ARTICLE IN PRESS

Land Use Policy 21 (2004) 347–355

Major issues in Indonesia’s urban land development
T. Firman*
Department of Regional and City Planning, Institute of Technology, Bandung, Jalan Ganesha 10, Bandung 40132, Indonesia Received 13 December 2002; received in revised form 10 April 2003; accepted 24 April 2003

Abstract This article addresses issues of urban land development in Indonesia, including urban land use; ownership and transfers; land taxation; and land information systems. Until very recently, urban land-use planning in Indonesia was largely top-down in character and neglected to include the public as a stakeholder. This article argues that the role of government in urban land-use development needs to change at all levels and that the capacity of local government in land-use management needs to be strengthened. The presence of private developers in urban development should be encouraged. Land development permits—as a means of urban development control—while they may still be necessary should be granted primarily in relation to urban land-use plans (RUTR). Land taxation instruments have not been effectively applied to control land utilisation in the cities. Data and information on land affairs are lacking. r 2004 Elsevier Ltd. All rights reserved.
Keywords: Urban land policy; Indonesia

Introduction This article considers several key issues relating to urban land development in Indonesia. Although several aspects of urban land policy reform in Indonesia have been examined previously (see Firman, 1998), this area needs to be revisited as the recent economic crisis and current sociopolitical situation have greatly affected urban socio-economic and physical conditions in Indonesia, including urban land use. This article aims to offer an update on the situation of urban land development in Indonesia. With a population of over 206 million people in 2003, Indonesia is one of the most highly populated countries in the world, following China, India, and the United States. Urbanisation, defined as urban population proportion of the total population, is growing rapidly there. It had already reached 30 per cent and 42 per cent in 1990 and 2000, respectively, and is expected to be 50 per cent by 2010. Urbanisation has impacted significantly on spatial development in Indonesia, notably on urban land. For this reason an urban land development policy which is able to respond to rapid urbanisation is of extreme importance to Indonesia.
*Tel.: +62-22-250-4735; fax: +62-22-250-1263. E-mail address: tfirman@melsa.net.id (T. Firman). 0264-8377/$ - see front matter r 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.landusepol.2003.04.002

Indonesia’s Basic Agrarian Law (Undang-Undang Pokok Agraria—UUPA), promulgated in 1960, clearly states that land has both social and functional values, and is therefore not a commodity that can be traded for profit. At present there are three competing attitudes towards the UUPA (Faryadi, 2002). First, there are those who consider UUPA as no longer relevant within the current political and socio-economic context. The law is considered a hindrance to effective land market functioning, and therefore there are those who think it should be eliminated. Second, there are the ‘populists’. They would like to leave the UUPA as it is, since this law is essentially intended to protect poor agrarian households. Many of the populist group consider the UUPA as ‘too soft’ to deal with the recent trend of commoditisation of land and they call for its revision (Sumardjono, 2001). Third, are those who consider that UUPA is still relevant in the current context provided it is reoriented and updated, so that it can keep up with present political and socio-economic conditions in Indonesia. The UUPA was developed with the intention of addressing issues relating to rural land; understandably it neglects urban land problems. However, since socioeconomic conditions have changed greatly, urban land development is now an emerging issue that needs to be addressed. It is therefore timely to now review and to

utilisation and control of urban land to achieve efficiency and to improve the equity of land market outcomes (Archer. Firman / Land Use Policy 21 (2004) 347–355 amend the UUPA and its operational regulations by giving more attention to urban land development problems. There have been several policies and regulations regarding the use of urban land in Indonesia. and economically most powerful (Olima. and land information systems. part 3 will critically discuss the need for urban land development policy. a proliferation of unplanned areas. Brennan (1993) maintains that market mechanisms alone are unlikely to create an efficient urban land allocation. According to McAuslan (2000). McAuslan. 