Leasehold in Labuan Bajo describes any arrangement in which a foreign investor or foreign-held company secures the contractual or statutory right to use land for a fixed term without acquiring freehold title — because Indonesian law reserves freehold (Hak Milik, or SHM) exclusively for Indonesian citizens. For practical purposes, foreign-connected investors have three lawful routes: a registered long leasehold agreement over private SHM land, a Hak Guna Bangunan (HGB) title held through a locally incorporated PT PMA, and Hak Pakai for foreign individuals who hold a valid Indonesian stay permit. None of these is freehold, and none gives the same security as ownership under domestic law — but they are the legitimate options, and understanding the difference between them matters before any money changes hands.
Why Freehold Is Not an Option
The legal foundation is Undang-Undang Pokok Agraria (UUPA), Law No. 5 of 1960. Article 21 limits Hak Milik to Indonesian citizens and certain state bodies. Article 26(2) goes further: any transfer of Hak Milik land to a foreigner — including a transfer dressed up as a loan, a nominee agreement, or a trust arrangement — is void from the start, and the land falls to the state. The money paid is not recoverable from the state. Indonesian courts have repeatedly enforced this provision, and UUPA Art. 26(2) has been upheld even where the parties signed elaborate side agreements in good faith. This is not a technicality that skilled lawyers can engineer around. It is structural.
The practical consequence: any broker or agent who offers to arrange a "nominee" structure — where an Indonesian citizen holds the SHM title on paper while you fund the purchase — is describing an arrangement that Indonesian law explicitly voids. The risk sits entirely with you.
The Three Lawful Routes
1. Registered Long Leasehold Over Private SHM Land
In Labuan Bajo town and its surroundings, the most common contractual route for individual foreign investors is a registered leasehold agreement (Perjanjian Sewa Tanah) over land that remains in Indonesian freehold ownership. The Indonesian landowner retains title; you hold a time-limited right to occupy and use the land, usually with the right to build on it and an option to renew.
The term most commonly quoted by agents in the Labuan Bajo market is 25 to 30 years, often with a renewal option of the same length. Those figures are market practice, not statute. There is no law that limits a private lease to 25 or 30 years, nor one that mandates a renewal right. The term is whatever the parties negotiate and record in a notarial deed (Akta Notaris). If the deed is not notarised and not registered at the local land office (Kantor Pertanahan), the lease is contractually binding between the parties but has no effect against third parties — meaning a subsequent buyer of the land could, in principle, extinguish your rights.
Key practical points:
- Always demand a notarised deed; verbal or Bahasa-only contracts are enforceable in theory but are extremely difficult to uphold in disputed situations.
- Check the land certificate status before signing. SHM is the strongest title. SHGB (Hak Guna Bangunan) land can also be leased, but the HGB itself has an expiry date — confirm when it expires and whether renewal has been applied for.
- Verify that the person signing is the registered owner (or has valid power of attorney recorded at the land office). In Labuan Bajo, as in most eastern Indonesian towns, parcels with multiple heirs or disputed inheritance histories are not rare.
- Broker-quoted land prices in the Labuan Bajo area are asking prices from listing platforms, not transaction data. Figures cited in the market — ranging from IDR 500 thousand to over IDR 15 million per m² depending on location and sea view — are single-source, unverified by any official price index. Treat them as directional, not fixed.
2. HGB via a PT PMA — the Corporate Route
Hak Guna Bangunan (the right to build and use, literally) is the statutory title that a foreign-investment company (PT PMA) can hold on private or state land. Under PP 18/2021 on land rights, HGB issued to a PT PMA runs for an initial term of 30 years, with a possible extension of 20 years, followed by a renewal of a further 30 years — a theoretical maximum of 80 years on the same parcel, though each stage requires a separate application to the land office and is not automatic.
This is the standard structure for hotel and resort development in Labuan Bajo and across Indonesia. A PT PMA acquires or negotiates the right to a parcel (either converting existing SHM by agreement with the owner, or taking HGB directly on available land), obtains an HGB certificate, builds, and operates. The landowner who agreed to the conversion retains a contractual interest — compensation, profit share, or a long lease payment — depending on what was negotiated.
