Developer bankruptcy in Indonesia: why buyers are not a priority
Developer bankruptcy is one of the most underestimated risks for property buyers in Indonesia. Many assume that if a project is not delivered, they can initiate bankruptcy proceedings against the developer and recover their money. In practice, the situation is far more complex.
PPJB and buyer status: why you are not a priority
The issue begins with the structure of the transaction. As long as the buyer only holds a PPJB (Preliminary Sale and Purchase Agreement), they are not considered the legal owner of the property. Instead, they have a contractual claim—a right to receive the property in the future. In the event of bankruptcy, this automatically places the buyer in the category of creditors rather than owners.
Once bankruptcy proceedings begin, Indonesian insolvency law (UU Kepailitan) determines the order of payments. Secured creditors—typically banks—are paid first. They are followed by preferred creditors, such as employees, certain company obligations, and government authorities. Only after that are unsecured creditors considered, which is where most buyers without registered ownership fall.
In practice, this means that any potential refund is distributed on a residual basis—only if there are remaining assets after higher-priority claims have been satisfied.
Court practice and bankruptcy procedure: limitations and risks
Court practice in these cases does not provide consistent protection. In some instances, courts refer to the need to protect “good faith buyers,” but this does not establish a stable legal priority. Each case is assessed individually, depending on the developer’s debt structure, the existence of collateral, and the stage of project completion. As a result, even similar cases can lead to very different outcomes.
It is also important to consider procedural limitations. Initiating bankruptcy proceedings is not as straightforward as it may seem. According to guidance from the Indonesian Supreme Court (SEMA No. 3 Tahun 2023), claims related to development projects are not always considered “simple to prove.” This makes bankruptcy an unreliable tool for applying quick pressure on a developer.
Even if bankruptcy proceedings are successfully initiated, this does not guarantee recovery of funds. Developers may have heavily encumbered assets, significant liabilities, and unfinished projects. In such situations, available funds are often insufficient to cover all creditors, leaving buyers in line with no assurance of compensation.
In essence, the core risk is not only whether the project will be completed, but what happens if the developer fails to fulfill its obligations. Even a favorable court decision does not always result in actual recovery of funds.
Signs of Increased Project Risk
There are several warning signs that may indicate elevated legal and financial risks in a project:
If a developer cannot clearly explain the legal basis of land ownership (such as Hak Milik, HGB, or Hak Pakai) or what rights will ultimately be transferred to the buyer, this is a red flag.
A lack of transparency regarding shareholders, beneficial owners, and company structure should also raise concerns.
Additional risks arise if the developer refuses to provide land agreements, proof of payment, or ownership documents.
Projects located in restricted or improperly zoned areas—such as coastal, agricultural, or protected zones—also carry higher risk.
Complex transaction structures, where agreements are signed not with the landowner but with third parties or affiliated companies, should be approached with caution.
The same applies if there is no clear information about project financing or if the development is entirely dependent on buyer funds.
How to reduce risks when buying property in Indonesia
Each of these factors alone may not necessarily indicate a problem. However, when combined, they can signal significant legal and financial risks. In such cases, additional due diligence is strongly recommended rather than relying solely on marketing materials or developer assurances.
Even developers with a successful track record do not guarantee reliability in future projects. That is why it is essential to assess the full picture before making a purchase.
This includes reviewing the company structure, verifying investor information, confirming that capital has been properly contributed, and ensuring that the land designation matches the intended use of the project. It is also critical to confirm that all necessary construction permits are in place. These are not formalities—they are key elements of a secure transaction.
Expert, Legal Department
Legal Indonesia
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