28). Theoretical context and a brief overview of urban land development in developing countries Urban land policy in general refers to the planning and implementation of the allocation. This article addresses issues of urban land development in Indonesia. and at collecting revenue (Mattingly. Not surprisingly. p. inconsistent and sometimes even in conflict with each another. ownership and prices. 78–79). 106–117). land taxation as a potential source of government revenue.ARTICLE IN PRESS 348 T. but these are fragmented in terms of their objectives. 1990. The rest of the article is divided into four parts. pp. 2002). inadequate infrastructure capacity (Farvaque and McAuslan. The broad problems of urban land development policy in developing countries. As Payne (2000) maintains. this measure should be adopted with great caution as the formalisation of land tenure may possibly end up with ‘upward filtration’: that is. as Doebele (1987) argues. 1994. 2000). The lack of security of land tenure could be a hindrance to urban land markets’ effective functioning (Brennan. see also Sivam. 1997). in developing countries the regulatory frameworks relating to urban land are often a barrier to the development of more equitable and efficient land markets (p. especially with regard to cost recovery (pp. 23). land-use planning and regulations. the Kenyan government has been extremely slow to act decisively on issues of the deficiencies of and irregularities in public land allocation (p. but rather to enhance the security of tenure. 1553). p. McAuslan. Urban land policy is also directed at affecting the use of land. 1993. Public land banking systems—a process whereby the land required for particular needs is purchased well in advance of those needs (Devas. inappropriate land pricing and high taxation. 2000. 1994. these regulations and policies have been inefficient. Part 1 will discuss urban land development policy in developing countries to provide a theoretical background and comparatives. over-centralised and poorly coordinated land management institutions. account- ability and probity of the administrative systems in urban land development. 1983. socially. p. These include tenure (property rights). inadequate information about land. 124. 77–78). and the more efficient the use of existing land resources (pp. p. land taxation. 1993. joint public–private actions. 119–128). inequity and partiality in land administration. Rakodi (1996) argues that state urban land development policy makes interventions with regard to several issues. 1992. as well as high levels of bureaucracy at all levels of the land development process. 437). 1). 1997. Most developing countries also confront the problems of a lack of efficiency. the most important thing is not to legalise land tenure. infrastructure provision and development. Meanwhile. Bernstein. many cities in the developing world experience difficulties in doing so. include the following: the inappropriate use of land resources. Unclear urban land policy could result in the abuse of the legal system for the purposes of land speculation. ownership and transfers. administration and planning to assist market mechanisms to function effectively (pp. 99). There are three major approaches to increasing land supply. and. which could be time-consuming and costly. p. 77). 3). Tanzania faces problems of slow progress in planned land development. While legislating on land tenure could increase the supply of land in urban areas. orientation and institutions. and therefore intervention is necessary with respect to regulations. These include: direct public actions. part 2 will examine urban land development in Indonesian for the last two decades. 211)—should be established in the cities of developing countries to assist them to cope with the difficulties of providing land for public facilities and . For Doebele (1987) the key issue in urban land development policy in developing countries is how to increase the land supply accessible to low-income groups and to make more effective use of substantial areas of under-used urban land (p. as well as a reluctance to encourage the participation of the urban poor (Bernstein. equity. 1993. the lack of secure tenure. public land management seems to have favoured those who are politically. inflexible and overly detailed land regulatory and legal frameworks. In Kenya. and the commoditisation of land (Kironde. However. and part 4 offers some concluding remarks. the buying-up of poor households’ land by middle. In fact. and public sector participation in land supply as well as land development (p.and high-income households and could also expose poor households to formal land taxation (p. In a similar vein. Another reason offered for intervention in urban land-use policy is to cope with the socio-economic consequences of land speculation and the decreasing affordability of land for urban low-cost housing (Koppel. including land use. 331).

