Ulrich Löffler, (1996):
Land Tenure Developments in Indonesia

6.4 Development of the land market

Land sales of individual private property can be found almost everywhere on Java. They were already common around 1950.[FN 231] Following the introduction of the BAL and with it the subsequent conversion of land rights to hak milik, a period began in which more and more parcels of land were sold not only within the community or to peasants in neighboring villages, but also to "outsiders", although this is illegal according to the BAL.[FN 232]

In some villages on Java it was decided at village meetings not to sell land to "outsiders". In reality, however, this decision was not always stuck to. The following example from Central Java demonstrates this: "In the village of Tambak Bulusan, Demak (Central Java) there is a regulation which prohibits the sale of land to non-residents, but this regulation is rarely obeyed. Frequently fish ponds are sold to people form Semarang, which is seventy five kilometers away."[FN 233]

The following reasons for land sales have been named in empirical village studies: [FN 234]

• Land is given as collateral to village money lenders. If the credit cannot be paid back, the land is kept by the money lender. By relinquishing his subsistence base to the money lender, repayment of the credit becomes even more difficult. In the end, the land must be sold.
• Land is sold so as to be able to pay the following expenses:

• medical treatment
• weddings
• funerals

• Land is sold following an inheritance if the heirs cannot share the land, and no single heir is in the position to be able to buy the land from the others. The land is sold to a third party, and the profits from the sale are divided up between the heirs.
• Land must be "sold" since "general interests" take precedence over "personal interests" if land is required for development projects, for example.

The high demand for land causes land prices to rise sharply. The increasing demand amongst people from big cities such as Jakarta, Bandung and Bogor for land in the area of Suka Tani in West Java near the Pangrango National Park caused the land price to rise to more than Rp 30,000 / m^2. This encourages large local landowners to sell land. In the long run, the small peasants will lose their land where they used to work.[FN 235]

The land prices have risen particularly sharply in urban fringe zones. But since most of the landowners do not want to separate themselves from their land for various reasons (socio-cultural value of the land, reserving land for children for them to be able to build on later), the land prices are way above the economic value of a parcel of land used for farming. The farmers cannot compete with the financial power of the investors who use the land for speculation, for extra-agricultural investments, or as retirement or weekend properties. BUDIONO has made a report about the village Pancawati near Pangrango National Park:

"However inequity of land ownership creates problems with land tenure especially in the upper parts of the village... . Firstly farmers with large agricultural fields are tempted to sell land to rich and distant users from Jakarta and other big cities, because of high land prices. Fields along the access roads for rice fields and dry fields, and even land with very steep slopes have been bought by outsiders. Close to the tea plantation an area of 5 ha belongs to an owner from Jakarta. Some of the land has already been used for villas and some of it still remains as agricultural fields. At present some of the poor-land and landless farmers can still grow vegetables or rice on land of owners from Jakarta left as agricultural fields. They have to pay rent or share products, however they lose it when the owners change their minds or want to allot their land to other purposes."[FN 236]

Regulations of the land market

In section 3.3. the existing restrictions for the transfer of land have already been discussed. According to the currently operative BAL, limitations exist on the owning, buying or selling of land:

• Upper limits for land ownership
• No sales to "absentee landowners"
• Restrictions for foreigners and foreign companies
• Fees for the mechanism of land allocation.

When land is sold, this transaction must be witnessed by the head of the village and legitimized by the camat who functions as a notary. In the District of Wedarijaksa in Central Java, the camat receives the people who want to have a land transfer legitimized every Saturday.[FN 237]

Since a new Government Regulation of 1994, it has been necessary for the transfer of land rights to pay income tax on the profit gained from the sale of a right to land, or land and buildings. In 1994, this tax was set at 3 % of the sale price, and was raised to 5 % on Jan. 1st, 1995.

In connection with the stipulations contained in Article 19 and Article 24 of the BAL, and the Article 19 of the Government Regulation No. 10 / 1961 on Land Registry, every land transfer or the mortgaging of property must be proved with evidence in the form of a certificate which is drawn up in the presence of an official, the Land Deed Officer (Penjabat Pembuat Akta Tanah, PPAT),[FN 238] who is appointed by the Minister for Agrarian Affairs. The certificates which should be made in the presence of the PPAT are in the form of: [FN 239]

• Transaction Deed
• Grant Deed
• Exchange Deed
• Separation and Division Deed
• Heritage Allotment Deed
• Mortgage Deed
• Credit Obligation Deed
• Registration Deed

Since the 1st of June, 1994, the PPAT has been instructed not to make any more certificate entries if the vendor cannot prove that the income tax has been paid.[FN 240] The head of the Office for Land will also not register any land rights transactions if the sales contract is dated after 1.6.1994 and proof of payment of income tax cannot be produced. The BPN does not issue any rights certificates either if the above certification is not supplied. The following can be understood by "transfer of a right":

• "Sale, exchange or other way of transfer as agreed with other taxable parties.
• Sale, exchange or other way of transfer as voluntary agreed with the government, other than for development purposes in the general interest.
• Release or transfer of a right on land or land and building to the Government for development purposes in the general interest."[FN 241]

However, there are various possible exceptions:

• If the total value of the purchased land and / or building is less than Rp 60,000,000.
• If the land was presented as a gift.
• If the land is inherited
• If the land has been acquired by the Government for development purposes (public roads, water drainage, reservoirs, harbors, airports, armed forces, etc.).[FN 242]

Rental market

Along with the sale and purchase of land, land transfers can also take place through renting out / renting in of land. The following are amongst the motives given for renting out land:

• the owner is too old to be able to farm his land himself.
• the owner has no time to work his own land because of non-agricultural activities.
• to obtain cash needed to renovate a house.
• to finance a child’s marriage
• to pay for medical expenses.
• for finance a child’s education.
• the owner’s lands are situated too far away.
• the owned area is too large to be cultivated by the farmer on his own.