What is the fundamental legal difference between HGB and Hak Pakai in Indonesia?

HGB (Hak Guna Bangunan, Right to Build) and Hak Pakai (Right of Use) are both derivative land rights under the Indonesian Basic Agrarian Law (Law 5/1960), but they differ in their eligible holders, permitted purposes, term structures, and collateral utility. HGB is the standard building and development right for Indonesian legal entities — including PT PMA companies with foreign ownership — and provides the right to construct, own, and use buildings on land for a 30-year initial term, extendable by 20 years and renewable for a further 30 years (total theoretical 80-year horizon). HGB can be registered as collateral through the Hak Tanggungan (mortgage) framework at BPN, making it a bankable security instrument. Hak Pakai, by contrast, is a right of use that applies to a broader range of holders — Indonesian citizens, foreign individuals with valid Indonesian immigration status (KITAS/KITAP), certain foreign legal entities with offices in Indonesia, and Indonesian legal entities including PT PMAs. For foreign individuals (not companies), Hak Pakai is the closest available instrument to residential freehold, with a 30-year initial term plus 20-year extension. However, Hak Pakai for foreign individuals cannot be used for commercial development purposes and cannot serve as collateral security in the same robust manner as HGB under Hak Tanggungan . For a PT PMA operating a resort development programme, HGB is unambiguously the correct primary land tenure instrument.

Can a foreign individual use Hak Pakai to own a villa unit in a Sidemen resort development?

Yes, but the structure requires careful layering. A foreign individual with valid Indonesian immigration status (specifically KITAS or KITAP — Temporary or Permanent Stay Permit) can hold Hak Pakai over a residential property unit. In a resort development context, this mechanism is used for branded residence programmes where individual units are sold to foreign buyers: the PT PMA developer holds HGB over the overall resort land, and individual villa buyers hold Hak Pakai over their specific unit footprint (or a sectional title equivalent under Satuan Rumah Susun framework for vertical developments). The foreign individual's Hak Pakai right is created as a derivative right above the PMA's HGB. The practical limitations of this structure are: first, it requires the foreign buyer to maintain valid immigration status in Indonesia for the duration of the Hak Pakai (lapse of immigration status can affect the right); second, the Hak Pakai for foreign individuals has a lower maximum term than HGB (30 plus 20 years versus HGB's 30 plus 20 plus 30) , which means branded residence buyers should model the full term cycle in their acquisition analysis; third, mortgage security on an individual Hak Pakai unit held by a foreign buyer is more complex to arrange than HGB-secured project finance. Despite these limitations, Hak Pakai for foreign buyers is the established and legally sound mechanism for foreign individual ownership of residential units in Indonesian resort developments, and the legal profession supporting Bali property transactions has substantial experience executing these structures.

What happens to a company's HGB if it is not extended before the term expires?

An HGB that expires without a prior extension application lapses, and the land right reverts to the State rather than automatically renewing or extending. This outcome — sometimes called HGB abandonment — is among the most consequential administrative failures a resort developer can make, because it extinguishes the fundamental property right that underpins both the development and any associated financing. The extension application must be lodged at BPN before the current term expires — an expired HGB cannot be extended, only potentially re-granted through a more complex process that involves the State's discretion and is not guaranteed. For practical corporate management purposes, institutional developers should implement a compliance calendar that flags HGB extension deadlines no later than 3 years before the expiry date, allowing time for the extension application process (typically 3 to 12 months ) and any complications in the extension documentation. Lenders who have Hak Tanggungan registered over HGB collateral also have a strong independent interest in monitoring HGB extension deadlines, and institutional lenders typically require contractual covenants from the PMA borrower to apply for HGB extension with adequate lead time. A resort PMA whose HGB was initially registered in 2024 will need to apply for its 20-year extension no later than 2053 — but the compliance calendar for that application should be established now, as part of good corporate governance.

Is Hak Sewa (lease right) a viable alternative to HGB for commercial resort operations?