Setting up a PT PMA for a hotel or tourism-related business in Indonesia involves a minimum investment threshold. Under Peraturan BKPM No. 4/2021, each project location under a given 5-digit KBLI business code requires investment exceeding IDR 10 billion (excluding land and buildings), with minimum issued and paid-up capital of IDR 10 billion. Licensing flows through the OSS-RBA (Online Single Submission, Risk-Based Approach) system introduced under UU 11/2020 (Cipta Kerja) and its implementing regulation PP 5/2021. Relevant KBLI codes for hospitality include 55110 for star-rated hotel accommodation; other tourism sub-sectors have their own codes that must be matched carefully at OSS stage.
Running a PT PMA correctly — annual mandatory reporting, dividend-withholding mechanics, KITAS for foreign directors, compliance with DKPM requirements — is not a set-and-forget exercise. If you are evaluating this route, the input of an independent Indonesian legal adviser is not optional. We can introduce you to vetted independent market-entry specialists through our enquiry form.
3. Hak Pakai for Foreign Individuals
Hak Pakai (the right to use) is the statutory title available to foreign nationals who hold a valid Indonesian stay permit — a Second Home Visa, KITAS, or KITAP. Under PP 18/2021 and the implementing ministerial regulation (Permen ATR/BPN 18/2021), a foreign individual can hold Hak Pakai on a residential property, subject to a minimum property value threshold set by province. The exact threshold for NTT (Nusa Tenggara Timur, where Labuan Bajo sits) has not been independently confirmed in publicly available Kepmen ATR/BPN documents as of the date of this article — verify the current figure with a licensed land consultant before relying on any quoted number.
Hak Pakai for individuals runs 30 years under PP 18/2021, with extension and renewal possible. It is generally suited to residential use rather than large-scale commercial development. A foreign investor building a resort would almost always structure through a PT PMA (HGB) rather than Hak Pakai.
How Long Can You Actually Hold It?
The honest answer depends on which route you use and how carefully the documentation is maintained.
- Registered leasehold (private SHM land)
- Whatever term is in the notarised deed — typically 25–30 years in the current Labuan Bajo market, with a renewal option if the landowner agrees. There is no statutory cap on private leases, so a 50-year term is legally possible if both parties agree. But a longer term written into a deed still requires the landowner — or their heirs — to honour renewal in practice. The strength of your position depends heavily on the quality of the contract, the verification of title, and the landowner’s ongoing willingness.
- HGB via PT PMA
- Up to 80 years total (30 + 20 + 30) under PP 18/2021, though this maximum requires three separate successful renewal applications at the land office. Each renewal is not guaranteed; it depends on compliance with land-use requirements and the state of the land parcel at renewal time. In practice, a well-documented PT PMA holding HGB over a parcel it has actively improved and used is generally in a strong renewal position, but the process must be initiated proactively and on time.
- Hak Pakai for individuals
- 30 years initial, with extension and renewal. Tied to the validity of the holder’s stay permit; if the permit lapses, the Hak Pakai status becomes complicated.
A comparison in brief:
| Route | Who Can Use It | Statutory Term | Renewal | Best Suited For |
|---|---|---|---|---|
| Registered long leasehold | Any party (foreign individual, company) | Contractual — no cap | By agreement only | Individuals, small commercial sites, villas |
| HGB via PT PMA | PT PMA (foreign-investment company) | 30 + 20 + 30 yrs (PP 18/2021) | Application required each stage | Hotels, resorts, large commercial development |
| Hak Pakai (individual) | Foreign nationals with valid stay permit | 30 yrs (PP 18/2021) | Possible, stay-permit dependent | Residential property |
The Nominee Warning — Read This Before You Sign Anything
UUPA Article 26(2) is unambiguous: a transfer of Hak Milik that is intended to circumvent the foreign-ownership prohibition is void, and the land is forfeit to the state. Courts apply this even where there is a side agreement (perjanjian di bawah tangan) that looks like it gives you legal control. The Indonesian court system has consistently refused to enforce those side agreements on the grounds that the underlying transaction was illegal from the start.
