Avoid Leasehold: Buy Sumba Land with HGB Titles in 2025
The Truth About Leasehold Land in Indonesia (And Why You Should Avoid It)
Investing in land in Indonesia is a dream for many foreigners, drawn by visions of tropical villas, boutique hotels, or serene retreats in places like Bali or Sumba. But navigating the country’s complex land ownership laws is a maze, and one of the biggest pitfalls is leasehold. Marketed as an accessible way for foreigners to secure a piece of paradise, leasehold (Hak Sewa) is often a mirage offering little security, no long-term value, and significant risks.
This in-depth guide uncovers the reality of leasehold in Indonesia, why it’s a flawed investment, and what smarter investors are doing instead.
By the end of this article, you’ll understand:
What leasehold truly entails under Indonesian law
Why leasehold gained traction in tourism hubs like Bali
The legal and financial vulnerabilities of leasehold agreements
Safer, legal alternatives for foreigners to control land
How to strategically invest in Indonesian land in 2025
What Is Leasehold Land Ownership in Indonesia?
In Indonesia, leasehold, or Hak Sewa, grants the right to use a parcel of land for a fixed period, typically 25 to 30 years, with the possibility of extension. Unlike owning land, leasehold is essentially a long-term rental agreement. The landowner retains full ownership, and the leaseholder has no claim to the land title or certificate. Key limitations of leasehold include:
No Ownership Rights: You cannot hold the land certificate in your name, limiting your legal control.
Restricted Transactions: You cannot freely sell, mortgage, or transfer the lease without the landowner’s consent.
Dependency on the Landowner: Your rights depend entirely on the landowner’s goodwill and the contract’s enforceability.
No Registration: Most leasehold agreements are not registered with the National Land Agency (Badan Pertanahan Nasional, or BPN), weakening their legal standing.
Despite these constraints, leasehold is heavily promoted to foreigners, often by agents who downplay the risks. Understanding these limitations is critical before signing any agreement. Learn more about avoiding land scams in Indonesia at this guide.
Risks of Leasehold Land in Bali: Lessons for Sumba Investors
The Rise of Leasehold in Bali
Leasehold agreements surged in popularity during Bali’s tourism boom, particularly after 2005, when the island became a global hotspot for villas, resorts, and expat communities. Landowners saw a lucrative opportunity: they could lease land to foreigners without relinquishing ownership, generating income while retaining long-term control. This arrangement appeared mutually beneficial. Foreigners gained access to prime land without navigating Indonesia’s restrictive ownership laws, and landowners earned steady revenue. Bali’s Canggu, Uluwatu, and Seminyak became leasehold hubs, with villas sprouting across rice fields and cliffs.
Emerging Risks for Investors
However, the cracks in this model soon emerged:
Unregistered Agreements: Many leasehold contracts were informal, notarized privately but not registered with BPN, rendering them legally fragile.
Reneging Landowners: Some landowners refused to honor extensions or demanded exorbitant renewal fees, leaving leaseholders stranded.
Permit Issues: Leaseholders struggled to secure building permits (PBG) or business licenses, as these often require stronger land titles.
Legal Disputes: When disputes arose, leaseholders found they had little recourse, especially if contracts were vague or unenforceable.
By the 2020s, Bali’s leasehold market was saturated, with overbuilt villas and a “flipping” culture where investors bought and sold leases for quick profits. This oversupply, combined with stricter government enforcement, exposed leasehold’s vulnerabilities, making it a risky choice for new investors. Compare these risks with Sumba’s opportunities in this post.
Leasehold Land as a Ticking Clock: Why It Fails Investors
Imagine leasing a plot in Bali for 25 years and building a luxurious villa. You invest hundreds of thousands of dollars, expecting to profit from rentals or a future sale. But as the lease nears its end, the reality hits:
You Lose Everything: When the lease expires, the land—and any structures on it—reverts to the landowner. Your investment vanishes unless you secure an extension.
Extensions Are Uncertain: Renewing a lease depends on the landowner’s willingness. They may demand inflated fees, or their heirs may have different plans, especially in Indonesia’s complex inheritance systems.
Depreciating Value: A lease’s value diminishes over time. A 25-year lease is more attractive than a 15-year one, and a 5-year lease is nearly worthless. Unlike freehold or other titles, leasehold offers no land appreciation.
Inheritance Risks: Land disputes are common in Indonesia, particularly when a landowner dies. Heirs may contest the lease or refuse to honor it, leaving you entangled in costly legal battles.
Selling a leasehold property is equally challenging. Buyers are wary of short remaining lease terms, and the lack of land ownership deters serious investors. Leasehold is a depreciating asset with no equity—a stark contrast to traditional real estate investments. Discover safer options in this guide.
