Why Foreigners Are Not Legally Allowed to Own Freehold (Hak Milik) in Indonesia

Why Foreigners Cannot Access Freehold (Hak Milik) Property in Indonesia and What Alternatives Exist

Indonesia maintains strict regulations regarding foreign ownership of real estate. Under the current legal framework, foreign nationals are prohibited from owning property under full ownership rights — Freehold (Hak Milik). This restriction is outlined in Law No. 5 of 1960, which governs land affairs across the country.

This article will explore why this ban exists, the legal rationale behind it, and the types of legal property ownership available to foreigners in Indonesia.

What Is Hak Milik: Full Ownership Rights of Land

Hak Milik (Freehold) is the most complete and protected form of land ownership in Indonesia. It includes indefinite tenure, the ability to transfer ownership, inherit, sell, mortgage, or change land use within legal limitations.

Main Features of Hak Milik:

Perpetual ownership — land is owned indefinitely.
Transferable through inheritance and private sale.
Permits changing the land's designated use (as allowed by law).
Exclusively available to Indonesian citizens.

The government views such land as a strategic national asset, and therefore aims to keep control within the country.

Why Foreigners Cannot Legally Hold Hak Milik

1. Law No. 5 of 1960 Explicitly Excludes Foreign Nationals

Articles 21 and 26 of the Basic Agrarian Law state that Hak Milik rights are reserved exclusively for individuals with Indonesian citizenship. This applies nationwide — from Java and Bali to the country's remote islands.

2. Land as an Element of National Sovereignty

In Indonesia, land is not merely viewed as a commodity. It is a strategic resource essential to national food security, social stability, and economic independence. Transferring land rights into foreign hands is considered a threat to national interests.

3. Risk of Losing Sovereign Control

Freehold rights grant broad authority — including the ability to independently develop, sell, or lease land. Granting such power to foreign nationals would compromise state control over strategically vital resources, raising both legal and political concerns.

Legal Forms of Property Ownership Available to Foreigners

Although full ownership is restricted, foreign investors can gain legal rights to real estate through the following mechanisms:

1. Hak Pakai — Right to Use

Granted for an initial period of up to 30 years, extendable to 80 years in total.
Permissible for residential use.
Available to foreign nationals holding a stay permit (KITAS/KITAP).
Must be registered with the National Land Agency (BPN).

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

Allows construction and ownership of buildings on land leased from the government or private parties.
Initial validity is 30 years, renewable up to 80 years.
Typically executed via a foreign-owned company — PT PMA.

Note: Both Hak Pakai and HGB require formal registration and recognition by land authorities. They offer legal avenues for property usage by foreign nationals.

Comparison Table of Land Rights

Type of Right	Duration	Available to Foreigners?	Intended Use	Land Ownership
Hak Milik (Freehold)	Perpetual	No	Any	Yes
Hak Pakai	30 years (up to 80 with extensions)	Yes (with KITAS/KITAP)	Residential	No
HGB	30 years (up to 80 with extensions)	Yes (via PT PMA)	Commercial & Residential	No

Nominee Arrangements: Why They Are Risky

Some foreign investors resort to so-called nominee arrangements, where a trusted Indonesian holds legal title to a property on behalf of the foreigner. However, this structure is illegal and conflicts with both the letter and spirit of the law.

Main Risks:

The legal owner can claim full rights or sell the property without the foreign party's consent.
Such agreements are not enforceable in Indonesian courts; any contract between a foreign investor and a nominee can be voided.
There may be criminal consequences for circumventing land ownership laws.

This route is not only legally vulnerable but also carries significant personal and financial risks, regardless of powers of attorney or side agreements.

The Corporate Route: Through PT PMA

One legitimate way to gain long-term property rights is by establishing a foreign-owned company in Indonesia, known as PT PMA (Perusahaan Terbatas Penanaman Modal Asing).

Features of PT PMA:

The company can hold HGB rights or lease land under Hak Sewa.
A capital commitment of at least IDR 10 billion (~USD 630,000) is required, though this does not have to be fully paid-in capital.
PT PMA must operate in sectors legally open to foreign investment (e.g., hospitality, property management, tourism).
Regulated by BKPM (Investment Coordinating Board).

PT PMA provides a fully legal framework for foreign investors to engage in long-term property development — either residential or commercial — through secure land leases and development rights.

What About Tokens and Blockchain Real Estate Investment?

In recent years, various platforms have emerged offering foreigners fractional ownership of Indonesian real estate through tokens, leveraging blockchain technology. However:

This model is not recognized as legal ownership under Indonesian law.
As of 2024, there is no specific regulation for property tokenization from either the Ministry of Agrarian Affairs or BAPPEBTI (the digital asset regulator).
It should be viewed as an investment product rather than a form of legal ownership.

In essence, these are digital asset investments with no legal protection of property ownership.

Conclusion: Legal Paths Available to Foreigners

Freehold (Hak Milik) ownership remains off-limits to foreign nationals, as clearly defined by Indonesia’s land laws. The rationale lies in preserving national sovereignty and safeguarding strategic resources.

However, alternatives do exist:

For individuals wishing to buy a home, Hak Pakai is an option (with a valid stay permit).
For business or land leasing, HGB through a registered PT PMA is a viable route.

The most important thing is to act within the legal system. Avoid nominee schemes or relying on technical loopholes. Only legal structures offer investment security and peace of mind for the future.