What is the difference between Cultivation Rights (HGU), Building Use Rights (HGB) and Property Rights (SHM)?

 

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Team of Hukumindo

Previously, the www.hukumindo.com platform has talk about "Mengenal Nehru, Perdana Menteri Pertama India", "How To Buy Land In Indonesia?", "How to Avoid Fraud in Investment by Using Legal Tools" you may read also "Principles of Buying Land in Indonesia", "What Types of Land Ownership May Company Obtain In Indonesia?" and on this occasion we will discuss about 'What is the difference between Cultivation Rights (HGU), Building Use Rights (HGB) and Property Rights (SHM)?'.

Cultivation Rights and Building Use Rights, as well as Ownership Rights, are three types of land ownership status. HGU stands for Cultivation Use Rights, while HGB stands for Building Use Rights. In addition, there is a Freehold Certificate (Property Rights) which is an extension of SHM and proof of ownership of a person or legal entity over a plot of land. In terms of land or land ownership in Indonesia, this is regulated in Article 16 of Law No. 5 of 1960 concerning Basic Agrarian Regulations or the Agrarian Law. To find out more about the differences between HGU, HGB and SHM, this article will discuss: What is HGU? What is HGB? What is SHM? The difference between HGU and HGB, as well as SHM.[1]

What is Cultivation Right?

According to the Basic Agrarian Law Number 5 of 1960, Cultivation Rights (HGU) are rights to cultivate land directly controlled by the state, within a certain period of time. In other words, HGU can be interpreted as a right granted by the government to individuals or legal entities to use a plot of state-owned land, but only for a specified period of time. A person or business entity that has the right to use land with HGU status will later be given a Cultivation Rights Certificate (SHGU), through a Ministerial-level decision. While for the types of business that are allowed generally such as animal husbandry, fishery, ect.[2]

This is because state land that can be granted as HGU land is only that which is included in the category of production land or forest. Or it means that protected forests and land in conservation areas cannot be automatically converted into HGU land. HGU is regulated in a number of regulations, such as Government Regulation (PP) Number 40 of 1996 concerning Business Use Rights, Building Use Rights, and Land Use Rights. And also the revision of the latest regulation PP Number 18 of 2021 concerning Management Rights, Land Rights, Flats Units, and Land Registration.[3]

In article 19 of the PP (Government Regulation), a new rule is added that those who are entitled to obtain HGU permits are only Indonesian Citizens (WNI) and legal entities established according to Indonesian law and domiciled in Indonesia. So, if it turns out that the HGU holder does not fulfill these two conditions, then they are obliged to reinquish their rights to other people within 1 year. In article 22 of PP (Government Regulation) Number 18 of 2021, changes to the rules also occur for the period of time the HGU permits are granted. From what was previously a maximum of 25 years, now it has become a maximum period of 35 years.[4]

After the 35 year period expires, the HGU holder can also extend the permit, for a maximum of 25 years and renew it again for a maximum period of 35 years. Only after the period of granting, extending and renewing ends, will the HGU land return to being fully controlled by the state. Land that is Directly Controlled by the State, the re-arrangement of use, utilization and ownership becomes the authority of the Minister and priority can be given to former right-holders by taking into account matters as stipulated in Article 22 paragraph (3) PP (Government Regulation) No. 18 Year 2021.[5]

HGU land rights can also be taken back by the state even though the grant period has not expired, if one of the criteria is met, including non-fulfillment of the obligations of the HGU holder, voluntary release, abandoned land, or legally deleted in a court decision. Therefore, HGU land holders are required to make full use of the land provided, are required to build and maintain environmental infrastructure and land facilities in the area, maintain soil fertility, prevent damage to natural resources and maintain environmental preservation in accordance with regulations. Apart from of course paying money to use the HGU to the state.[6]

What is a Building Use Right?

Still sourced from the Basic Agrarian Law (UUPA) No: 5 of 1960. Precisely in Article 35 Paragraph 1, Building Use Rights (HGB) are defined as the right to construct and own buildings on land that belongs to another person within a certain period of time. This means that the holder of a Building Use Right (SHGB) certificate is only entitled to ownership of the building, not including the land on which the building stands. Just like HGU, besides being regulated by. UUPA, regulations related to HGB are also regulated in a number of derivative regulations such as Government Regulation (PP) Number 40 of 1996 concerning Cultivation Rights, Building Use Rights, and Land Use Rights. And revised by PP (Government Regulation) Number: 18 of 2021 concerning Management Rights, Land Rights, Flats Units, and Land Registration.[7]