Legal Risks of Leasehold Land Ownership in Indonesia
Legal Weaknesses of Leasehold
Indonesian land law prioritizes Hak Milik (freehold) and other registered titles, relegating Hak Sewa to a weaker status.
Here’s why leasehold is legally precarious:
Lack of Registration: Most leasehold agreements are not registered with BPN, meaning they lack official recognition. Private notarization offers some protection, but it’s insufficient in disputes.
Vague Contracts: Many leasehold contracts are poorly drafted, omitting critical clauses on renewal terms, dispute resolution, or zoning compliance.
Zoning Restrictions: Much of Bali’s leasehold land lies in “green zones” (zona hijau), where commercial development is prohibited. Investors who build without proper zoning face demolition risks.
Permit Barriers: Securing building permits (PBG) or business licenses (TDUP, NIB) is nearly impossible without a stronger title, limiting your ability to operate legally.
Nominee Structures: Some agents propose using an Indonesian “nominee” to hold land on your behalf, bypassing foreign ownership restrictions. This practice is illegal under Indonesia’s Agrarian Law of 1960 and leaves investors vulnerable to fraud or loss.
The Bingin Crackdown: A Warning
The 2024 Bali crackdowns in areas like Bingin and Uluwatu underscored these weaknesses. Villas built on leased green-zone land were demolished, and businesses operating under nominee structures were shuttered. Investors who ignored legal requirements paid a heavy price. One high-profile case involved a $500,000 villa in Bingin, built on a 25-year lease. When authorities enforced zoning regulations, the villa was demolished, and the investor lost their entire investment. The landowner, unaffected, re-leased the land to a new buyer. This case highlights the dangers of leasehold and the importance of legal compliance. Learn how to avoid such pitfalls in this resource.
PMA and HGB: Secure Alternatives to Leasehold Land in Sumba
What Is a PMA Company?
Savvy investors are bypassing leasehold entirely, opting for a fully legal and secure structure: establishing a foreign-owned company (Penanaman Modal Asing, or PMA) and acquiring land under Hak Guna Bangunan (HGB) title. This approach offers control, flexibility, and long-term value. A PMA is a foreign-owned limited liability company registered with the Indonesian Investment Coordinating Board (BKPM).
Setting up a PMA allows foreigners to:
Legally acquire HGB land titles
Build permanent or non-permanent structures
Operate businesses, including tourism and hospitality
Secure licenses and permits (PBG, TDUP, NIB)
Transfer or sell land titles with full legal protection
While establishing a PMA involves upfront costs (approximately $3,000) and compliance with investment regulations, it provides unmatched security. PMAs are particularly suited for investors planning to develop villas, hotels, or commercial properties. Explore PMA setup details at this guide.
What Is an HGB Title?
Hak Guna Bangunan (Right to Build) is a land title granted to PMA companies, offering:
Legal control for 30 years, extendable to 80 years
Full registration with BPN, ensuring official recognition
Rights to build, sell, or transfer the title
Access to business and building permits
Protection against zoning or inheritance disputes
HGB is the gold standard for foreign investors, combining flexibility with robust legal safeguards. Unlike leasehold, HGB titles appreciate with the land’s value, making them ideal for long-term investments. Dive deeper into foreign ownership options at this post.
Leasehold vs. Freehold vs. HGB: Comparing Land Ownership Options in Indonesia
To understand why leasehold falls short, compare it to Indonesia’s other land titles:
Leasehold (Hak Sewa): No ownership; rental only, foreigners allowed, 25–30 years, limited resale, difficult permits, high risk
Freehold (Hak Milik): Full ownership, Indonesians only, unlimited duration, strong resale, full permit access, very secure
HGB via PMA: Full control through PMA, foreigners allowed, up to 80 years, strong resale, legal permits, high protection
Freehold (Hak Milik) is the most secure but restricted to Indonesian citizens. HGB via PMA bridges the gap, offering foreigners near-equivalent security and control. Learn more about legal investment strategies at this resource.
Real-Life Example: Leasehold Land Failures in Bali’s Bingin CrackdownIn 2024
Bali’s Bingin and Uluwatu areas faced a government crackdown that sent shockwaves through the expat investment community. Dozens of villas were demolished, and businesses were shut down. The reasons were clear:
Illegal Zoning: Many properties were built on leased land in green zones, violating zoning laws.
Nominee Structures: Investors using Indonesian nominees to bypass ownership restrictions faced legal action, as nominees claimed full ownership.
Lack of Permits: Leasehold properties often lacked valid building permits (PBG) or business licenses, making them easy targets for enforcement.
