How to Conduct Due Diligence on Derawan Land Before Closing in 2027

How to Conduct Due Diligence on Derawan Land Before Closing in 2027

As senior content lead for Derawan Land Investment, I provide specific guidance for foreign and domestic investors considering land acquisitions in Indonesia, particularly in coastal regions like Derawan. The term “Derawan Land Investment” refers to a project or brand name; it is not a distinct asset class or market segment in Indonesia. However, the principles of due diligence apply universally across the Indonesian real estate and land market, which is projected for consistent growth.

Indonesia’s total real estate market was valued at USD 100.4 billion in 2025, with projections reaching USD 156.2 billion by 2034 at a 5.03% CAGR from 2026–2034. Other analyses estimate the market at USD 169.9 billion in 2025, projecting USD 248.7 billion by 2030 at a 7.9% CAGR from 2025–2030. Residential real estate consistently holds the largest share, approximately 58% in 2025, with commercial and industrial sectors comprising the remainder. These forecasts imply an annual market size increment of approximately USD 8–12 billion in real estate value nationally through 2030.

Commercial Land-Linked Real Estate Context

For land underpinning offices, retail, logistics, hospitality, and mixed-use developments, the commercial real estate market in Indonesia is substantial. It was valued at USD 26.88 billion in 2025 and is projected to reach USD 28.55 billion in 2026, with further growth to USD 39.02 billion by 2031 at a 6.22% CAGR from 2026–2031. Offices constituted 39.45% of the commercial market share in 2025, and rentals accounted for 62% of revenue. Logistics is the fastest-growing subsector, demonstrating a 9.12% CAGR. While Jakarta accounts for 25.2% of commercial real estate, the “Rest of Indonesia”—encompassing regions such as Bali and other secondary cities—is projected to grow faster, at an 11.22% CAGR to 2031. This growth context is relevant for land investors, as commercial land values in tourist-centric and developing regions are expected to appreciate accordingly.

Understanding Legal and Regulatory Frameworks

The foundation of any land acquisition in Indonesia is a thorough understanding of the legal and regulatory landscape. Indonesia operates under a civil law system, and land ownership is governed by the Basic Agrarian Law No. 5 of 1960. Foreign individuals cannot directly own freehold land (Hak Milik); however, various structures permit long-term control and development.

Land Titles and Ownership Structures

Investors must be aware of the primary land titles available:

• Hak Milik (Freehold Title): This is the strongest form of ownership, exclusively available to Indonesian citizens. Foreigners cannot hold Hak Milik directly.
• Hak Guna Bangunan (HGB – Right to Build): This title grants the right to construct and possess buildings on state land or land owned by others (including Hak Milik holders) for a specified period, typically 30 years, extendable for another 20 years, and potentially renewable for an additional 30 years. This is the most common title for foreign investment in property development.
• Hak Guna Usaha (HGU – Right to Cultivate): This title grants the right to cultivate land for agricultural, plantation, or husbandry purposes for a period of up to 35 years, extendable for 25 years.
• Hak Pakai (HP – Right to Use): This title grants the right to use and/or collect produce from land for a specified period, typically 25 years, extendable for another 20 years. This can be held by foreign individuals or companies for specific purposes, often residential.

For foreign entities, establishing a local limited liability company (PT PMA) is the standard method to acquire HGB or Hak Pakai titles, providing a secure framework for investment.

Step-by-Step Due Diligence Process

A comprehensive due diligence process involves several critical stages, each requiring expert local counsel.

1. Legal Due Diligence

This is the most crucial step. It involves verifying the legitimacy of the land title and the seller’s right to transfer it.

• Title Verification: Obtain and scrutinise the original land certificate (Sertifikat Tanah) from the National Land Agency (Badan Pertanahan Nasional – BPN). Verify its authenticity, current ownership details, and ensure it is free from encumbrances (e.g., mortgages, liens, disputes).
• Seller Identification: Confirm the seller’s identity and legal capacity to sell the land. For corporate sellers, verify company registration, articles of association, and board resolutions authorising the sale.
• Encumbrances Check: Investigate any registered or unregistered claims, easements, or disputes affecting the land. This includes checking for ongoing litigation or family disputes that could jeopardise the transaction.
• Permits and Licenses: For developed land or land with existing structures, verify all necessary building permits (IMB – Izin Mendirikan Bangunan) and operational licenses.
• Boundary Verification: Engage a licensed surveyor to verify the exact boundaries of the land as per the certificate and physically on-site. Discrepancies between the certificate and physical boundaries are not uncommon.

