Penurunan hak: a freehold title has to be downgraded before a foreigner can take it

The question turns up on expat forums in almost the same words every time. Could the owner convert their freehold to HGB so I can legally buy the house? And later, from the same person: would I then have to go through getting it converted back? Both are the right questions. The answers moved in 2022 and again in 2025.

What is penurunan hak and why does a sale to a foreigner require it?

Because of a nationality rule in the founding land statute, and a consequence attached to breaking it.

The Basic Agrarian Law, Law No. 5 of 1960, restricts Hak Milik at Article 21(1) to Indonesian citizens. Article 26(2) then deals with what happens if an act tries to move it, directly or indirectly, to a foreigner: the act is null and void by law, the land falls to the State, encumbrances in favour of other parties survive, and payments the owner has already received cannot be reclaimed. Three consequences, and the third is the one sales pitches leave out. What an SHM is, and why the door is closed covers the rule in full.

Ministerial Regulation ATR/BPN No. 18 of 2021 defines the mechanism rather than leaving it to inference: a change of right is a government determination that land previously held under one right, on the holder’s application, becomes State land and is at the same time granted back to them under a different right. Extinction and re-grant, in one determination.

Read that definition twice before you accept the word “convert”. Nothing is being converted in the sense of a label changing. A freehold right is being destroyed and a lesser, time-limited right is being created in its place.

What changed in 2025, and this is the part almost nothing published in English has caught up with. A 2025 ministerial regulation now provides that the change of Hak Milik into HGB is done either in the framework of an auction, or by release of the right into State land and processing through a grant of rights. Outside an auction, the simplified one-step conversion is no longer the route. The parcel is released, becomes State land, and the new right is then applied for through the ordinary grant process. Same destination, different machinery, different paperwork and a different risk profile for whoever is standing between the two states.

What is peningkatan hak, and when does the title get upgraded back?

Peningkatan hak is the reverse: an HGB or Hak Pakai extinguished and re-granted as Hak Milik. It is the step that matters at your exit rather than your entry, and it has conditions that surprise people.

The current statement of it sits in a 2022 ministerial decree, which is also the instrument that revoked the 1997 and 1998 decrees. On application, an HGB or Hak Pakai over land for a residential house, held by an individual Indonesian citizen, of up to 600 square metres, is extinguished and re-granted to the former holder as Hak Milik. A separate limb covers shophouse and office-house use at up to 120 square metres.

Three conditions do the work there, and each one is a constraint a foreign seller should understand before they assume the upgrade is an exit feature:

• It is for individual Indonesian citizens. Not for a foreign holder, and not for a company. Whoever upgrades is your Indonesian buyer, after they have bought from you — not you, before you sell.
• It is for residential use, and the land has to be land for a house.
• It is capped at 600 square metres for the residential limb. A larger villa parcel does not fit through this door at all, whoever is holding it.

Who bears the cost and the risk of the downgrade?

Whoever negotiates it into the contract, which is why it belongs in the contract rather than in an assumption.

The tax is the issue. Law No. 1 of 2022 brings within the acquisition duty the grant of a new right, both as a continuation of a release of rights and outside a release — which is precisely the shape of the post-2025 downgrade and of the upgrade. The base for a new right following release is market value, with the assessed value as a floor, less the regional non-taxable threshold of at least Rp 80,000,000, at a rate of at most 5 per cent set regionally.

There is one open point I am not going to resolve for you, because the text does not resolve it. The same law exempts acquisition where a right is converted with no change of name. Whether a penurunan or peningkatan hak in which the holder never changes falls inside that exemption is a genuine interpretive question, and the term it uses has a narrower technical meaning in Indonesian land law than the plain English reading suggests. Put it to a licensed Indonesian tax professional for your transaction. Do not model it either way on the strength of an article.

I am also not publishing a figure for the uang pemasukan, the payment to the State that can attach to a grant of rights. The express statements about it lived in the two decrees that were revoked in 2022, and I could not verify the current rule or rate. That is a question for your notaris, and a real one, because it is the line most likely to be material and least likely to be quoted to you up front.

Cost you can name is a negotiation. Cost nobody has named is a surprise that lands on whoever is holding the file when it appears. Get the whole conversion stack quoted, in writing, before the deposit moves.

What happens if the seller will not agree to convert?

Then there is no deal on that parcel in that form, and the correct response is to accept that rather than engineer around it.

The application is made by the holder of the right. Under the current regime the seller is the one who releases the Hak Milik; the parcel becomes State land, and the new right is granted out of that. A seller who declines is not being obstructive — they are being asked to extinguish a perpetual, unrestricted right, on a timetable, in favour of a transaction that has not completed. That is a real commercial ask, and it deserves to be priced and documented rather than assumed.

The productive alternatives are the other pathways, not a workaround. Hak Pakai, which a qualifying foreign individual can hold personally; Hak Sewa, a contractual lease with no land-office transfer step; or a company holding HGB. All four pathways side by side is the decision that should precede any conversation about converting a specific parcel.

How long does the conversion take and who files it?

The holder of the right applies, or an authorised proxy does, to the Head of the Kantor Pertanahan for the area where the land lies. The 2021 ministerial regulation sets out the application requirements and allows applications to be filed electronically.

