Without further delay: A new land acquisition bill will speed up much-needed development

It is almost an universally held opinion in Indonesia that a long-promised land-reform bill will be a major catalyst for growth. After several years of delays, the reform, to make land seizures for public works easier, was finally passed by parliament on December 16, 2011. It is expected to take effect by January 16, 2012. This new law is the most anticipated of a series of coming legal reforms, and for the real estate sector it may mean a flurry of activity in 2012 and for years to come.

REQUIRED LAND: The new legislation will replace the existing law that grants the government the right to seize private land for public works projects, provided that adequate compensation is paid. But either because of flaws in the law or its implementation – opinions vary – government agencies have not been successful in taking possession of private plots for development. The problem is most severe in the transport sector. Gridlock in Jakarta and poor roads across the archipelago would be eased with the building of new toll roads, but acquiring the necessary land from the many owners along proposed routes has not happened. In the past, government promises to compensate private owners have not been kept, and that has made current owners less likely to accept the need to sell. In April 2011 Wayne Forrest, president of the American Indonesian Chamber of Commerce, wrote in a Jakarta Globe editorial, “This single piece of pending legislation represents one of the most important hurdles to investment critically necessary to alleviate infrastructure bottlenecks.’’ Talks in parliament on making land acquisition easier have been ongoing for years, but the situation has taken on a sense of urgency of late, given the need to build roads now. Indonesia requires a major infrastructure drive to keep GDP growth at the 8-9% level necessary to achieve the government’s goals, and roads are central to that. In particular a trans-Java toll way would be a major improvement. The island is one of the world’s most densely populated areas, so the road would be well used, but any route the government settles on is going to displace many people. Those to be displaced are often hesitant to move, or have heard stories of years-long compensation processes. Others sell to speculators who then demand above-market-value compensation, which slows up the land-acquisition phase of a project. Along with the east-west Java toll road, the national government has several road-building projects that were conceived several decades ago but have not progressed since.

CHANGE ON THE HORIZON: According to the details of the Land Acquisition Bill, land rights in areas that have been slated for public-works projects would be cancelled automatically, leaving the government and owners to negotiate fair compensation. The National Land Agency will appoint an independent appraisal body to determine the value of the land, and inform the owner of the result within 30 working days. In the case of disputes, the time limit for the appeal process would be capped at a total of 44 working days if the appeal in settled in district court, or twice that, 88 days, if the appeal is taken to the Supreme Court. This limit is deemed necessary to get projects moving and satisfy landowners’ concerns about slow-moving sales. In addition, under the new law, land acquisition will be handled by provincial governments, which should help to streamline the process.

The passage of this law will be welcome news for investors, who had been getting frustrated with the slow pace of reform. Indeed, Indonesia dropped two spots to 46th in the World Economic Forum’s “2011-12 Global Competitiveness Report” released in September 2011, after climbing in the rankings for the previous two years. The report cited insufficient infrastructure as a main cause for the slippage. While there are other hurdles still to address, the land acquisition reform should go a long way towards helping to expedite key infrastructure development.

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The Report: Indonesia 2012

Construction & Real Estate chapter from The Report: Indonesia 2012

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