billion by 2033 at a CAGR of 5.29% [1]. With growing industrial zones, tourism assets, and rising urban demand, the country's property market offers significant long-term potential. The nation's 275 million population [2] and 58.6% urbanization rate [3] create substantial demand, while foreign direct investment in real estate reached over $3 billion in 2024 [4]. However, Indonesia's land ownership laws are among the most restrictive in Southeast Asia. Foreigners are constitutionally barred from owning freehold land and must navigate alternative legal structures to gain access to real property.

Understanding the distinctions between Hak Milik (HM), Hak Guna Bangunan (HGB), and Hak Pakai is critical not only to secure investments but to avoid costly legal disputes or outright fraud, particularly as 23% of Indonesian consumers reported losing money to scams in 2024—up from 19% in 2023 [5].

Market Scale and Economic Context

Indonesia's real estate sector represents a significant portion of the nation's $1.35 trillion economy, with GDP growing 5.03% in 2024 [6]. The property market comprises $21.78 billion in commercial real estate, expected to reach $42.46 billion by 2033 at a 7.32% CAGR [7]. Foreign investment flows reached $52 billion in the first half of 2024, representing a 22.3% increase year-over-year [8]. The residential property transaction value alone is projected to reach $60.84 billion by 2025 [9].

The market fundamentals remain strong despite challenges. Property prices increased by only 1.46% year-over-year in Q3 2024 [10], reflecting moderated growth amid economic pressures. However, with 165.8 million people living in urban areas as of 2024 [11] and continued urbanization trends, demand pressures persist across major metropolitan areas.

The Legal Framework: Land Rights in Indonesia

Indonesia's agrarian law prohibits foreign individuals from directly holding land under Hak Milik, the strongest form of ownership. Instead, foreigners must rely on legally sanctioned alternatives, each with specific rights and limitations. The government has recorded 8,959 cases of land disputes nationwide, with 56% occurring between individuals and 15% between people and legal entities [12].

1. Hak Milik (HM) – Freehold Ownership

Eligibility: Indonesian citizens only
Nature: Full, perpetual ownership
Transferability: Freely transferable among Indonesian citizens
Foreign Access: Prohibited

Nominee arrangements—where land is held by an Indonesian citizen on behalf of a foreigner—are common but expose investors to substantial legal risk and are not enforceable under Indonesian law [13].

2. Hak Guna Bangunan (HGB) – Right to Build

Eligibility: Indonesian entities and foreign-owned companies (PT PMA)
Term: 30 years, extendable to 80 years total
Use: Commercial or residential development
Transferability: Yes
Mortgageable: Yes

HGB is the primary mechanism for foreign investors seeking control over land for development [14]. Ownership is secured through a registered legal entity and must be in compliance with foreign investment regulations. Singapore leads foreign investment with $8.8 billion, followed by China with $3.9 billion and Hong Kong with $3.8 billion in the first half of 2024 [15].

3. Hak Pakai – Right to Use

Eligibility: Foreign individuals domiciled in Indonesia (e.g., KITAS/KITAP holders)
Term: 25 years, extendable
Use: Residential only
Transferability: Limited
Mortgageable: Restricted

Hak Pakai offers a narrow but legally valid pathway for individuals looking to acquire residential property for personal use. Currently, foreigners account for a very small percentage of total sales in Indonesia's property sector [16].

4. Hak Sewa – Leasehold

Eligibility: Foreign individuals and entities
Term: Up to 25–30 years (contractual)
Use: Flexible
Transferability: Yes (contractual rights only)
Mortgageable: No

Lease arrangements are widely used in Bali and other tourism zones [17]. However, the legal enforceability of such contracts hinges on registration, zoning, and land title clarity.

Case Studies: When the Legal Structure Fails

Case 1: Princess Lolowah's $37 Million Loss

Between 2011 and 2018, Saudi royal Princess Lolowah binti Mohammed Al-Saud transferred over $37 million to Indonesian nationals to develop luxury resorts in Bali [13]. Despite the payments, no completed property was delivered. Investigations revealed that the land was never properly transferred into a structure that would have granted her legal rights—no HGB or Hak Pakai was registered in her name or through a valid entity. The suspects retained title, and other parties later surfaced with competing claims. The princess also lost $500,000 on an unrelated parcel that was never legally for sale.

Case 2: Golden City Fraud in Sumbawa

American investor Christopher Stephen Smith was promised a 99-year lease and the development of a 300-unit housing project in Sumbawa [13]. He paid over $7.5 million based on these representations. Upon inspection in 2020, no construction had begun, and the land remained under third-party ownership. The promised rights—allegedly based on a leasehold (Hak Sewa)—were never registered. Smith ultimately filed a criminal complaint after being denied access to the land.

Fraud Risk Assessment

The financial fraud landscape in Indonesia shows concerning trends for property investors. The Asia-Pacific region, including Indonesia, recorded 194 fraud cases with an average loss of $2.31 million and median loss of $121,000 [18]. Indonesia ranks 4th in the Asia-Pacific region with 23 fraud cases, while the real estate sector is highlighted as the most problematic in fraud surveys. Recent cases include a $62 million embezzlement case involving foreign investors, where suspects were controversially released through restorative justice mechanisms.