Hak Sewa provides a contractual right to use land owned by another party for an agreed period and purpose, but it is not registered on the BPN title register and does not carry the erga omnes enforceability of HGB — it cannot be asserted against third parties who acquire the underlying land title without notice. The critical practical limitation for resort development is bankability: Hak Sewa cannot be registered as Hak Tanggungan collateral security in the standard Indonesian mortgage framework. This means that a resort development programme built on a Hak Sewa basis cannot access Indonesian construction or term lending secured against the land right, which substantially limits the financing structures available. In practice, Hak Sewa-based operations are used by smaller boutique developments where the operator does not require project finance and where the simplicity and lower cost of a lease arrangement with the landowner outweighs the limitations. For institutional-scale resort development programmes in Sidemen — developments of 20 keys and above, requiring construction finance and designed for eventual sale to institutional buyers — Hak Sewa is not an appropriate primary tenure structure. Lenders will not accept it as collateral, and institutional buyers at exit will require either conversion to HGB or a material price discount that reflects the tenure risk they are assuming.

How does Indonesian land tenure translate for due diligence purposes when an international investor or lender is reviewing a Bali resort transaction?

International investors and lenders approaching an Indonesian resort transaction for the first time frequently misread the land tenure framework through the lens of the common law or civil law systems they are familiar with. The most important clarification is that HGB, while time-limited, is not a lease in the common law sense — it is a registered property right enforceable against the world, capable of serving as mortgage security, and with a term structure (30 plus 20 plus 30 years) that comfortably covers the economic life of a resort development programme and a typical financing cycle. The second clarification is that the absence of 'freehold' (Hak Milik) in a PMA's title portfolio is normal and expected — Hak Milik is legally inaccessible to PMA entities, and the absence of freehold is not a title defect but the structural characteristic of foreign investment in Indonesian real estate. A properly executed Indonesian resort transaction will show: an HGB certificate registered in the PT PMA's name at BPN; a Hak Tanggungan registered over the HGB in favour of the construction or term lender (if financed); current PBB (land and building tax) payment records; and a clear chain of title from the original Hak Milik through the conversion to HGB. All of these documents are verifiable through BPN and the local tax office. International lenders taking Indonesian security typically engage Indonesian law firms with real estate and banking specialisation to render a legal opinion on the land security package — the opinion market for this work is mature and well-resourced in Jakarta and Bali.

Intelligence Library

Zoning, Law & Frameworks · 9 min read · 22 April 2026

HGB vs Hak Pakai: Land Rights for Foreign Commercial Operators

Two different rights, two different operational realities. A reference for foreign capital evaluating land tenure structures in Indonesia.

The question of land tenure in Indonesia is, for foreign capital approaching a Bali resort transaction, simultaneously simpler and more complex than it first appears. Simpler, because the structure that applies to the overwhelming majority of institutional-grade resort developments is well-established and does not require novel legal architecture: a PT PMA holds HGB title over the development land, with the HGB capable of serving as collateral for construction and term financing. More complex, because the underlying Indonesian land law framework contains multiple instruments — HGB, Hak Pakai, Hak Sewa, and Hak Guna Usaha among them — whose differences matter materially for institutional investment underwriting, exit structure, and financing availability.

This reference article addresses the comparison that matters most for foreign commercial operators entering the Sidemen development corridor: HGB versus Hak Pakai, the two registered property rights most commonly encountered in resort development transactions involving foreign capital. The comparison is not academic — the choice between these instruments, and the understanding of their respective limitations, is a first-order determinant of whether a development programme can access project finance, be sold to an institutional buyer at exit, and be structured to accommodate foreign individual ownership of branded residence units.

The Indonesian Land Tenure Framework

Indonesian land tenure is governed by the Basic Agrarian Law (Undang-Undang Pokok Agraria, Law 5/1960), which established a national land tenure framework on the principle that all Indonesian land is ultimately held by the State, with individuals and entities holding derivative rights rather than absolute ownership in the Western freehold sense. The only exception to this principle is Hak Milik — the closest Indonesian instrument to Western freehold — which is reserved for Indonesian citizens and certain specific Indonesian legal entities (but not PT PMAs with foreign shareholding).

