Recent Legal Developments in the Indonesian Real Estate Sector

By Dyah Soewito and Denny Rahmansyah

When discussing Indonesia's real estate sector, two recent legal developments are particularly interesting. First, Indonesian President Joko Widodo recently issued Presidential Instruction No. 3 of 2016 regarding Simplification of Licensing in Housing Construction (Presidential Instruction 3/2016).

This presidential instruction calls for ministers and heads of regional governments to simplify the policies, requirements and process to obtain the licenses required for the construction of housing. The issuance of Presidential Instruction 3/2016 followed the announcement of the government's one million housing program, which, as the name suggests, is aimed at building a million houses for lower-income families.

It will take time to evaluate the effect of Presidential Instruction 3/2016, but in the months immediately following its issuance developers reported the same difficulties and challenges in obtaining the necessary licenses. In particular, they reported difficulties obtaining licenses from regional government authorities, which, due to regional autonomy, have broad authority and discretion in the issuance of licenses for activities within their regions, including for real estate development.

The second development worth mentioning in the real estate sector relates to the controversy over reclamation work in and near Jakarta Bay. This reclamation work is essentially aimed at creating a new land area in densely crowded Jakarta for real estate developments, be it housing or commercial development. However, the reclamation work has raised a multitude of issues and concerns, including legal issues related to environmental law, administrative law and anti-corruption law.

These issues, along with various political intrigues, including a clash between the central government and the Jakarta administration over the authority to issue the permits and licenses for reclamation work, and protests by environmental activists and residents and fishermen near the reclamation site, have resulted in the reclamation work progressing very slowly (it is currently on hold), placing the developers in an uncertain position.

The above snapshot of recent developments in Indonesia underlines a few of the prevalent issues in the country's real estate sector, i.e., a complex and lengthy licensing process at the regional level and a lack of legal certainty.

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