High-value scams exceeding $4,300 per incident now account for 8% of all reported cases in Indonesia, up significantly from previous years. This trend particularly affects real estate transactions, where large sums are typically involved and verification processes can be complex.

Market Demographics and Economic Drivers

Indonesia's demographic profile supports long-term real estate demand. The population of 284.4 million is projected to grow at 1.11% annually, with a median age of 30.2 years [19]. However, the middle class has shrunk from 57.33 million in 2019 to 47.85 million in 2024, representing a decline from 21.45% to 17.13% of the population [20]. This contraction affects purchasing power, as the middle class and aspiring middle class contribute over 81% of the country's total consumption [21].

The urbanization trend continues, with 165.8 million people living in urban areas in 2024, growing at a 2.05% CAGR [11]. Jakarta, Bali, and Surabaya remain primary investment targets, each offering distinct economic advantages and lifestyle attractions for investors [22].

Regional Context and Comparative Analysis

Within Southeast Asia's $230 billion FDI market, Indonesia captured approximately $52 billion in the first half of 2024 [23]. The country's property market compares favorably to regional peers, with residential property prices showing stability compared to more volatile markets like Singapore, which recorded 13.7% year-over-year growth [24]. Indonesia's property prices increased modestly by 1.46% in Q3 2024, reflecting a more measured growth trajectory [10].

Commercial real estate in major Indonesian cities remains competitively priced. Average rental rates in Jakarta's CBD reached IDR 445,986/sq m/month ($28.85), while non-CBD areas averaged IDR 410,707/sq m/month ($26.57) [25]. This pricing structure offers attractive entry points compared to regional hubs like Singapore, where premium properties command $20,000 per square meter [17].

Conclusion: Compliance Is Non-Negotiable

Both historical cases illustrate the consequences of investing without proper legal safeguards in a market where land disputes affect thousands of properties annually. Foreigners cannot hold Hak Milik titles, and any attempt to bypass this restriction—whether through nominee schemes or verbal agreements—exposes investors to legal voids and financial loss in an environment where fraud cases continue to rise.

Indonesia offers legitimate pathways through HGB, Hak Pakai, and Hak Sewa, but these must be executed through licensed legal counsel, registered notarial deeds, and vetted land office documentation [26]. The government has implemented enhanced anti-fraud regulations through OJK Regulation 12/2024, requiring financial institutions to develop comprehensive anti-fraud strategies26.

For foreign investors eyeing Indonesia's $95.4 billion real estate market, the principle is clear: structure matters more than promise. With property transaction values projected to reach $62.71 billion by 2029 [27] and foreign investment continuing to flow at record levels, conducting due diligence and adhering to legal structures is not only prudent—it is essential for participating in Southeast Asia's fourth-largest economy [28].

Sources:

Indonesia Real Estate Market Size and Growth Projections, 2024-2033, Statista Market Insights
Indonesia Population Statistics Report, Central Bureau of Statistics (BPS), 2024
Indonesia Urbanization Rate Annual Report, World Bank Urban Development Data, 2024
Foreign Direct Investment in Indonesia Real Estate Sector, Indonesia Investment Coordinating Board (BKPM), Q2 2024
Indonesia Land Ownership Laws and Regulations, Ministry of Agrarian Affairs and Spatial Planning, 2024
Consumer Fraud Survey Indonesia, PwC Indonesia, 2024
Indonesia Economic Outlook Report, Bank Indonesia, Q3 2024
Commercial Real Estate Market Analysis Indonesia, JLL Research, 2024
Indonesia Investment Report, First Half 2024, BKPM
Residential Property Price Index, Bank Indonesia, Q3 2024
Urban Population Growth Trends in Indonesia, United Nations Population Division, 2024
Land Dispute Statistics in Indonesia, National Land Agency (BPN), Annual Report 2024
Foreign Investment by Country of Origin in Indonesia, BKPM Quarterly Report, Q2 2024
Foreign Property Ownership Statistics, Ministry of Housing and Public Works, 2024
Asia-Pacific Fraud Survey, Association of Certified Fraud Examiners (ACFE), 2024
Indonesia Fraud Cases Analysis, Financial Services Authority (OJK), 2024
High-Profile Real Estate Fraud Case Report, Indonesia National Police, 2024
Indonesia Demographic Profile, BPS Indonesia, 2024
Middle Class Trends in Indonesia, World Bank Indonesia Economic Report, 2024
Consumer Spending Patterns in Indonesia, Nielsen Consumer Confidence Survey, 2024
Southeast Asia FDI Comparative Analysis, ASEAN Secretariat, 2024
Property Price Growth Comparison in Southeast Asia, Knight Frank Asia-Pacific Residential Review, Q3 2024
Jakarta Commercial Real Estate Rental Rates, Colliers International Market Report, 2024
Singapore Premium Property Market Analysis, Savills Research, 2024
Indonesia Property Transaction Value Forecast, Mordor Intelligence, 2024
OJK Regulation 12/2024 on Anti-Fraud Strategies, Financial Services Authority, 2024
Indonesia GDP Growth Report, Ministry of Finance, 2024
Southeast Asian Economies Comparative Analysis, Asian Development Bank, 2024