On duration, the same caution as everywhere else on this site. There is a published service standard listing a change of land right at five days. It is a target measured from a complete file, not elapsed time from the day you agree terms, and the entry’s own cited legal bases include the two decrees revoked in 2022 — so it is a real published figure sitting on partly superseded foundations.

More importantly, a five-day counter service is not the shape of the post-2025 route. A release followed by a fresh grant is a sequence of steps, not one counter transaction. Treat any specific promised timeline as an assumption to test with the office handling your parcel, and make the deal structure survive it being wrong. A conversion that has to complete before a deposit is at risk is a different contract from one where it does not.

How long does the resulting HGB run, and what happens at the end of its term?

This is the crux of the page, because two structures share one name and behave completely differently.

Structure one: the Hak Milik is extinguished and an HGB over State land is granted. The 2021 ministerial regulation has the land office register the new right over former Hak Milik land for at most 30 years. Because the land is now State land, the general regulation then governs continuation: HGB over State land runs 30 years, extendable by 20, renewable by a further 30. Extension and renewal are conditional — the land still used for its purpose, conditions met, the holder still qualified, conformity with the spatial plan, and the land not needed for the public interest — and they are applications with deadlines, an extension before expiry and a renewal within two years after it. At the end of the whole cycle the land returns to State control.

Structure two: an HGB is granted over a Hak Milik that stays registered to its owner. Here the freehold is never extinguished. The general regulation provides that HGB over Hak Milik land is granted for at most 30 years and may be renewed by a deed granting HGB over Hak Milik — drawn by a PPAT, between the parties, and registered. There is no statutory extension ladder. Renewal happens only by agreement between the HGB holder and the Hak Milik holder. And at expiry the holder must hand the land back to the Hak Milik holder, who never lost title to it.

One name, two worlds. In the first, the counterparty at renewal is the State and the ladder is written in a regulation. In the second, the counterparty is a private owner who can simply decline, and your renewal is a negotiation with someone who holds the freehold.

So the term question is not “how many years”. It is which structure produced the certificate, which is stated on the document itself as the basis of the grant. Reading the HGB certificate, field by field covers where to find it.

The arithmetic is worth doing once, on assumed inputs. This is not a transaction I closed; I own no Indonesian property, and every figure here is invented to show the shape. Assume a 30-year right granted in 2026. In structure one, a buyer in 2040 sees 16 years of term plus an extension application nobody has made yet. In structure two, that buyer sees 16 years and a renewal depending on a private owner agreeing. The years are identical. The assets are not.

What does the conversion do to the property's resale buyer pool?

Less than the folklore suggests, and the honest version is more useful than the scary one.

Hak Milik is restricted to Indonesian citizens. HGB is available to Indonesian citizens and to bodies corporate incorporated under Indonesian law and domiciled in Indonesia. So on the eligibility axis alone, converting down from freehold to HGB does not narrow the pool at all — it widens it, by adding Indonesian companies to the set of people who may hold the right. Hak Pakai is wider still: the general regulation lists Indonesian citizens, Indonesian legal entities, foreign legal entities with a representative in Indonesia, religious and social bodies, and foreign individuals.

What does bite is the clock. A perpetual right with no expiry is being replaced by one with a date on it, and every subsequent buyer is underwriting the years that remain rather than the nominal cycle. The pool is not smaller; the thing being sold into it is.

How does this differ if the underlying title is already HGB?

Then no downgrade is needed, and the transaction is an ordinary transfer of an existing right rather than an extinction and re-grant. That is a materially simpler deal, and it is worth checking for before anyone starts designing a conversion.

What replaces the conversion question is a reading question, and there are three things to establish on the certificate. The basis of the grant — State land, Hak Pengelolaan land, or another party’s Hak Milik — because that decides which of the two structures above you are in. The expiry date, because that is the term you are buying. And whether any transfer permit is required, which the certificate will carry as an annotation where it applies.

A foreign individual applying for a change of right in their own name should also know a limit written into the 2021 ministerial regulation: a foreigner or a foreign legal entity may apply for conversion into Hak Pakai only, not into HGB. The HGB route runs through an Indonesian legal entity, which is a different structure with a different annual cost.

What should be agreed in writing before any deposit is paid?

1. Which route the conversion takes under the current rules — auction, or release into State land followed by a grant — and what each step requires of the seller.
2. Who applies, and by when, with the conversion made a condition precedent so the risk sits with the party who can actually discharge it.
3. What happens to your money while it runs. Tranched against named milestones, or held, or not at risk at all. A deposit sitting against an incomplete conversion is an unsecured position.
4. The full cost stack, quoted: the registration fee, the acquisition duty on the new grant, any uang pemasukan, and the notaris and PPAT fees — with the tax position confirmed by a licensed Indonesian tax professional rather than assumed from the exemption wording.
5. Which structure the resulting right will be: an HGB over State land, or an HGB granted over a Hak Milik that stays registered to the seller. Get this in writing. It decides your renewal counterparty for the next thirty years.
6. The term and the renewal mechanics that follow from that answer, including who has to agree and by when.
7. What happens if the conversion fails or stalls — the walk-away, the refund, and who carries the costs already incurred.
8. The parcel’s zoning and building position, separately — a perfect title is worthless on a parcel that cannot carry the use. Zoning and the full sequence cover those.

Amateurs ask whether the conversion is possible. I ask who applies, what it costs, which structure comes out the other end, and what happens to my money if it does not complete. Those four answers are the deal. The rest is a brochure.