This framework produces a hierarchy of rights. Hak Milik sits at the top — perpetual, inheritable, convertible to any other right. Below it are the derivative rights: HGB (Right to Build), Hak Guna Usaha (Right to Cultivate, primarily for agricultural operations), Hak Pakai (Right of Use), and Hak Sewa (Lease Right). Each can be created over land that is already held as Hak Milik by a private party, or over State Land directly. Each carries different eligibility criteria, term structures, and functional characteristics.

The most recent comprehensive updating of these rights was Government Regulation 18/2021, which consolidated the implementing regulations under the Basic Agrarian Law and its successor legislation.

HGB: The Resort Developer’s Instrument

For a PT PMA developing a resort in Sidemen, HGB is the primary and appropriate land tenure instrument. Its characteristics are:

Eligible holders. Indonesian legal entities, including PT PMAs with any level of foreign shareholding, are eligible to hold HGB. Indonesian citizens are also eligible. Foreign individuals and foreign legal entities without Indonesian corporate registration are not eligible.

Term structure. The HGB term operates in three phases: an initial 30-year grant, an extension of 20 years applied for before the initial term expires, and a renewal of 30 years after the extension term. Total theoretical tenure horizon: 80 years from initial registration .

Permitted uses. HGB authorises the holder to construct and own buildings on the land for the duration of the HGB term. For a resort developer, this encompasses all construction: guest accommodation, public amenities, back-of-house facilities, and any ancillary structures within the HGB parcel boundary.

Collateral utility. HGB is registrable as mortgage collateral through the Hak Tanggungan framework. A Hak Tanggungan registered over an HGB certificate gives the lender a first-ranking security interest in the land right, enforceable against third parties through the BPN registry. This makes HGB the bankable security instrument for Indonesian resort project finance.

Transferability. HGB can be transferred between Indonesian legal entities through a deed executed before a PPAT and registered at BPN. At the exit of a resort development, the HGB transfer is the primary mechanism through which the land right passes to the buyer.

Acquiring HGB from Hak Milik Land

Most land in the Sidemen corridor is currently registered as Hak Milik in the names of Balinese landowners. The PMA acquisition process therefore involves converting the Hak Milik to HGB: the landowner executes a deed of title release (Surat Pelepasan Hak) before the PPAT, the Hak Milik certificate is surrendered, and BPN issues a new HGB certificate in the name of the PT PMA. The BPHTB (land acquisition duty) at 5 percent of the transaction value is paid on acquisition.

This conversion is routine and well-understood by the PPAT and BPN infrastructure in Karangasem. Processing time for the HGB certificate from a complete and correct document submission to BPN is typically 3 to 9 months , a period during which the PMA’s right to the land is evidenced by the transaction documents rather than the HGB certificate.

Hak Pakai: The Right of Use Instrument

Hak Pakai is the more flexible of the two primary derivative rights — it covers a broader range of eligible holders and purposes — but it is not the appropriate instrument for PMA resort development. Its relevance to resort transactions is primarily as the instrument through which foreign individual buyers hold branded residence units.

Eligible holders. Hak Pakai can be held by Indonesian citizens, foreign individuals with valid KITAS or KITAP immigration status, certain foreign legal entities with office representation in Indonesia, and Indonesian legal entities including PT PMAs.

Term structure for foreign individuals. A foreign individual holding Hak Pakai has an initial term of 30 years, extendable by 20 years, with the possibility of a further renewal — though the renewal pathway for foreign individual Hak Pakai is less clearly established in regulation than the HGB renewal cycle .

Collateral limitations. Hak Pakai held by a foreign individual has more limited collateral utility than HGB held by an Indonesian entity. The Hak Tanggungan framework technically applies to Hak Pakai, but the practical lending market for mortgages against foreign individual Hak Pakai in Indonesia is thin compared to the well-established HGB-secured corporate lending market. Foreign individual buyers of branded residence units in Bali who seek mortgage financing face more limited lender options than domestic buyers or PMA-structure buyers.

Immigration dependency. The maintenance of a foreign individual’s Hak Pakai is tied to their Indonesian immigration status . Lapse of KITAS or KITAP — whether through the individual’s choice, the immigration authority’s decision, or Indonesia’s changing visa regulations — can affect the validity of the Hak Pakai. This dependency is a risk factor that buyers of branded residence units under Hak Pakai should factor into their acquisition analysis.

