Pros and Cons of Islands for Sale in Indonesia

ARE YOU A FOREIGNER wishing to buy a beautiful Indonesian island? Forget it. Aside from sparking protests from different corners in the country, existing Indonesian laws prohibit foreigners from buying Indonesian land and islands. Moreover, a lot of time and energy could be wasted just for debating on the legal status of your land ownership albeit all the official procedures that you may have followed. In early December 2007, Karangasem Property—a property broker in Karangasem, Bali—placed an ad on its website,, which caused a public uproar. Public debates emerged because, through the ad, Karangasem Property openly aired its intention to sell Panjang Island (33 hectares) and Meriam Island (5 hectares) off Sumbawa in West Nusa Tenggara (NTB). The ad enthralled many investors. The website shows photos of the islands that look so picturesque under the blue sky and with the leaves of coconut trees swinging following the blowing winds.

Added to all this was a description of Panjang Island and Meriam Besar Island, which have white sandy beaches, crystal-like seawaters and palm trees. No limitation is set to the development of facilities on the islands, except the regulation on allowed maximum height of structures. Helipads are allowed to be built on the islands as they aim to ensure speedy and comfortable transportation between the islands and Sumbawa Besar or Bali. However, before Karangasem Property sold the islands, security authorities, the central government and the regional government as well as the House of Representatives (DPR) aired their stance. Their common position: Selling Panjang and Meriam Besar was prohibited under Indonesian laws.

They even stressed that selling islands in Indonesia was against Article 33, Section 3 of the 1945 Constitution, which states that land, waters and natural resources in Indonesia are controlled by the state. Immediately after the owners of Karangasem Property were summoned by the police to give an account on its ad, and following the unexpected strong opposition from different parties, Karangasem Property revised the wording of its website ad, particularly the term “for sale”, whose meaning, according to property brokers, actually differ from the one held by many.

Karangasem Property said the term “for sale” in its ad merely served as a key word for Internet searching machines, which made it easy for prospective investors to locate Meriam Besar and Panjang. Moreover, Karangasem Property disclosed that some investors had told them that they were not interested in the two islands because they were not for sale and were merely meant for investment cooperation projects. The investors also argued that they could not open casinos or gambling centers on the islands because they were prohibited under Indonesian laws.

Protests and Resistance

The issue of the sale of Indonesian islands has incited strong protests and resistance from quite many parties and individuals. In June 2007, for example, the Ministry of Marine Resources and Fishery found indications of the sale of Bawah Island south of Natua District in Riau Archipelago Province. Bawah was priced at Rp 1 billion only. Directorate General of the Supervision and Control of Marine Resources and Fishery (P2SDKP) detected some strange things like land certificates of the island being owned by a local fisherman.

Further, three islands at Santong Bay in Plampang Subdistrict on Sumbawa Island were already sold. Also, Bawah Island and Kuleleng Island in Natuna District were said to have been sold to a Singapore investor who was planning to make it a tourist destination. The beatiful Bidadari Island in East Nusa Tenggara was also said to have changed hands to PT Reesekers Kathernest Lestari, which is partly owned by a British citizen, at a price of less than Rp500 million. The East Nusa Tenggara government denied such allegations, however. The province’s capital investment coordinating board (BKMD) said it only had granted a 20-year license to the Englishman to manage Bidadari. Moreover, it said, the license covered only 5 hectares of the island’s total 15 hectares. PT Reefsekers Kathernest Lestari has bagged a license from the Manggarai district head to develop a hotel resort on Bidadari.

The official issued the permit in 2003 and a permanent business license (IUT) in 2001. Despite controversies—even reaching the President’s office—PT Reefsekers insisted that they had bought Bidadari according to legal procedures. Meanwhile, almost similar to the Panjang Island and Meriam Island cases was the case of Sultan Island in the Riau archipelago. In February 2006, it was included in the lists of islands offered via website, at US$27.5 million. However, due to mounting criticisms and protests, the website operator deleted Sultan from the lists. Indonesia’s Agrarian Law issued in 1960 prohibits foreigners from buying land, let alone islands, in Indonesia. They can control such properties only through joint ventures or by using the names of Indonesian companies. According to the agrarian law, any administrative procedures of land ownership registration fall under the authority of National Land Agency, except those for the mining and forestry sectors.