One high-profile case involved a $500,000 villa in Bingin, built on a 25-year lease. When authorities enforced zoning regulations, the villa was demolished, and the investor lost their entire investment. The landowner, unaffected, re-leased the land to a new buyer. This case highlights the dangers of leasehold and the importance of legal compliance. Explore safer alternatives at this guide.
The Hidden Costs of Cheap Leasehold Land in Indonesia
Leasehold’s biggest selling point is its low upfront cost. Compared to setting up a PMA and acquiring HGB land, leasehold requires less capital and paperwork. You pay the landowner directly, sign a contract, and start building. But this “savings” comes at a steep price:
No Land Appreciation: Unlike HGB or freehold, leasehold offers no equity in the land, which is Indonesia’s primary driver of real estate value.
Declining Resale Value: As the lease term shortens, your property becomes less attractive to buyers.
Legal Exposure: Unregistered leases and zoning violations leave you vulnerable to disputes or government action.
No Scalability: Leasehold restricts your ability to expand, secure financing, or operate a licensed business.
No Legacy: You can’t pass a leasehold property to heirs or build a lasting asset.
In contrast, PMA + HGB investments, while costlier upfront, deliver appreciating assets, legal security, and scalability—qualities that align with serious investment goals. Check out secure investment options at this guide.
Why Sumba Land for Sale Outshines Bali with HGB Titles
Bali’s overcrowding, inflated land prices (often $200–$500/m² in prime areas), and zoning crackdowns have pushed investors to explore emerging destinations. West Sumba, an island east of Bali, is gaining traction for its untapped potential and investor-friendly environment. Sumba’s advantages include:
Affordable Land: Prices as low as $27/m² for oceanfront plots, compared to Bali’s skyrocketing rates.
Government Support: Sumba is a priority for Indonesia’s tourism development, with incentives for foreign investment.
Legal Clarity: Projects like Sumba Sunset Cliff offer HGB titles, full PMA support, and pre-approved zoning for tourism.
Sustainable Growth: Sumba’s low development density and community-driven projects attract high-value guests seeking authentic experiences.
Unlike Bali’s saturated leasehold market, Sumba offers a fresh opportunity to build legally secure, high-return projects in a rising destination. Discover why Sumba Sunset Cliff stands out at this page.
Key Questions to Avoid Leasehold Land Scams in Sumba
Before considering leasehold, ask these questions to assess the risks:
Is the lease registered with BPN? Unregistered leases lack legal weight and are vulnerable to disputes.
Is the land zoned for my intended use? Green-zone land cannot be developed commercially without special permits.
What happens if the landowner refuses to renew? Ensure the contract specifies renewal terms and costs.
Do I have legal recourse if the contract is breached? Vague or unenforceable contracts leave you exposed.
Is a nominee involved? Nominee arrangements are illegal and carry a high risk of fraud.
If any answers are unclear or unsatisfactory, walk away. The risks outweigh the benefits. Get more tips on avoiding scams at this resource.
FAQs: Leasehold vs. HGB Land Ownership in Indonesia
Common Questions About Leasehold and HGB
Can I legally build on leasehold land?
Only if the land is zoned for your project (e.g., tourism) and you secure a building permit (PBG). Most leasehold deals fail to meet these standards, risking demolition.
Can I run a business on leasehold land?
Rarely. Business licenses (TDUP, NIB) typically require a stronger title like HGB and a PMA structure. Leasehold limits your ability to operate legally.
Can I resell a leasehold villa?
You can sell the remaining lease term, but short leases (e.g., 10 years) are unattractive to buyers, and resale value declines annually.
Is leasehold ever a good choice?
In rare cases—for short-term projects with trusted partners and no permanent structures. For most investors, leasehold’s risks outweigh its benefits.
How much does a PMA cost to set up?
Costs range from $2,000 to $10,000, depending on legal fees and business complexity. This investment unlocks HGB titles and long-term security. Learn more at this guide.
Final Thoughts: Secure Sumba Land Ownership with HGB Titles
Leasehold may seem like an easy entry into Indonesia’s real estate market, but its simplicity is deceptive. Without ownership, legal protection, or long-term value, leasehold is a gamble that rarely pays off. In a country where land disputes, zoning laws, and inheritance complexities are common, taking shortcuts can cost you everything. For investors committed to building something lasting—a boutique hotel, a wellness retreat, or a legacy property—the choice is clear: prioritize control and security.
The PMA + HGB structure offers foreigners a legal, scalable, and appreciating alternative to leasehold’s uncertainties.
Projects like Sumba Sunset Cliff exemplify this approach, providing:
HGB titles for full legal control
Comprehensive PMA setup support
Pre-approved zoning for tourism development
Community-driven models that enhance guest value
In 2025, Indonesia’s real estate landscape rewards those who invest wisely. Choose to own what you build, and create something that endures.
Learn More about Sumba Sunset Cliff