Understanding SHM and SHGB in Bali: A Complete Guide to Indonesia’s Land Ownership and Management System
Buying property in Bali is one of the most exciting investments you can make, but it also requires a clear understanding of Indonesia’s land ownership classifications. Two of the most common and important types of land rights you will encounter are SHM (Sertifikat Hak Milik) and SHGB (Sertifikat Hak Guna Bangunan).
Understanding these classifications is essential for both Indonesian citizens and foreigners looking to invest, build, or manage property legally in Bali. At The Bali Lawyer, our team of professional legal consultants specializes in guiding clients through Indonesia’s property and land law system. This comprehensive guide will help you understand what SHM and SHGB mean, how they differ, and what legal implications they carry for property ownership in Bali.
What is SHM (Sertifikat Hak Milik)?
Sertifikat Hak Milik (SHM), also known as Freehold Title, is the strongest form of land ownership available in Indonesia. It provides the holder with full ownership rights over the land without a time limit. SHM titleholders can sell, lease, transfer, or bequeath the property to their heirs freely.
Key Characteristics of SHM:
Ownership: Granted only to Indonesian citizens or entities fully owned by Indonesians.
Duration: Unlimited (permanent ownership).
Transfer Rights: Can be freely transferred, sold, inherited, or mortgaged.
Usage: The land can be used for residential, agricultural, or commercial purposes, depending on zoning regulations.
Legal Strength: SHM provides the highest level of legal security in Indonesian property law.
For local Indonesians, SHM offers peace of mind and stability, making it the most desirable land certificate. However, for foreigners, this type of ownership is restricted under Indonesian law.
What is SHGB (Sertifikat Hak Guna Bangunan)?
Sertifikat Hak Guna Bangunan (SHGB), or Right to Build, is another important form of land title that allows the holder to build and use a property on land owned by someone else or by the state for a specific period.
Key Characteristics of SHGB:
Ownership: Available for both Indonesian citizens and foreign-owned companies (PT PMA).
Duration: Usually granted for 30 years, extendable up to 50 years (30 + 20).
Transfer Rights: Can be sold, inherited, or mortgaged during its validity period.
Usage: The land can be used for building and business operations as long as it complies with local regulations.
Legal Status: After the SHGB period expires, the rights must be renewed or the ownership reverts to the landowner or the state.
SHGB is ideal for foreign investors and companies who wish to develop property legally in Indonesia. Through a PT PMA (foreign investment company), foreigners can hold SHGB rights and operate businesses or own properties under this structure.
The Difference Between SHM and SHGB
While SHM and SHGB may seem similar, they serve different purposes and are subject to distinct ownership regulations.
| Aspect | SHM (Freehold Title) | SHGB (Right to Build) |
|---|---|---|
| Ownership Eligibility | Only Indonesian citizens | Indonesian citizens and PT PMA (foreign-owned companies) |
| Duration | Unlimited | 30 years, extendable |
| Ownership Type | Land and building | Building only, land remains state or third-party owned |
| Transfer Rights | Freely transferable | Transferable within validity period |
| Best For | Indonesians seeking full ownership | Foreign investors or business entities |
| Renewal | Not required | Required after the validity period ends |
In essence, SHM grants full land ownership, while SHGB provides the right to use and build on land within a fixed term.
Can Foreigners Own SHM or SHGB in Bali?
Foreigners cannot directly own SHM property in Indonesia due to national land laws that reserve full land ownership for citizens. However, foreigners can still invest and build legally in Bali using the SHGB system through a PT PMA(Foreign-Owned Limited Liability Company).
This structure allows foreign investors to:
Acquire land under SHGB title.
Construct commercial or residential buildings.
Operate business activities legally.
Extend SHGB ownership when the initial term expires.
At The Bali Lawyer, we assist clients with setting up a PT PMA and ensure all legal procedures comply with Indonesian property laws, allowing foreigners to safely hold SHGB titles and manage their assets without legal complications.
How to Convert SHGB to SHM
Under certain conditions, SHGB land can be converted into SHM, but only if the landholder is an Indonesian citizenand the land meets specific legal requirements.
Requirements for Conversion:
The holder must be an Indonesian citizen.
The land must be located in an area designated for private ownership.
The land must not exceed the maximum ownership limits established by the government.
Process Overview:
Submit an application to the National Land Agency (BPN).
Provide necessary documentation such as the land certificate, ID card (KTP), and tax records.
Pay the required administrative fees.
The BPN verifies eligibility and issues the SHM certificate if approved.
Our legal experts at The Bali Lawyer can handle the entire conversion process for you, ensuring compliance with all Indonesian land regulations.
How SHM and SHGB Affect Property Transactions in Bali
When buying or selling property in Bali, understanding the distinction between SHM and SHGB is crucial.
For Indonesian Buyers: Purchasing an SHM property offers full ownership and security.
For Foreign Buyers: Acquiring property through SHGB is the safest and most lawful route.
For Developers: SHGB is often used to build resorts, villas, or commercial buildings, especially under corporate ownership structures.
Each transaction must follow specific legal steps, including due diligence, verification of ownership, and approval from relevant authorities. A trusted law firm such as The Bali Lawyer ensures that all transactions are valid and transparent.
Why Understanding Land Classification Matters
Many property investors make mistakes by not understanding Indonesia’s land classification system. Misinterpreting the difference between SHM and SHGB can lead to legal disputes, loss of investment, or property confiscation.
Here’s why understanding these land classifications is essential:
Legal Compliance – It ensures your property purchase adheres to national laws.
Investment Protection – You can avoid fraudulent deals or illegal property transfers.
Ownership Security – Proper land certification guarantees your rights are protected.
Future Planning – Knowing the duration and renewal terms helps with long-term investment strategies.
With professional guidance from The Bali Lawyer, you can confidently navigate Bali’s land law system and make informed property decisions.
How The Bali Lawyer Can Help
At The Bali Lawyer, we specialize in property law, land ownership verification, SHM and SHGB registration, and company formation (PT PMA) for foreign investors. Our team provides end-to-end legal support for individuals and businesses looking to buy, lease, or develop property in Bali.
Our Services Include:
Property due diligence and land title verification
Assistance with SHM and SHGB applications and renewals
Legal structuring for foreign property ownership (PT PMA setup)
Land lease and sale agreement drafting
Conversion of land titles and dispute resolution
We work closely with Indonesia’s National Land Agency (BPN) and other government offices to ensure all documentation and legal processes are handled accurately and efficiently.
Common Mistakes Buyers Make
Many property buyers in Bali overlook key legal details when purchasing land. Common mistakes include:
Buying property under another person’s name.
Not verifying the certificate type and its validity.
Assuming foreigners can hold SHM titles directly.
Failing to check zoning and land-use designations.
Ignoring the renewal terms for SHGB land.
To avoid these costly errors, always consult a reputable legal advisor before finalizing any property transaction. The Bali Lawyer ensures that every step of the purchase or development process complies with Indonesian law.
Understanding SHM (Sertifikat Hak Milik) and SHGB (Sertifikat Hak Guna Bangunan) is fundamental for anyone looking to own or invest in property in Bali. SHM provides full ownership for Indonesian citizens, while SHGB allows foreign investors and companies to legally build and manage property in Indonesia.
By learning the differences, knowing the legal restrictions, and following proper procedures, you can make informed and secure investment decisions.
If you are planning to buy or manage property in Bali, contact The Bali Lawyer for professional legal assistance. Our experienced team is here to help you navigate Indonesia’s complex land system, ensuring your investment is safe, compliant, and legally protected.
The Bali Lawyer – Your Trusted Partner for Property Law and Land Ownership in Bali.