Agrarian Law provides five categories of land titles namely Hak Milik (freehold Title) that is granted to Indonesian citizens as individuals, Hak Guna Bangunan (building right title) that foreign investments can make use of, Hak Sewa Bangunan (right to rent for buildings) that can be made use of by foreigners with permanent residence in Indonesia or by foreign representative offices, Hak Pakai (right to use title) that enables the public or individuals to make use state land for specific purposes), and Hak Guna Usaha (cultivation rights title) that enables foreign investors to enter the agricultural, fishery and cattle breeding sectors.

In light of Article 33, Section 3 of the 1945 Constitution, all islands in Indonesia that total 17,000 are owned by the state because they are part of its sovereignty. In practice, however, the Indonesian government is of two minds. This is evidenced by the fact that many islands in Seribu Islands north of Jakarta are exclusively owned by individuals. Available data shows that 37 islands are exclusively controlled by individuals. Onwers of the islands refuse to pay taxes on grounds that they are managed for their own needs and not as public business facilities. In fact, many of them have built business facilities for the general public like resorts, lodgings and tourist attractions, which are actually subject to taxes.

Agrarian Law

The existing Agrarian Law also does not strictly differentiate between land and island. Which means individuals can own islands in the country. As a matter of fact, small islands – owned by individuals – have characteristics that differ from those of mainland land in the sense that land on small islands can very easily be affected by envirionmental changes and have limited supporting resources. Shortly, land on smaller islands differ from that on the mainland. In addition, if the 1945 Constitution is consistently upheld, not a single individual can obtain any exclusive rights to own an island, be they Indonesian nationals or foreigners.

All islands are owned by the state. But, inviduals should be given cultivation rights title or building rights title for a certain period of time, which can be extended when their contracts expire. Indeed, managing an archipelagic country is not easy work, let alone Indonesia that has more than 17,000 islands. In fact, thousands of them have no name, which indicates that the government cannot easily manage all islands in the country. In the era of President Abdurrahman Wahid (Gus Dur), the government raised the idea of leasing out 2,000-10,000 small, uninhabited, islands off Aceh, North Sumatra, Riau, South Sulawesi, Maluku and Papua. By leasing out 2,000 islands for 20 years the government can rake in no less than US$20 billion if their contract prices are US$2-10 million for 20 years.

Investors from Kuwait, Singapore and Japan were said to be eyeing such offers. But, the government’s suggestion sparked strong criticisms from many parties. As a result, it did not materialize. Christian P. Halim, the owner of Umang Island (Pulau Umang Resort & Spa), views the government should think about leasing out small islands to investors, local and foreign. “Rather than letting them idle, the islands should be leased out. Many have interest in our small islands. The only thing the government needs to do is issue regulations to lure in investors,” he said. Indonesia, Christian said, should be developed into an archipelagic tourist destination like Hawaii, Caribian and Maldives. “I think branding Indonesia as an archipelagic tourist destination is a a very appropriate move. We should stop thinking that leased islands will be used for other purposes,” said Christian, who bought Umang Island in the 1970s, with freehold title.

What have happened in Indonesia clearly differ from the condition in other countries. In Asia, following the spectacular development of area property market, India, Malaysia, Philippines, South Korea, Sri Lanka and Thailand seem to be competing with one another to offer their islands to foreign investors. Even, islands on sale are so openly advertized through international media, and many appear side by side with world class property ads. Undeniably, small islands with picturesque beaches have been developed into super-luxurious properties.

Newsweek, in October 2006, carried an advertisement that offered to buyers Vatu Vara Island, which is also known as Hat Island, in Fiji Archipelago. The island, which has volcanoes, abundant coral reefs, limestone hills and virgin forests were priced at US$75 million. Those having interest in the island were surely jetset people who wanted privacy and prestige.

Numorous island for sale ads indicate that islands are pricy and have specific market niches. Posasibly, now is the time for the government to review its policies and make better use of abandoned islands. They can be developed so they can have economic values, for instance by opening investment opportunities for foreigners and locals to make them tourist destinations. This is an appropirate move considering that the government has declared 2008 as a tourist visit year (Vist Indonesia Year 2008). Deddy H. Pakpahan