(5) the improvement of efficiency in land market operations. p. These systems could be managed by the government through state-owned companies and by the local government through local government-owned companies (see also Sumardjono. institutional and spatial structures for installing infrastructural networks (pp. 1993): These include: (1) land market assessment (LMA). no less than 600 new buildings valued at over US$5 million were constructed during the period 1980–1992 (Dorleans. and tourist resorts. which in turn has resulted in rocketing land-prices in the Central Business District (CBD). During the economic boom of the 1980s and 1990s. many once-residential areas. 2000. Surabaya and Bandung has very quickly been transformed into new residential areas. 36). 15) the lack of clear proof of land ownership in developing countries will impose substantial costs on the land market. considerable areas of land on the outskirts of the large cities have been acquired by developers and land speculators who play an important role in supplying the land for housing. 295). 2001). However. which in turn could enhance urban development by the public and the private sector (see also Munro-Faure. This development has raised the property businesses in large cities. aimed at providing an accurate up-to-date data base on the operation of the urban land market. (2) coordinating the government and the formal private sector development activities. including new town and industrial estate projects. As a consequence. All local and municipal governments depend on the property tax as a major source of revenue. (4) facilitating land assembly for large-scale development projects. industrial estates. viii. Firman / Land Use Policy 21 (2004) 347–355 349 infrastructure development. (4) curtailing public land development authority. 2000). in Indonesia it has been misused for the justification of the provision of large areas of land for developers. 115). In essence. efficient and equitable. This situation is . These are: (1) guiding the location of the (formal) private land and building development projects. land taxation has been largely considered as an instrument to raise revenues. in turn. or liquidation of companies. including the process of land conversion.ARTICLE IN PRESS T. and tax collection is poor. These processes can be clearly observed in large cities such as Jabotabek (Jakarta Metropolitan Area). As Farvaque and McAuslan (1992) argue. involves six general steps (Dowall and Clarke. Obviously potential buyers do not want to get involved in land disputes in the future. Urban land taxation would also promote and encourage the effective utilisation of ‘private land’ and assist the authorities to develop public infrastructures. Archer (1993) maintains that there are five basic functions of land permit systems in urban development. 2000). Developers who intend to acquire and assemble land for subdivision projects are required to obtain land development permits (ijin lokasi) and land purchase permits. see also Williamson. yet its potential is barely tapped (p. as Kironde (1997) proposes. there is a need for a simplified. This. Land taxation could serve as an instrument to administer land utilisation. as Menezes (1988) argues: Almost all the [Asian] countries y have failed to use taxation as an effective instrument of urban land policy. Urban land development in Indonesia Recent urban development in Indonesia has been characterised by rapid changes in the use of land in its urban centres. luxury high-rise apartments and shopping malls. However. (3) deregulation to simplify land use and development control and to shorten the approval cycle. 19). the prime agricultural land on the outskirts of Jakarta. many of whom have little capacity to develop the acquired land and have no intention to develop the entire area the permit covers (Firman. in most Asian countries. (2) decentralisation of land management authority. the location permit is intended to help control and guide urban land-use development. as well as by the conversion of prime agricultural lands to residential areas and other urban land use on the peripheries. 1994). for example. golf courses. has led to difficulties in the implementation of land subdivision. potential buyers will need to investigate the property ownership prior to deciding whether to purchase the land. besides making records for land market operations available. Meanwhile. which may include restructuring large organisations. 2000). In Jakarta. imaginative. According to Archer (1990) to ensure the tax will be adequate. 35–41). the property tax charged on urban land should be based on a realistic estimate of the market value of land (p. see also Goldblum and Wong. rather than for land development control. privatisation. Surabaya and Bandung (Firman. Overall. (3) facilitating land assembly for the development projects. especially slum areas (‘kawasan kumuh’) in the city centre. good land registration. flexible. and (6) the provision of financial. efficient. since without accurate ownership data. particularly for low-cost housing. and honest administrative machinery to implement an urban land policy successfully (p. According to Dowall and Clarke (1993. Urban property taxes in Asian countries are generally undervalued. were converted into hotels. also helps land markets to work and facilitate the conveyancing process and subsequently ensure the transparency of the transactions (p. To formulate a good urban land policy in developing countries. and (5) attaching appropriate project development conditions to the permits for the land acquisition for the proposed development projects (p. 2000).