The attraction of nominee structures is their apparent simplicity and their lower upfront cost compared to forming a PT PMA. The risk is catastrophic and unrecoverable. If the nominee relationship breaks down — through a dispute, the nominee’s death, their marriage, or their bankruptcy — you have no enforceable legal claim to the land in an Indonesian court. The money you paid is gone. This is not a theoretical risk; there are documented cases in Bali and elsewhere in Indonesia where exactly this happened.
The three lawful routes above — registered leasehold, HGB via PT PMA, Hak Pakai — are more complex to set up. They are the only routes that give you an enforceable position.
Parapuar Is a Different Animal Entirely
Everything described above applies to private land in Labuan Bajo town and its surroundings — SHM parcels owned by individuals or families, transacted through the normal land market. Parapuar, the integrated tourism development zone managed by BPOLBF (Badan Pelaksana Otorita Labuan Bajo Flores), operates on a completely different legal basis, and the leasehold concept as described above does not apply there at all.
BPOLBF holds a Hak Pengelolaan (HPL) — a state Land Management Right — over approximately 129.6 hectares designated as Zone 1 of the Parapuar area. (A note on a figure that circulates in some English-language press: Antara’s English wire service reported this as ‘129,609 hectares’ — that is a decimal-format error. Indonesia uses the comma as a thousands separator, so ‘129,609’ in Indonesian notation means 129.609 hectares, not 129 thousand. The actual HPL area for Zone 1 is approximately 129.6 ha, corroborated by multiple Indonesian-language sources. The HPL certificate was handed over by the Deputy Minister of ATR/BPN on 15 September 2023.)
There is no private land in Parapuar. No SHM exists there for a foreign investor to lease or arrange HGB over independently. The state — via BPOLBF — holds all rights. Investors who want to develop in Parapuar must enter into a cooperation arrangement directly with BPOLBF, which offers 19 investment lots across four zones (Cultural, Leisure, Wildlife, and Adventure). The legal instrument BPOLBF would use for such an arrangement would typically be HGB-on-HPL or a cooperation/utilization agreement — but as of the date of this article, no public BPOLBF document specifies the exact legal form or the lease term in years for Parapuar lots. BPOLBF has not published a lot tariff or a standard cooperation contract. Investors are expected to negotiate directly with BPOLBF’s investment division. Do not rely on any figure quoted by a third party for Parapuar lot pricing or tenure — there is no verified public source for either.
For a full explanation of the HPL mechanics and what the cooperation structure means in practice, see our pillar article on Parapuar HPL land rights. For context on Labuan Bajo land prices as a comparison baseline, see the harga tanah Labuan Bajo overview.
The core contrast matters for investors comparing the two options. In town, you are transacting in a private land market with established (if imperfect) title documentation, and your HGB or leasehold sits on a known, individual parcel. In Parapuar, you are entering a government cooperation scheme under a state authority’s HPL — there is no independent parcel you negotiate over; the terms are set by BPOLBF’s cooperation framework, and the risk profile is different in character. Neither is inherently superior; they suit different investment types, scales, and risk appetites.
If you are at the stage of comparing these two routes seriously and want an introduction to independent legal specialists familiar with both, reach out through our enquiry form or WhatsApp — we do not advise on transactions ourselves, but we can connect you with practitioners who do.
What Brokers Quote vs. What the Law Says
The Labuan Bajo market has an active community of property agents and legal-services consultancies, and their websites commonly quote lease terms of 25 years with a 25-year extension, or 30 years with a 30-year option. Those figures reflect current market practice — what landowners in the area are currently willing to offer and what buyers are currently accepting. They are not derived from any statutory minimum or maximum. A landowner in Labuan Bajo could in principle offer a 10-year lease or a 50-year lease; the 25–30 year norm is a function of local custom and negotiating dynamics, not law.
Similarly, some broker materials describe HGB as lasting ‘up to 80 years’ — this is technically accurate under PP 18/2021 (30 + 20 + 30) but is worth qualifying. The 80-year figure assumes two successful renewals that must each be applied for, granted, and processed without interruption. It is a ceiling, not a guarantee.
