Showing posts with label land reform. Show all posts
Showing posts with label land reform. Show all posts
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Hernando de Soto on Land Title

Thursday, March 1, 2007

I came across an interesting insight from Hernando de Soto, on his views why land reform fails:

If a government does not give to everyone the impression that it is really trying to improve things, it opens the possibility for the left to protest in the name of all the discontented people. One main reason why the informal sector has not become formal is that from Indonesia to Brazil, 90 percent of the informal lands are not titled and registered. This is a generalized phenomenon in the so-called Third World. And it has many consequences.

The question is: How is it that so many governments, from Suharto's in Indonesia to Fujimori's in Peru, have wanted to title these people and have not been able to do so effectively? One reason is that none of the state systems in Asia or Latin America can gather proof of informal titles. In Peru, the informals have means of proving property ownership to each other which are not the same means developed by the Spanish legal system. The informals have their own papers, their own forms of agreements, and their own systems of registration, all of which are very clearly stated in the maps which they use for their own informal business transactions.

If you take a walk through the countryside, from Indonesia to Peru, and you walk by field after field--in each field a different dog is going to bark at you. Even dogs know what private property is all about. The only one who does not know it is the government. The issue is that there exists a "common law" and an "informal law" which the Latin American formal legal system does not know how to recognize.

In Indonesia, a person can get a lot of money by titling and registering a land. First they check out on the map which area is going to be projected for public-infrastructure development, and then they purchased the land from the poor people that owns them through customary law with a very cheap price and then they register the land at the land registrar. When the government come with their buldozer, land speculants show their certificate and demand compensation, of course, at a very high price.

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Can foreigners own land in Indonesia?

Friday, January 19, 2007

This is a quite common question being asked to lawyers. The answer is "no". Under the 1945 Constitution Article 33 land and water, and the natural resources found therein, shall be controlled by the state and shall be exploited for the maximum benefit of the people. Thus, foreigners are barred from having Right of Ownership/Hak Milik (somewhat equal to the common law's freehold title) to land.

But, of course there is always a way to get around it.

The first way is to purchase and indirectly 'own' land through nominee agreement. This way the foreigner gives an amount of money to an Indonesian citizen (the "nominee") to buy a land, through a power of attorney (PoA). The PoA must clearly and specifically elaborates that the money belongs to the foreigner and that the nominee is a mere executor. It must also specify that the foreigner has the rights to enjoy and execute all rights commonly attached to the land -- including but not limited to -- lease, sale, rent, etc without the consent with the nominee. The nominee must waives all of its rights normally accorded by land titles.

The second way is by establishing an Indonesian company, and the company owns the land through the right to build title/HGB. Foreigners can own up to 100 per cent of shares in a company provided that the initial share distribution has to be 95:5 (5% to be owned by the Indonesian Partner). Owning through a company is relatively safer as all liabilities are protected by a shield of legal entity. Through this scheme the company can own the land for an initial 30 years and it is extendable up to 20 years.

All transactions above must be conducted by notarial deeds and to be executed before a land deed official. Right to use land, right to build and right to exploit land is regulated through Government Regulation No. 40 Year 1999, available here (in Bahasa).


Any new news on land reform plan?

Saturday, January 6, 2007

Responding to a Jakarta Post Article on Government's Land Reform Plan, Sarapan Ekonomi raises a question on his post:
Many questions remain unanswered, however. How will the government do it? Whose land the government is going to distribute to farmers? Will the government confiscate land from its current owners?

If a government want to get a land, it can either (i) expropriate it from its owner or (ii) distribute state-owned lands. Expropriation must be conducted indiscriminately through legislation and it must come with a proper compensation to its owner, otherwise, it is a violation of the human rights to property. Thus, if this measure is to be taken, there has to be House of Representative enacted law governing specificaly on this matter. The second possibility is through the distribution of state-owned lands under expiring land titles. We know that Indonesia has established various land titles that can be used by companies namely Right of Use/Hak Pakai (usually it is only given to foreign representative ports or big projects), Right to Exploit/Hak Guna Usaha (usually granted to plantations, etc). Since these rights are valid between 25-35 years (unless extended), then the Govt can only distribute those granted after 1972.

A good summary of Indonesian Real Property Law and its various land titles is available here.