schools. Even if there are certain mechanisms for negotiating the selling price. Moreover. 1991). not to mention the alleged corruption and bribery involved in this practice. At the same time. the Indonesian government has allowed private companies to privately manage industrial estates. which clearly states that land acquisition should be done through direct deliberation (‘musyawarah’) and achievement of consensus (‘mufakat’). including road development. land taxation has not been effectively employed to manage and control land utilisation.ARTICLE IN PRESS 350 T. the national economic development policy has pushed the BKPM (Investment Coordinating Agency) to grant investment permits to both foreign and domestic investors in order to reach the national investment targets. Investors have been greatly assisted in obtaining land for business purposes. . resulting in increases in land prices (see also Leaf. The prevailing mechanism of land transfers has given developers excessive authority. p. as Ferguson and Hoffman (1993) argue. primary health care. such as land. of improving the socio-economic conditions of the respective landowners. as it is far below the prevailing land prices. the land-owners are not satisfied with the compensation (ganti rugi) paid by the developers. In many cases of land acquisition in large cities. without the consent of the land owners (Suyanto. Struyk et al. while land-owners have no options regarding who they sell their land to. and maximum of 4000 ha in the whole of Indonesia. i. in most cases land-owners are in weak position. second. The permit may be renewed for another year if land acquisition has reached more than half of the planned quantity (Firman. the Indonesian government has reformed the land development permit (ijin lokasi). This system neglected the rights of the landowners. the system resulted in reduced prices being paid by those developers who were authorised to acquire land. On average. 1996. with measures such as even the relaxation of regulations for location and land development permits. this land development permit granting process resulted in the concentration of ‘ownership’ of urban land in the hands of a few developers as well as in inefficient land utilisation. the legislative council (DPRD) at a provincial. Conversion of agricultural land to urban land areas in Indonesia is largely uncontrolled. 2001). and building permits in Indonesia to be considered as instruments to raise revenue. has triggered the speculative trading of land. This has resulted in rapid land conversion in the fringe areas of large cities where most industrial activities take place. should entail the involvement of the land-owners and their associates. instead of as instruments for land-use development control. During this period. as well as plants growing on the land. Firman / Land Use Policy 21 (2004) 347–355 exacerbated by the way in which the authorities treat the development permits as an instrument to collect fees. Recently. In other words. and on a voluntary basis between the involved parties (see Sumardjono. However. The decree also emphasises that the compensation of land transfers should be capable. Land acquisition for the purpose of public infrastructure development is administered under the Presidential Decree (Keppres) 55/1993. This. there is a tendency for land taxation. 47). From 1999. it also took more than 30 months for developers to get land title issuance. During the 1980s and 1990s. involving thousands of hectares of irrigated and prime agricultural land. Instead. Many of the land areas that have been acquired for long periods of time have not been developed. it increased land prices for the end-users. or municipal level. economic development in Indonesia has resulted in a significant increase in the demand for industrial land. Consequently. at the very least. Soemarno. 20 out of 23 (87%) of land acquisition cases in Surabaya during 1992 and 1993 were forced sales. The Indonesian Survey of Agriculture conducted by the Central Board of Statistics shows that in Java more than 1 million ha of paddy fields. whereby developers become rent seekers and land-capital-gain speculators. in both the utilisation of land to serve public interests and the valuation of the compensation offered. In short. and can be costly. Land conversion in Indonesia occurs on a very large scale. Land acquisition is often a lengthy process. compensation is offered only for the lost assets. buildings. This has led to a ‘land business undertaking’. land development permits. In the past the land-development permit system in Indonesia was a top-down process which essentially reserved land almost exclusively for the approved developers. There is some concern that it may begin to affect the production of foodstuffs significantly. 2000. hospitals. the land development permit system in Indonesia of the 1980s and 1990s affected land prices in two respects: first. district. developers were allowed only to acquire land for industrial estates and housing projects that do not exceed 400 ha of land in one province. in turn. In fact. as well as squandering investments in irrigation on agricultural farmlands. Moreover. etc. land has been treated as a tradable commodity. For example. (1990) found that transfers of land added as much as 10–30% to the expenses for land acquisition in West Java. this does not include loss of income and other disadvantages experienced by land-owners resulting from unfair land transfer practices. This resulted in the location permits process becoming costly as well as often unnecessarily lengthy. The system granted monopoly rights to the developers to purchase land from landowners at low prices. and thus there are sizeable neglected areas of land.. 2002). land transfers for the benefit of the public interests. notably the paddy fields (sawah). utilities.e.