The Layered Structure: HGB Below, Hak Pakai Above

The standard branded residence structure in an Indonesian resort development creates a layered tenure arrangement: the PT PMA holds HGB over the entire resort development area, and individual unit buyers hold Hak Pakai over their specific villa or unit footprint as a right derived from and subordinate to the PMA’s HGB.

This structure works because Hak Pakai can be created over land that is already held as HGB — the Hak Pakai sits above the HGB in the rights hierarchy rather than replacing it. The individual buyer acquires a registered right to use their specific unit, the PT PMA retains the underlying building right and the development land, and the resort continues to operate as an integrated facility.

The documentation for this structure requires attention at the conveyancing stage: the individual Hak Pakai must be registered at BPN separately from the PMA’s HGB, the rights relationship between the two must be clearly documented in the Hak Pakai certificate and the relevant deed, and any Hak Tanggungan on the PMA’s HGB must be structured to account for the individual Hak Pakai rights within the HGB area.

What This Means for Institutional Capital

For a developer entering the Sidemen market, the practical conclusion from this analysis is straightforward. The PT PMA holds HGB. The HGB serves as the primary collateral for project finance. Individual foreign buyers of branded residence units hold Hak Pakai. Hak Sewa-based tenure is not appropriate for institutional-scale development.

The more nuanced implication is for exit underwriting: the quality of the land tenure documentation — the cleanliness of the HGB certificates, the completeness of the Hak Pakai registrations for any branded residence units, the absence of informal arrangements that are not reflected in the BPN record — is a direct determinant of exit price. Institutional buyers and their lenders will conduct BPN searches and require legal opinions on title. The investment in clean tenure documentation at entry is the investment in maximum exit value at the end of the hold period.

Frequently Asked

The FAQ entries are rendered automatically below by the ArticleLayout component from the frontmatter faq block.

