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Legal Updates | A Closer Look at Indonesia’s Condominium Law

Indonesia enacted a new Condominium Law in 2011 (Law No. 20 of 2011 regarding Condominiums, the “New Condominium Law”), which replaced Law No. 16 of 1985 regarding Condominiums (the “Old Condominium Law”). The implementing regulations of the New Condominium Law were to be issued at the latest one year after the enactment of the law but this has not happened and to date no implementing regulations have been issued. The New Condominium Law stipulates that any implementing regulations of the Old Condominium Law shall continue to apply to the extent that such regulations do not contradict the New Condominium Law and have not been amended by a new regulation.

Due to the absence of implementing regulations for the New Condominium Law, Government Regulation No. 4 of 1988 regarding Condominiums, dated 26th April 1988 (“GR 4/1988”), still applies. However, this does not solve the need for implementing regulations since GR 4/1988 does not cover all the provisions of the New Condominium Law, in particular those provisions that were not regulated under the Old Condominium Law. Furthermore, the New Condominium Law mandates the issuance of 14 government regulations, six ministerial regulations and one regional regulation.

One of the main issues with the implementation of the New Condominium Law is the obligation that commercial condominium developers allocate 20% of the total commercial apartment area to be developed for the low-income community. This low-income development does not have to be at the same location as the commercial apartment, but it has to be in the same regency or city.

The New Condominium Law stipulates that this matter will be further regulated under a Government Regulation, which has yet to happen. This is obviously an area of concern for condominium developers given the lack of clear regulations or procedures on how to implement this obligation. Several condominium developers have questioned how to determine the total area of the low-income development and the timeline for achieving this obligation, among other issues left unresolved by the lack of implementing regulations. In fact, most condominium developers have yet to implement the low-income condominium obligation because of the lack of guidance.

Another main issue in the implementation of the New Condominium Law is the establishment of a Condominium Owners Association (Perhimpunan Pemilik dan Penghuni Satuan Rumah Susun or “PPPSRS”). The New Condominium Law stipulates that a PPPRS must be established one year after the first transfer of a condominium unit to the owner. The obligation to establish a PPPSRS is borne by the condominium owners and the New Condominium Law only obliges the condominium developer to facilitate such establishment. There has been much confusion over the exact meaning of “transfer” in this provision. Does it mean physically transferring the condominium unit from the developer to the owner or legally transferring the unit by placing the name of the owner on the condominium unit ownership certificate?

This confusion also concerns the definition of unit owner. The New Condominium Law states that the owner is any person who owns the condominium unit. But questions arise if a condominium unit has been transferred to a person who has only executed the sale and purchase binding agreement (perjanjian pengikatan jual beli or “PPJB”), which in essence does not create an ownership title. Can such person then be categorized as the owner? Or can a party only be categorized as the owner if he/she has already executed the share and purchase deed (akta jual beli or “AJB”), resulting in the unit certificate being issued under his/her name? This remains uncertain under the New Condominium Law.

These questions underline the confusion resulting from the lack of implementing regulations for the New Condominium Law, in particular for developers and parties purchasing a condominium unit. It is unclear when such implementing regulations will be issued. It is perhaps telling that the Ministry of Public Housing, which should take the lead on this issue, has been folded into the Ministry of Public Works under the administration of President Joko Widodo.

In the meantime, condominium developers and prospective buyers will continue to have to navigate an uncertain regulatory environment. 

SSEK - 27th February 2015

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Indonesia Property Snapshot - Real Estate

Contribution to GDP: 2.79% (Q3 2015)
Mortgage to GDP Ratio: 3.5% (2015)
Housing Backlog: 15 million (estimated 2016)
Average Condominium Price: 48,100,000 IDR/sqm (CBD, Jakarta, Q3 2015)
Average Retail Space Rental Price: 500,00 IDR/sqm/month (CBD, Jakarta, Q1 2016), 545,968 IDR IDR/sqm/month (Jakarta, 2016)
Average Office Space Rental Price: 401,010 IDR/sqm/month (CBD, Jakarta, Q1 2016)
Average Industrial Land Price : $221.51 USD/sqm (Bekasi, Q1 2016), $144.16 USD/sqm (Tangerang, Q1 2016)
Relevant Law: Government Regulation No. 41 of 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia allows foreigners to own leaseholds of up to 70 years subject to renewals at 25, 20 and 25 year intervals.