however. local government’s capacity to manage and implement the spatial plan (‘Rencana Umum Tata Ruang’). conversion has not only taken place in the prime agricultural land of the urban fringe. whereas the ability of the developers as permitholders to develop fully this large area is questionable. whose task is to manage land records. 16 October. the total additional paddy fields in Indonesia. Property firms in Indonesia accrued debts amounting to nearly US$10.000 ha of new paddy field areas were developed. Syafa’at and S. 2002.000 ha of paddy field in Java. 2002). too many land development permits have been granted in Jakarta Metropolitan Area. and other financial institutions..000 ha of paddy field over the period. almost three-quarters of which are nonperforming loans (Properti Indonesia. In fact. from the Board of Research and Development. to process land titles and to administer land development. Surprisingly.e. billion of estimated land transactions’ value in Jakarta alone from 1989 to 1993 (pp. One study notes that about 87. In other words. there were approximately an additional 2 million ha of paddy fields outside Java over the period.26 billion. As a consequence. The role of government in urban land-use development should move from the authority to the . As a result.5 billion at 1997 exchange rates) had been acquired by developers but still remained under-utilised in December 1997. The system is also so rigid that is unable to respond to the change of taxable values. Meanwhile. government revenue from the tax reached only US$162 million. whereas only about 520. but has also occurred on land designated as conservation areas.702. The current PBB system does not take the urban spatial plan into consideration. 53–54). the PBB essentially has nothing to do with urban land-use planning. In fact. plurality and increased autonomy for the local (district) government to manage their own development affairs. 1998).6 million ha (p. i. issued nearly 350 development permits to large private developers involving more than 80.1 Even worse. In other words. without much intervention from central and provincial government. An obvious shortcoming of the current PBB system is that the tax valuation does not take into account the various land-use categories. This could result in a detrimental impacts on the environment (Firman. 2000). the PBB simply cannot serve as an instrument for urban land-use development control (Parengkuan. such as Northern Bandung and Jalur Puncak (Puncak Strip) near Jakarta. the BPN still continued to issue permits for land development in this area until very recently. due to an increase in the productivity of newly opened paddy fields (Kompas.500 ha of land valued at Rp.2 1 This report based on a study of agricultural land conversion in Indonesia conducted by P. This means that the local government and communities will play a very important role in urban land development in their own jurisdiction. particularly in the monitoring and control of land conversion. but there were 2. outside Java. have become bankrupt. On the outer islands. At the same time. in contrast to US$71. Ministry of Agriculture. As there were losses of about 480. there were 625.ARTICLE IN PRESS T. was almost 1. Building construction and the demand for space in the city centre have declined significantly (see Dijkgraaf. this paddy field loss did not cause paddy production to drop. The National Land Agency (BPN). A number of developers involved in large-scale housing development on the fringes of large cities and in the development of condominiums. 2000). public participation. Therefore. Simatupang. the concentration of urban land in the hands of large developers has increased tremendously. March 1999). including Java and the outer islands. justice. Kompas. Yet. due to the unrealistic development permits granted by the Land Development Agency (BPN) in the past (Arcadis Euroconsult. 11 January 1999). 1991). ‘Pajak Bumi dan Bangunan’ (PBB. Recently promulgated legislation in Indonesia for regional autonomy (law 22/1999) recognises democracy. newspaper. N. 2002). According to Dorleans (1994) the revenues extracted from the land and building tax (PBB) is insignificant in comparison to the profits extracted by private developers. This land is enough to supply all the land necessary for housing in Jakarta and its surrounding areas up to the year 2018 (Tempo. Land and Building Taxes) is one of the prevailing property taxes in Indonesia at present. the property sector in Indonesia shows signs of recovery in the early 2000s. The current economic crisis has hit the urban economy very badly. including offshore loans of US$3. In short.459 ha of paddy fields converted to other uses. In fact. most property firms have experienced great difficulties with cash flow. 16 October.000 ha of land in the fringe areas of Jakarta during the mid-1980s to 1995.65 trillion (US$6. was converted over the period 1981–1999.7 billion by end of 1998. land conversion resulted in a loss of almost 480. most notably in the large-scale residential areas and the industrial estate developments on the fringes of large cities and property developments in the city centres. Firman / Land Use Policy 21 (2004) 347–355 351 approximately 30% of the total area of paddy fields on the island. as many of the developers simply do not have sufficient technical or financial capabilities to do so. since it is primarily designed with the objective of increasing revenue. Nevertheless.4 billion and domestic loans of US$7. the economic crisis has created a large area of ‘idle land’ in which a huge investment has been made (see also Winarso and Firman. Mardianto. offices and retail spaces in the city centre. has also been technically inadequate. when this tax was introduced for the first time in 1986. Not surprisingly.939 ha of new developed paddy field over the period 1981–1999. resulting in a slowing down of physical development. sizeable tracts of land lie unused. 29). many large developers are not able to pay back their loans from national and off-shore banks.

