The Impact of Omnibus Law: Job Creation Law to Real Estate in Indonesia

On October 5th 2020, Indonesians were surprised by the announcement of a new omnibus law made by the House of Representative (Dewan Perwakilan Rakyat).

Workers and students demonstrate against the labor law system or the Omnibus Law
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5 mins

Published

03.02.2021

On October 5th 2020, Indonesians were surprised by the announcement of a new omnibus law made by the House of Representative (Dewan Perwakilan Rakyat). This law was proposed by President Joko Widodo when he was re-elected for his second term of presidency. However, in less than a year this enormous bill that holds 79 laws and more than 1,000 pages was suddenly passed by the DPR.

The Job Creation Law (UU Cipta Kerja) is a comprehensive bill that would regulate numerous sectors of the industry under one law. It was made to strengthen Indonesia’s economy by creating more job opportunities, increasing competitiveness, and simplifying business processes in Indonesia. The law would simplify 11 critical areas of business, including labour law, capital investment, business licensing, corporate tax and land acquisition.

Students held a demonstration of the Omnibus Law Bill at the House of Representatives of the Republic of Indonesia (DPR-RI)

The problem with Job Creation Law

Though the law is seemingly beneficial for Indonesia, there are several things that make citizens of Indonesia oppose the ratification of this Omnibus Law. The bill’s deliberation process took less than six months since it was first discussed in the legislature on 14 April. Moreover, the rampant news of the Covid-19 pandemic made news about the Omnibus Law not widely heard by the public until it was passed.

This was deemed suspicious by academics, Indonesian labour unions, and civil society groups especially those working in environmental and human rights issues. Setting the content of Omnibus Bill aside, there are four major problems in the Job Creation law. First, the Indonesian government failed to allow the participation of key stakeholders in the drafting process. The stakeholders, in this case, are those who are directly impacted by this law, such as the labour union. After it was legalized, the public could not attain the official version of the draft bill. The government claimed that the version that’s circulated on the internet was either a ‘hoax’ or the unrevised version.

Second, the DPR skipped a crucial stage in the deliberation process, that is the Legislative Council meeting. According to Article 155(1) of the DPR Standing Orders, all matters on the bill’s list of concerns (Daftar Inventarisasi Masalah, or DIM) must be discussed at a Legislative Council meeting. This further undermined the principle of participation, as not all political factions were represented on the working committee.

Third, the DPR conducted discussion sessions during their recess period. The DPR argued that it hastened the deliberation process because of the Covid-19 pandemic. But rather than prioritising its duty to oversee government policies to respond to coronavirus, instead, the DPR discussed a bill with little relation to the public health emergency that is currently emerging.

Fourth, the DPR and government added a raft of provisions that were never discussed in the draft bill. Three laws on taxation were consolidated in the final draft; the 2007 Law on General Provisions of Taxation, the 2008 Income Tax Law, and the 2009 Law on Goods and Services Value Added Tax and Luxury Goods Sales Tax. Instead of allowing a proper debate or a separate bill about major tax reform, the government hastily added the tax laws into the job creation bill at the last moment.

These four points are quite unsettling for Indonesians to dare to demonstrate even though they are currently in the Covid-19 pandemic.

Effects on the Real Estate & Property Sector

MBR Housing

Despite the controversies, this Omnibus Law gives Indonesia’s real estate and property sector to develop. The Omnibus Law amends several stipulations in the Spatial Law, Building Law, Housing Law, and Apartment Law, and introduces new clauses that do not refer to any specific laws.

Not only for workers and office workers, but this law also discusses some of the rules for buying and selling property in Indonesia. The Coordinating Minister for the Economic Affair, Airlangga Hartarto, said that this new regulation would benefit labourers in buying houses. “The need for community housing, backlog houses, in this law will be accelerated. The construction of houses for low-income citizens will be expanded”, said Airlangga.

The government will also establish a land bank that is tasked with distributing land for community needs. One of the sectors that are being looked at is housing for low-income people (Masyarakat Berpenghasilan Rendah or MBR). This provision is managed by the Agency for the Acceleration of Housing Management (Badan Percepatan Penyelenggaraan Perumahan or BP3). Further, Airlangga also explained that the Job Creation Law would guarantee the use of forest conservation land.

This means, developers could use Indonesia’s forest area for development purposes by centralizing every environmental management and licensing, stripping the control of local administrations over natural resources, including the government’s land and forests.

GEJAYAN MEMANGGIL, demonstrations conducted by students on Jalan Affandi (Gejayan) aim to reject the ratification of OMNIBUS law and racial violence.

Property Ownership by Foreigners

The Omnibus Law also states that ownership rights to flat units are ownership rights to separate individual flats with joint rights over common shares, common objects, and common land. Further explained in article 144, ownership rights to apartment units can be granted to Indonesian citizens, Indonesian legal entities, foreign citizens who have permits in accordance with the provisions of laws and regulations, foreign legal entities that have representatives in Indonesia, or representatives of foreign countries and international institutions that are located or has a representative in Indonesia.

Regarding apartment units for foreigners, it is explained in Article 147 that proof of land, ownership rights to apartment units, management rights, and security rights, including deeds of transfer of land rights and other documents related to land can be in electronic form.

Before, houses purchased by foreigners are only limited to rights of usage. Referring to Government Regulation Number 103 of 2015 concerning Residential House Ownership or Occupancy by Foreigners Domiciled in Indonesia, it is regulated that the right to use a single house for foreigners is given a period of 30 years and can be extended for 20 years, and can be extended a second time with a term of 30 years.

Key Takeaways

The job creation law or omnibus law is claimed to facilitate foreign investment through simplifying licensing, including those related to the property sector. A number of regulations and permits that have been reformed related to the property sector include Location Decree (SK Lokasi), Environmental Impact Analysis (Amdal), Building Construction Permit (IMB), Certificate of Feasibility of Function (SLF), and Sale and Purchase Agreement Letter (SPPJB).

The changes introduced by the Omnibus Law to Indonesia’s real estate regime are massive, but they can not be deemed as settled until the government issues the implementing regulations. While the foreign investors will welcome the more business-friendly and straightforward licensing regime, there are also plenty of uncertainties that need to be made clear through complementing regulations in the future.