2. Zoning and Spatial Planning Due Diligence

Understanding the designated use of the land is paramount for any development project.

• Local Spatial Plan (RTRW): Consult the local Spatial Plan (Rencana Tata Ruang Wilayah) at the regional planning agency (Dinas Tata Ruang) to confirm the land’s designated zoning. This will determine permissible development types (e.g., residential, commercial, tourism, agricultural, green belt).
• Building Regulations: Ascertain specific building codes, height restrictions, setback requirements, and density regulations applicable to the zone.
• Environmental Zoning: Identify any environmental protection zones, conservation areas, or flood plains that may impact development potential or impose strict environmental requirements.

2027 Note: By 2027, digitisation of land records and spatial planning data is expected to be more advanced in key investment regions. While this may streamline initial checks, direct verification with BPN and local planning offices remains essential due to potential discrepancies or delays in digital updates.

3. Environmental Due Diligence

Environmental considerations are increasingly important and can significantly impact project viability and costs.

• Environmental Impact Assessment (AMDAL/UKL-UPL): Determine if the proposed development requires an Environmental Impact Assessment (AMDAL) or Environmental Management and Monitoring Efforts (UKL-UPL) based on its scale and nature.
• Site Contamination: Assess the risk of soil or water contamination, particularly for industrial or previously developed sites.
• Natural Hazards: Evaluate the land’s susceptibility to natural hazards such as flooding, erosion, or seismic activity, which is crucial for coastal properties like those in Derawan.

4. Financial Due Diligence

Beyond the purchase price, investors must account for all associated costs and tax implications.

• Tax Obligations: Understand property taxes (PBB – Pajak Bumi dan Bangunan), transfer taxes (BPHTB – Bea Perolehan Hak atas Tanah dan Bangunan), and income tax on sale (Pajak Penghasilan). Tax rates and regulations can change, necessitating current advice.
• Transaction Costs: Factor in notary fees, legal fees, surveyor fees, and other administrative charges.
• Development Costs: Obtain realistic estimates for infrastructure, construction, and permit costs relevant to the intended use.
• Seller’s Financial Standing: For large or complex transactions, assess the seller’s financial stability to mitigate risks of bankruptcy or other financial issues that could complicate the transfer.

5. Physical Due Diligence

A physical inspection and survey are indispensable.

• Site Visit: Conduct multiple site visits at different times to observe surrounding activities, access routes, and environmental conditions.
• Survey: Commission an independent land survey to confirm boundaries, area, and topography, aligning with the BPN certificate.
• Infrastructure Access: Verify access to essential utilities (electricity, water, internet) and road infrastructure. Assess the cost and feasibility of connecting new utilities if required.

Engaging Local Experts

Given the complexities of Indonesian land law and local customs, engaging experienced local professionals is not optional. This includes:

• Reputable Notary Public (PPAT): A PPAT (Pejabat Pembuat Akta Tanah) is legally authorised to create land transfer deeds and register them with BPN. They play a pivotal role in ensuring the legality of the transaction.
• Independent Legal Counsel: Lawyers specialising in Indonesian property law can provide comprehensive legal advice, draft agreements, and represent the investor’s interests.
• Licensed Surveyor: Essential for accurate boundary and area verification.
• Environmental Consultant: For projects requiring environmental assessments or with potential environmental risks.
• Tax Advisor: To navigate the intricacies of property-related taxes and ensure compliance.

Derawan Land Investment advises that while the market presents growth opportunities, thorough and disciplined due diligence is the only reliable method to mitigate risks and secure a sound investment. We provide advisory services to guide investors through this process, ensuring all aspects are meticulously reviewed before a commitment is made.

For a detailed discussion on how to conduct due diligence for your specific investment goals in Indonesia, book an investment consultation on WhatsApp with Sari Kusuma.

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