this is still in the infancy stages and ‘learning by doing’. due to the many constraints of the resources available to implement the plan. Moreover. The main problem is that the Legislation of Spatial Planning (Undang-Undang Tata Ruang). Firman / Land Use Policy 21 (2004) 347–355 administrator. Nevertheless. p. Urban spatial planning should rather offer guidelines focused on the long-term strategic components of urban development. At present. policy for the utilisation of urban land resources should contain the principles and control mechanisms of land use. as well as incompleteness and inconsistencies in the law and its enforcement. there have been several violations in the implementation of urban spatial plans (RUTR) in the attempt to accommodate the economic activities or because of the interests and pressures from certain parties. justice.. Land utilisation in urban areas should be based on a spatial plan. 1994. most local development planning boards face a serious shortage of qualified personnel. This will not work well under conditions where the urban plans are concealed from the public. The Local Development Planning Board (‘Bappeda’) of the provincial administrative level (Province) and of the district and municipal levels should be the institution that undertakes such coordination.ARTICLE IN PRESS 352 T. environment and land use. Urban spatial plans should be made accessible and available to the public. There has been almost no negotiation process to build up consensus among various parties and stakeholders involved in urban development. The land development permit system is intended to serve as a tool for controlling land-use development. but it is closely related to poor urban development management. regarding fiscal decentralisation in Indonesia. Major issues of urban land development policy Land use regulation is a basic instrument for creating land values and shaping urban physical growth (Menezes. as has been the case in many cities in Indonesia. Due to these problems. There is a ‘tug-of-war’ between central government and local government with regard to land management. as has been the practice until very recently (see Archer. 39. and it does not grant exclusive rights for land acquisition. the central government should focus on the broad urban land policy framework and cede the implementation of urban land development to the local authorities. education. Coordination of urban land-use development at the local level is very important. has not been followed with the appropriate regulations concerning implementation procedures. in order to motivate them to actively participate in urban land development controls. dominated by initiatives of both central and local government. should have greater discretion in deciding what is best for the urban and regional development in their own areas. and the private sector should play a larger role (Firman. including the land development permit and the building permit. Accordingly. It is in danger of making the regulation and management of urban land-use development in Indonesia even more inconsistent and confusing. 2002). public works. 2000). This obviously cannot be fully imple- mented by the local government. see also Payne. in 2001 the central government issued Presidential Decree 10/2001 which prohibits local and provincial government to issue any regulation pertaining to land-use development. However. 1992. 2002). This is a common problem of urban development planning in developing countries (Mills. religious affairs and national economic planning and administration. health. However. Indonesia’s new legislation regarding regional autonomy stipulates that the central government will deal only with fiscal and monetary affairs. land development permits have been considered as an . This was a largely top-down process in character. District (Kabupaten) and city (Kota) governments are authorised to implement programmes in agriculture. instead of trying to provide a detailed physical design of the city. as the Law 22/1999 regarding regional autonomy clearly states. It is understandable if the initiatives are still focused on problem solving at the community and small area levels. Obviously this decree is contradictory as it goes against the spirit of the legislation of 22/1999 and should therefore be revoked. 1988). The capacity of local government should be strengthened by improving the capacity of local human resources that are capable of managing the urban land-use development. international affairs. Laws 22/1999 and 25/1999. local government should have more authority in decision-making on land-use development. As Soemarno (2002) correctly argues. Winarso and Firman. Nonetheless. state clearly that the local government and local communities through local representative councils (DPRD). given that they have little experience. the land-use development permits should now be granted by the mayor (Walikota) for municipalities (Kota) and by a head of district (Bupati) for Kabupaten.e. urban spatial planning in Indonesia neglected the public as a stakeholders. In the past. The problem with urban spatial plans (Rencana Umum Tata Ruang—RUTR) in Indonesia is that they are intended and designed to control urban development in great detail. To make matters worse. Law 24/1992. Therefore. i. some city governments in Indonesia have initiated a participatory urban development action plan. the land-development permit system in Indonesia is not a problem in itself. In the past the concealment of urban spatial plans has resulted in land speculation by certain groups with privileged access to urban plans. in which all stakeholders are involved as equal partners in the decision-making process. cooperatives and labour.