The revision of the regulation makes that HGB can only be given to Indonesian Citizens and legal entities established according to Indonesian law and domiciled in Indonesia. The land that can be granted with Building Use Rights includes State Land, Management Right Land, and Property Right Land. Meanwhile, for the HGB period, as stipulated in Article 37 PP (Government Regulation) Number: 18 of 2021, on State Land and Management Right Land, it can be granted for a maximum period of 30 years, and extended for a maximum period of 20 years, and renewed for a period of at most 30 years.[8]

Whereas HGB on Freehold (Property Right) Land (private) can be given for a maximum period of 30 years and can be renewed with a deed of granting Building Utilization Rights over Property Rights. In contrast to HGU land, where the type of business is determined, holders of HGB certificates are relatively free to construct and own buildings for various personal or business purposes, although they still have to be in accordance with the HGB grant agreement at the outset. In addition, the owner can also transfer these rights to other parties, as long as they are within the HGB usage period.[9]

Generally, land with HGB is used by developers to build apartments or housing. This is because there will be several advantages that make HGB attractive for people who want to own a house or apartment, especially because the price is definitely much cheaper than buying a building with a Property Right  Certificate (SHM). Even though they do not have complete freedom over the land where their buildings are located, HGB certificate holders can actually increase their ownership to become SHM. The condition is that the land area must be less than 600 square meters, and must be owned by an Indonesian citizen (WNI). If these two conditions are met, the owner of the HGB certificate can submit an application to the Land Office in the relevant municipality or district. Next, just follow the established procedure.[10]

What Are Property Right?

Certificate of Property Rights (SHM) is a sign of full ownership of a person over land, based on the recognition from the National Land Agency (BPN). In contrast to HGU and HGU, ownership of land with SHM is not limited by time and certain conditions. As stated in Article 20 of the UUPA, land ownership rights are hereditary, strongest and fullest rights that a person can own over land. So that land with SHM can be fully transferred by the owner. Such as for sale, gifted or passed down from generation to generation, so that it can be used as collateral for credit applications.[11]

In addition, the owner of the SHM also has the right to use or take advantage of the land, for example using it as a place to live or even to leave it for a long time as a long-term investment. The strength of SHM is not only in the status of ownership or the duration of land ownership. but also on its advantages in property investment. Because buildings or properties that are sold with SHM, the selling value will be far above the property that is sold only with a Building Use Right Certificate (HGB).[12]

The Difference Between Cultivation Right, Building Use Right and Property Right

Based on the explanation above, it can be seen clearly that the basic difference between Cultivation Rights (HGU), Building Use Rights (HGB), and Property Rights (SHM) lies in the ownership status of the person holding them.[13]

Property Right or SHM can be said to have a stronger and higher value and position in land ownership. Because people who have SHM means they have full power over the land and also the buildings on it. Meanwhile, HGB (Building Use Rights) certificate holders only have power over the building or property, without having any power at all over the land where the building is located. And the lowest is HGU (Cultivation Rights), where the owner of the certificate is only able to use the land, without having any ownership rights to the land and buildings that may exist on the land.[14]

In addition, there are also differences in the term of ownership. When SHM (Property Right) has legal force and is valid forever. Meanwhile, based on PP (Government Regulation) No. 18 of 2021, HGU (Cultivation Rights) permits are only for a maximum of 35 years, can be extended up to 25 and renewed for another 35 years. While HGB (Building Rights) is a maximum of 30 years, and extended for a maximum period of 20 years, and renewed for a maximum period of 30 years for state land, and HGB (Building Rights) on Property Rights Land (private) can be given for a maximum period of 30 years and can be renewed with a deed of granting Building Use Rights over Property Rights.[15]

Due to its permanent ownership, SHM (Property Rights) can be used as a long-term investment and also a credit guarantee at the Bank. Meanwhile, practical HGB (Building Rights) can only be used as a short-term investment, and it actually risks becoming a liability in the future. While HGU (Cultivation Rights) can only be used as production land to be able to generate profit or material profit.[16] And if you have any land ownership issue in Indonesia, contact us then, feel free in 24 hour, we will be happy to assist you. 

*) For further information please contact:

Mahmud Kusuma Advocate

Law Office

Jakarta - Indonesia.

E-mail: mahmudkusuma22@gmail.com

________________

References:

1. "Apa Beda HGU dan HGB, Juga SHM?", //id.berita.yahoo.com., Diakses pada tanggal 3 Januari 2023, Link: https://id.berita.yahoo.com/apa-beda-hgu-dan-hgb-203900746.html

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

6. Ibid.

7. Ibid.

8. Ibid.

9. Ibid.

10. Ibid.

11. Ibid.

12. Ibid.

13. Ibid.

14. Ibid.

15. Ibid.

16. Ibid.