Freehold Title (SHM) and Right to Build (HGB) are two essential legal documents related to land ownership and usage in Indonesia. These certificates are commonly encountered in transactions involving houses, land, and other types of property.
Although both are associated with land rights, SHM and HGB have several fundamental differences. Understanding these differences is crucial to help you make the right decision when purchasing or owning property.
So, what exactly sets SHM and HGB apart? Let’s explore the key differences in this BFI article.
Key Differences Between SHM and HGB
Before purchasing or owning property, it’s important to understand how SHM and HGB differ. While both relate to land rights, they vary in terms of ownership status, validity period, and legal strength.
By understanding these differences, you can make a more informed decision when choosing the right type of property ownership based on your needs and long-term plans.
1. Definition
The first difference lies in their definitions.
Right to Build (HGB) is the right to construct and own buildings on land that is not owned by the holder, for a specific period in accordance with applicable laws.
Meanwhile, Freehold Title (SHM) represents the highest and strongest form of land ownership in Indonesia. SHM holders have full ownership rights over the land with no time limit and without dependency on other parties.
2. Land Ownership Status
Another key difference is the ownership status of the land.
With HGB, the holder only has the right to build and use structures on the land but does not fully own the land itself. Typically, HGB land belongs to the state or is under management rights granted to individuals or legal entities for a certain period.
In contrast, SHM grants full ownership rights over both the land and its use. This means SHM holders can use, manage, transfer, sell, or inherit the property in accordance with the law.
3. Validity Period
According to Government Regulation No. 18 of 2021, HGB has a limited validity period of up to 30 years and can be extended for another 20 years. After that, it may be renewed again for a maximum of 30 additional years through the National Land Agency (BPN).
On the other hand, SHM has no expiration date. As long as the land is used in compliance with regulations and laws, ownership remains valid. This makes SHM more stable and often more valuable in the property market.
4. Market Value and Costs
Properties with SHM status generally have higher market value because they provide full ownership rights. They are also considered more secure, making them more attractive for property investment.
In contrast, properties with HGB status are usually priced lower due to their temporary ownership nature and limited validity period.
5. Legal Strength
SHM is the strongest and highest form of land ownership under Indonesian law. Owners have full rights to transfer, sell, or pass the property on to heirs.
HGB is still legally valid but ranks below SHM. It only grants rights to use land and construct buildings for a limited period, making it non-permanent compared to SHM.
6. Risk and Security of Ownership
From a risk perspective, SHM is generally considered more secure. Owners have full control over the property, whether for personal use, sale, inheritance, or as loan collateral.
On the other hand, HGB carries relatively higher risk. If the validity period expires and is not extended, the land rights may revert to the state or the original landowner.
7. Ownership Eligibility
SHM can only be owned by Indonesian citizens (WNI). This is because SHM grants the highest level of ownership rights, which are legally restricted to citizens under Agrarian Law No. 5 of 1960.
Meanwhile, HGB is more flexible. In addition to Indonesian citizens, it can also be granted to legal entities established under Indonesian law and domiciled in Indonesia, such as companies or property developers.
Can HGB Be Converted into SHM?
Yes, HGB can be upgraded to SHM as long as it meets the requirements set by applicable regulations. This process is known as upgrading land rights from HGB to full ownership.
However, not all HGB land can be converted into SHM. Generally, this is only allowed for residential land with a maximum area of 600 square meters and owned by an Indonesian citizen.
To apply for this conversion, property owners must submit a request to the local land office along with several required documents, including:
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Application form
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Power of attorney (if represented)
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Copy of ID (KTP and Family Card)
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Latest Land and Building Tax (PBB) document
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Land certificate (HGB, SHM, or Right of Use)
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Creditor approval letter (if the property is under mortgage)
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Building permit (IMB) or statement from local authorities for residential property up to 600 m²
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Statement confirming the land is not under dispute
Understanding the differences between SHM and HGB is essential before purchasing a house, land, or other property. By knowing how they differ, you can make more informed and confident decisions in property transactions.
It’s also important to understand your property certificate status if you plan to use it for future financial needs. In certain situations, assets like houses or shop-houses can serve as funding solutions without having to sell them.
Through financing services from BFI Finance, you can apply for loans using property certificates (house, shop-house, or office space) as collateral. You can also use your car or motorcycle ownership certificate (BPKB) as collateral.
BFI Finance is licensed and supervised by Otoritas Jasa Keuangan (OJK), ensuring that its services are safe and reliable.
So, when you need financial solutions by leveraging your assets, there’s no need to worry—because #ThereIsAlwaysAWay with BFI Finance.
