In the last decade, real estate businesses in Indonesia, especially the development and sale of Apartments and condominiums (“Apartments”) have grown significantly. According to a reputable international property consultant, around 21,000 new Apartment units were expected to be developed by Indonesian Developers.

With new Apartments growing rapidly in 2018, developers are racing to achieve higher market share and seek to boost sales to avoid a large number of units remaining unsold and ending up as aging Apartments. Presale or selling directly to potential buyers before completion or even before construction is a very common phenomenon in the housing market. This pre-construction marketing strategy allows developers to exploit their information advantage over the potential buyers, who cannot inspect the completed property at the time of signing the sale and purchase agreement, and therefore the interests of potential buyers are often jeopardized due to uncertainty; for example, the construction of the Apartment building may never be realized as planned. A concrete example is the case of failed development of Apartment buildings in Sidoardjo, East Java.

Through Law No. 20 of 2011 on Apartments (Law 20/2011) and Decision of Minister of Public Housing (currently known as Minister of Public Works and Public Housing) No. 11 of 1994 on Guidelines for Preliminary Agreements on Sale and Purchase of Apartments, the Indonesian government strictly regulates marketing regulations on the presale of Apartments.

Law 20/2011 strictly requires a developer to fulfill the following requirements when conducting the presale of Apartments:

  • The development of the Apartment complies with the urban spatial plan (rencana tata ruang dan kota), as commonly evidenced by the Confirmation of Urban Spatial Plan (Keterangan Rencana Kota – KRK);
  • The developer holds a valid land certificate for the land on which the Apartment is located;
  • The developer holds (i) a valid apartment unit designation map (pertelaan), and (ii) building construction permit (Izin Mendirikan Bangunan); and
  • The developer obtains a performance guarantee/bond from the contractor, issued by bank or non-bank institution to ensure that the construction will be completed as planned.

Developers are allowed to sign a reservation form with the buyers and to collect a booking fee, on condition that within the subsequent 30 days, the relevant developer and buyer must sign a preliminary/conditional sale and purchase agreement (Perjanjian Pengikatan Jual BeliPPJB) before a notary. However, it is important to note that according to Law 20/2011, there are a number of requirements to be satisfied prior to the execution of the PPJB, including, among others: (i) the construction process must have reached at least 20%, and (ii) the developer must have ensured the availability of public facilities, infrastructure and utilities in the relevant Apartment building.

Below is the summary of the requirements to be fulfilled for the pre-construction marketing (presale) and the subsequent execution of the PPJB:

Pre-construction Marketing Signing of Preliminary/Conditional Sale and Purchase Agreement (PPJB)
Conformity with the urban spatial plan (KRK)

 

Land certificate

 

Apartment unit designation map (pertelaan)

 

Building Construction Permit

 

Performance bond from the contractor

 

20% completion of construction process

 

Availability of public facilities, infrastructure, and utilities

 

Law 20/2011 imposes certain criminal sanctions for developers that cause the execution of the PPJB without first satisfying the above requirements.

For further information on the above, please contact W&P Team: Luky Walalangi, T. Anggra Syah Reza  and Andhika Indrapraja