notably for small and medium developers. notably the provision of land to house the poor families. 2002). Therefore. There is also a need for comprehensive land taxation. This leads to the idea of land banking. and betterment levies in the urban land taxation regulatories in Indonesia. not much can be expected from the private sectors in land development. including Taiwan and Korea and have also been initiated in Indonesia. including: first. However. as well as suppliers of construction components are also of importance. for instance donation of the land for the public road according to the official plan (RUTR). whereas most of the land does not have formal title. Competent construction industries. but until now little progress has been made. Land-owners need to be ‘share holders’ in the projects being carried out by developers on their lands. Programs to improve the living conditions of slums and squatter areas. third. 2001). However. land increment tax. Land taxation instruments have not been effectively applied to control land utilisation in Indonesian cities. Considering the sizeable areas of ‘idle land’ on the fringes of large cities. 1987. there is a need to establish a mechanism for land transfers that can take ownership of the land from the owners. Menezes. groups of land parcels are consolidated for subdivision into a layout of building plots. streets. Without land-title ownership property owners cannot use their land as collateral to apply for loans from banks or other financial institutions (see also De Soto. as many argue? (see Sumardjono. the community and government in urban land-use development. permits should be issued in stages according to the achievement of developers.0 million non-forested land plots (16. is considered . the efficiency of land use. might still be necessary. the greater the land and property taxes one has to bear. 1989. as a means of urban development control. Urban land policy should not be separated from urban housing policy. Using such methods. This is the essence of a partnership between the private sector. De Soto and Litan. Perhaps it is worth raising a related question at this point: should the regulation of maximum land size ownership be applied and strictly enforced. and potential use value and market value are largely ignored in these. land pooling and land readjustment methods could be applied. These methods have successfully been implemented in several East Asian countries. The presence of private developers is a necessary condition for urban development. can be divided into formal land markets and informal land markets. Firman / Land Use Policy 21 (2004) 347–355 353 obstacle instead of a catalyst to land development. permits may have to include several conditions. databases for taxation purposes is outdated. a land-use and circulation plan for both districts and municipalities that indicates the proposed land-use zoning. creating a disincentive for individuals to control unnecessarily large areas of land and speculative land trading. financial institutions should be available to provide loans for such operations. as the informal land market becomes transformed into a formal land market. with the sale 2 As Archer (1993) argues there are potential benefits of land development permit system in Indonesia. This is an irony. 2000. 26–29). 26–29). services and the infrastructure provided by the government. Meanwhile. and for low cost housing (pp. 1993.ARTICLE IN PRESS T. Land consolidation. network of main roads and distributor/collector roads. One of the problems of urban land development and management in Indonesia. Land development permits. However. However. The project costs and benefits are then shared among the land-owners (see Archer. as in most developing countries. 1996).5 million out of 54. the private sector has dominated land development. is the lack of adequate data and information on land affairs for planning and decision-making as well as for public services. The more land one has. second. Such a regulation is unlikely to be an effective instrument in preventing the trend of concentration of land ownership in large cities in Indonesia. as in many developing countries. since over the past two decades. but the system should be revised. which takes into consideration the socio-economic and environmental impact of land development. location value tax. The government of Indonesia has planned to set up a land banking system (Kasiba: ready for built areas) in Indonesia since the late 1980s. there should be in-depth assessment of the possibilities for implementing the land value tax. Therefore this measure should be taken only with a great caution. providing land-title ownership to the poor households could result in their land being bought up by higher income groups. 1994. in which most of the private sector has been hit hard. Likewise. as well as reviews of permits granted in the priority areas to monitor the quantity of land purchased by developers as well as the progress of land development in general (pp.5%) had been registered by the mid-1990s in Indonesia (Harsono. to which the nontitle ownership land of the poor households belong. it is necessary that legal assurances for the operation of the private sector be developed. What is needed is progressive land-ownership related tax regulatories. Land markets in Indonesia’s cities. 1988). and therefore should be encouraged.2 In addition there should be an assessment of urban development conditions to identify the priority development areas. it seems an appropriate time for the government of Indonesia to establish a public land banking system. and open spaces. permits should be granted primarily with reference to urban spatial plans (RUTR) and only with a realistic development plan. such as Kampung Improvement Programs (KIP). of some of the plots for cost recovery and the distribution of other plots back to the original landowners. It is estimated that only 16. In this respect. in a time of prolonged economic crisis.