FAQ

Frequently Asked

What is the fundamental legal difference between HGB and Hak Pakai in Indonesia?: HGB (Hak Guna Bangunan, Right to Build) and Hak Pakai (Right of Use) are both derivative land rights under the Indonesian Basic Agrarian Law (Law 5/1960), but they differ in their eligible holders, permitted purposes, term structures, and collateral utility. HGB is the standard building and development right for Indonesian legal entities — including PT PMA companies with foreign ownership — and provides the right to construct, own, and use buildings on land for a 30-year initial term, extendable by 20 years and renewable for a further 30 years (total theoretical 80-year horizon). HGB can be registered as collateral through the Hak Tanggungan (mortgage) framework at BPN, making it a bankable security instrument. Hak Pakai, by contrast, is a right of use that applies to a broader range of holders — Indonesian citizens, foreign individuals with valid Indonesian immigration status (KITAS/KITAP), certain foreign legal entities with offices in Indonesia, and Indonesian legal entities including PT PMAs. For foreign individuals (not companies), Hak Pakai is the closest available instrument to residential freehold, with a 30-year initial term plus 20-year extension. However, Hak Pakai for foreign individuals cannot be used for commercial development purposes and cannot serve as collateral security in the same robust manner as HGB under Hak Tanggungan . For a PT PMA operating a resort development programme, HGB is unambiguously the correct primary land tenure instrument.
Can a foreign individual use Hak Pakai to own a villa unit in a Sidemen resort development?: Yes, but the structure requires careful layering. A foreign individual with valid Indonesian immigration status (specifically KITAS or KITAP — Temporary or Permanent Stay Permit) can hold Hak Pakai over a residential property unit. In a resort development context, this mechanism is used for branded residence programmes where individual units are sold to foreign buyers: the PT PMA developer holds HGB over the overall resort land, and individual villa buyers hold Hak Pakai over their specific unit footprint (or a sectional title equivalent under Satuan Rumah Susun framework for vertical developments). The foreign individual's Hak Pakai right is created as a derivative right above the PMA's HGB. The practical limitations of this structure are: first, it requires the foreign buyer to maintain valid immigration status in Indonesia for the duration of the Hak Pakai (lapse of immigration status can affect the right); second, the Hak Pakai for foreign individuals has a lower maximum term than HGB (30 plus 20 years versus HGB's 30 plus 20 plus 30) , which means branded residence buyers should model the full term cycle in their acquisition analysis; third, mortgage security on an individual Hak Pakai unit held by a foreign buyer is more complex to arrange than HGB-secured project finance. Despite these limitations, Hak Pakai for foreign buyers is the established and legally sound mechanism for foreign individual ownership of residential units in Indonesian resort developments, and the legal profession supporting Bali property transactions has substantial experience executing these structures.
What happens to a company's HGB if it is not extended before the term expires?: An HGB that expires without a prior extension application lapses, and the land right reverts to the State rather than automatically renewing or extending. This outcome — sometimes called HGB abandonment — is among the most consequential administrative failures a resort developer can make, because it extinguishes the fundamental property right that underpins both the development and any associated financing. The extension application must be lodged at BPN before the current term expires — an expired HGB cannot be extended, only potentially re-granted through a more complex process that involves the State's discretion and is not guaranteed. For practical corporate management purposes, institutional developers should implement a compliance calendar that flags HGB extension deadlines no later than 3 years before the expiry date, allowing time for the extension application process (typically 3 to 12 months ) and any complications in the extension documentation. Lenders who have Hak Tanggungan registered over HGB collateral also have a strong independent interest in monitoring HGB extension deadlines, and institutional lenders typically require contractual covenants from the PMA borrower to apply for HGB extension with adequate lead time. A resort PMA whose HGB was initially registered in 2024 will need to apply for its 20-year extension no later than 2053 — but the compliance calendar for that application should be established now, as part of good corporate governance.
Is Hak Sewa (lease right) a viable alternative to HGB for commercial resort operations?: Hak Sewa provides a contractual right to use land owned by another party for an agreed period and purpose, but it is not registered on the BPN title register and does not carry the erga omnes enforceability of HGB — it cannot be asserted against third parties who acquire the underlying land title without notice. The critical practical limitation for resort development is bankability: Hak Sewa cannot be registered as Hak Tanggungan collateral security in the standard Indonesian mortgage framework. This means that a resort development programme built on a Hak Sewa basis cannot access Indonesian construction or term lending secured against the land right, which substantially limits the financing structures available. In practice, Hak Sewa-based operations are used by smaller boutique developments where the operator does not require project finance and where the simplicity and lower cost of a lease arrangement with the landowner outweighs the limitations. For institutional-scale resort development programmes in Sidemen — developments of 20 keys and above, requiring construction finance and designed for eventual sale to institutional buyers — Hak Sewa is not an appropriate primary tenure structure. Lenders will not accept it as collateral, and institutional buyers at exit will require either conversion to HGB or a material price discount that reflects the tenure risk they are assuming.
How does Indonesian land tenure translate for due diligence purposes when an international investor or lender is reviewing a Bali resort transaction?: International investors and lenders approaching an Indonesian resort transaction for the first time frequently misread the land tenure framework through the lens of the common law or civil law systems they are familiar with. The most important clarification is that HGB, while time-limited, is not a lease in the common law sense — it is a registered property right enforceable against the world, capable of serving as mortgage security, and with a term structure (30 plus 20 plus 30 years) that comfortably covers the economic life of a resort development programme and a typical financing cycle. The second clarification is that the absence of 'freehold' (Hak Milik) in a PMA's title portfolio is normal and expected — Hak Milik is legally inaccessible to PMA entities, and the absence of freehold is not a title defect but the structural characteristic of foreign investment in Indonesian real estate. A properly executed Indonesian resort transaction will show: an HGB certificate registered in the PT PMA's name at BPN; a Hak Tanggungan registered over the HGB in favour of the construction or term lender (if financed); current PBB (land and building tax) payment records; and a clear chain of title from the original Hak Milik through the conversion to HGB. All of these documents are verifiable through BPN and the local tax office. International lenders taking Indonesian security typically engage Indonesian law firms with real estate and banking specialisation to render a legal opinion on the land security package — the opinion market for this work is mature and well-resourced in Jakarta and Bali.

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