One figure that does matter and is sometimes overstated: the PT PMA minimum capital requirement. The IDR 10 billion threshold under BKPM Regulation No. 4/2021 is per project location per KBLI code, and it excludes land and building costs. It is not the total capital required to build a hotel; it is the minimum registered capital the company must carry. Actual development costs will be multiples of this figure for any meaningful hospitality project.
Practical Steps Before Signing a Lease in Labuan Bajo
- Commission an independent title search. Ask a licensed notary (Notaris/PPAT) to check the SHM register at Kantor Pertanahan Manggarai Barat. Confirm the certificate number, the registered owner’s identity, whether any mortgage (Hak Tanggungan) is recorded on the parcel, and whether any prior lease registration exists.
- Verify the landowner’s authority. If the landowner is an individual, confirm identity with their KTP. If the land is held by multiple heirs, all must sign or delegate authority via a registered power of attorney.
- Notarise the agreement. A private written agreement (under the hand) is enforceable in contract, but only a notarial deed can be registered at the land office and creates rights against third parties.
- Check the land-use zoning (RDTR/RTRW). Manggarai Barat is in the process of updating its spatial plans. What is currently zoned for tourism development may be subject to revision. Confirm permitted uses with the local planning authority (DPUPR Kabupaten Manggarai Barat) before assuming a particular parcel can be used for a resort or commercial villa.
- Understand the renewal mechanism in writing. A lease that gives you an option to renew is not the same as a lease that guarantees renewal. The option must specify who can exercise it, when, and on what terms — ideally with a pre-agreed formula for the renewed rent rather than leaving it to be negotiated at the time.
Frequently Asked Questions
Can a foreigner own property outright in Labuan Bajo?
No. Indonesian law (UUPA Art. 21) reserves freehold title (Hak Milik/SHM) for Indonesian citizens. A foreigner cannot hold SHM directly, and any arrangement designed to circumvent this — including nominee structures — is void under Art. 26(2), with the land forfeit to the state and any money paid unrecoverable. The lawful alternatives are registered leasehold over private SHM land, HGB held through a PT PMA, and Hak Pakai for individuals holding a valid stay permit.
How long is a typical leasehold in Labuan Bajo, and can I renew it?
Brokers in the current Labuan Bajo market typically quote leases of 25 to 30 years with a renewal option for the same period. Those are market norms, not statutory requirements — there is no legal cap on private lease terms. Renewal requires the landowner’s (or their heirs’) agreement and is not automatic. If renewal is important to your business plan, the terms must be explicitly written into the original notarised deed, not left for future negotiation.
What is the difference between leasehold in Labuan Bajo town and investing in Parapuar?
In Labuan Bajo town, you are dealing with private land (typically SHM) owned by individuals or families. You can negotiate a lease directly, or a PT PMA can acquire HGB over a parcel. In Parapuar, there is no private land — BPOLBF holds a state Land Management Right (HPL) over approximately 129.6 hectares (Zone 1), and investors must enter a cooperation arrangement with BPOLBF directly for one of 19 designated lots. The pricing, term, and legal form of that cooperation are not publicly disclosed; they are negotiated with BPOLBF. The two situations involve different counterparties, different legal instruments, and different risk profiles.
Is a PT PMA really necessary for a foreign investor in Labuan Bajo, or can I just sign a personal lease?
A personal (individual) registered leasehold over private SHM land is a lawful option and is used by individual foreign investors, particularly for smaller residential or boutique commercial projects. It does not require a PT PMA. However, if you plan to operate a commercial hospitality business — a hotel, resort, villa rental business — you will generally need a PT PMA to obtain the business licensing (NIB and sectoral permits via OSS-RBA) and to hold HGB as the title instrument. A personal leasehold gives you occupation rights; it does not on its own give you the right to operate a licensed commercial business.
What happens to my leasehold if the Indonesian landowner sells the land during my lease term?
If your lease is registered at the Kantor Pertanahan (land office) via a notarial deed, it creates rights against third parties — including a subsequent buyer. A registered leaseholder’s rights survive a change of ownership during the lease term. An unregistered lease (a private written agreement only, not notarised or not registered) binds only the original parties; a purchaser who was not a party to the agreement may not be bound. This is one of the strongest practical reasons to insist on a notarised, registered lease agreement rather than a simple private contract.