. As the new legislation on regional government in Indonesia reserves greater autonomy to local government to manage their own development. Archer.. R.. an inflexible land regulatory and framework. 1994. The role of government in urban land development should change. the local government should play a very important role in urban land development in their jurisdiction. Poor land administration has resulted in high transaction costs and land disputes. Brennan. there is a need for improved the coordination and communication of the many institutions involved in land administration. Habitat International 18 (4). Human Settlement Division. Market mechanisms alone are unlikely to be able to achieve this primary objective. 1993).. Land management for Jabotabek urban development. Land taxation instruments have not been effectively applied to control land utilisation in the cities. Archer. Newbury Park. 1997). An Outline Urban Land Policy for the Developing Countries of Asia. Urban Management Program. Urban land-use planning in Indonesia in the past was essentially top-down in character and largely neglected the public as a stakeholder. 1994. inappropriate land taxation. Land use considerations in urban environmental management. In: Kasarda. 1987. E. and adequate data and information on land affairs are lacking. Judging from the mistakes of the past. administration and planning are needed to assist these market mechanisms to work effectively. de Soto and Litan. 1997). 1989. . Urban land consolidation for metropolitan Jakarta expansion. 1996). Washington. 307–332. 2000. References Arcadis Euroconsult. Tanzania (Kironde. given the lack of capacity of local government in land management. Ministry of Agriculture. land-use regulation and planning. R. and the lack of urban land data and information. Third World Planning Review 9 (3). The central government should focus only on the broad policy framework of urban development. These organisations are notoriously fragmented and perform land registrations largely for their own interests. 1993. from that of the authority to the administrator.. to plan and manage urban land. 37–52. 1990. permits should be granted primarily with reference to the urban land-use plan (RUTR). The private sector played a dominant role in urban land development in Indonesia in the past. land development institutions.ARTICLE IN PRESS 354 T. Land Administration Project: Hot News. (Eds. In short. 1990/2010: improving the land conversion process for Jakarta’s urban expansion. 38. see also Koppel. Bangkok.. One of the challenges is that there are many institutions that deal with land administration in Indonesia. Archer. The possible use of urban land pooling/readjustment for the planned development of Bangkok.D. 1998. However. A. there is a need to establish financial institutions that can provide financial loans. R. the role of the private sector in urban land development in Indonesia will become very important. Transferring the urban land pooling/readjustment technique to the developing countries of Asia. A further problem is that land administration in Indonesia is still too management-focused. 235–253. lack of secure land tenure. This is a difficult problem to resolve. R.M. 1993. Asian developing countries (Menezes. R. notably for small and medium developers. Another problem is that each agency has its own information system and the lack of an efficient exchange of information between the institutions has resulted in an inefficient land information system. and Ministry of Forestry. J. the government should control private-sector involvement in urban development. should the crisis pass in the near future. however.M. World Bank. particularly in rapidly growing areas such as on the fringe of Jakarta. Division of Human Settlement—Asian Institute of Technology. Zimbabwe (Rakodi. 1990–2010. These include the Land National Agency (BPN). In order to facilitate privatesector participation. and public and private sector participation in land supply and development. while the intervention of central government decreases. Third World Planning Review 11 (3). the private sector is unlikely to be interested in investing for land development. Land development permits. as a means of urban development control might still be necessary. Research Report No. Under the current economic crisis.). DC. Archer. 2 June.. The key issues of land development in Indonesia include poorly coordinated urban land management. 1987). National Coordinating Agency for Surveying and Mapping (Bakosurtanal). land taxation. notably the Municipality (Kota) and District (Kabupaten) planning board (Bappeda). Firman / Land Use Policy 21 (2004) 347–355 more effective than providing land-title ownership to the poor households in the area (see Doebele. Third World Cities: Problems. Policies and Prospects. but it needs controls. capacity of local government. Bangkok. infrastructure provision and development.D. 1988. in order to fulfill this function. J. CA. property rights. Parnell. India (Sivam.. and the local government. Sage Publications. 2002). Archer. 74–91. However. These issues are similar to those in other developing countries. Urban land and housing issues facing the third world. Conclusion The ultimate goal of urban land policy is to make urban land utilisation efficient and to make the control of urban land effective so as to improve the equity of urban land market outcomes. as exemplified in the case of Kenya (Olima. Asian Institute of Technology. Jakarta. therefore urban land regulations. Bernstein. 2002). The scope of urban land policy should include. pp. needs to be improved. but not be limited to. and Latin America (de Soto. Nevertheless.

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