The urgency of implementing land management is triggered by the continued increase in the world’s population, thus the land that is static in nature must be able to provide the basic needs of its inhabitants. Responding to the world population explosion, many European, American, African and Asian countries are implementing land banking as land management. Land banking as an alternative to land management currently being implemented in many countries is not a new thing. As a land management instrument, land banking is a form of refinement and expansion of land management patterns that were applied in several European countries several centuries ago when these countries carried out land consolidation programs, especially in the agricultural sector such as in the United Kingdom (1710 – 1853), Denmark (1720) and Sweden (1749).

If the concept of land consolidation was initially used in the agricultural sector, land banking as land management is usually applied for land spatial consolidations, controlling land price fluctuations, streamlining land management, preventing non-optimal utilization and development of new urban planning. For this reason, if the stakeholders in the land consolidation applied in the agricultural sector are generally the government sector, the stakeholders can be either the government or the private sector when it comes to land banking.

These definitions of land banking essentially have the same substance as the definition formulated by Maria S.W. Soemardjono, which is any government activity to provide land that will be allocated for use in the future. Therefore, land banking has several functions, including:

1. land collectors or land reserves (land keeper);
2. securing land for various future development needs (land warrantee);
3. land controller (land purchaser);
4. distribution of land for various development purposes (land distributor).

Although the business models are very diverse in practice, there are at least 3 (three) parties directly related to the implementation of land banking activities, namely landowners, land banks and parties who will use the land. Land banking will get the land/building it manages from the original owner of the land, either from the private sector (private land owner) or the government sector (state land owner), then after the land/building is managed, a third party utilizes it, either a private institution (private entity) such as trade centers/malls, real estate companies, hospitals, industries, hotels, banking institutions and other business institutions, or the public sector, providing public facilities like roads, parks, urban forests, drinking water supply and so on.

Private parties who need funds or do not use their land/buildings can sell or rent them to land banks, then the land bank will manage the land/buildings and look for third parties/investors interested in buying or renting the land/buildings. If the land/building utilization pattern is in the form of a lease/contract, the period time is set for a certain period, for example, a maximum of 30 (thirty) years. If the land/building managed by land banking is obtained from the original owner (landowner) on a lease basis, then the lease agreement between the land bank and third parties/investors must have approval from the landowner if the lease term is more than 5 (five) years.

Should you wish to learn more about land banking in Indonesia, feel free to drop us an email at info@schinderlawfirm.com.