What is SHM: Definition, Advantages, and Disadvantages of Ownership Certificates

When planning to buy a house, whether through cash or credit, there are many factors to consider. One of the most important is the ownership status, which is defined by the type of property certificate. SHM, or Certificate of Ownership (Sertifikat Hak Milik), is the strongest and most secure proof of property ownership in Indonesia.

So, what does SHM mean? Below is an explanation of the definition, advantages, and disadvantages of owning a property with SHM in Indonesia.

What is SHM?

Certificate of Ownership (Surat Hak Milik) is an official document issued by the National Land Agency that certifies legitimate ownership of land and buildings.

This is outlined in Law No. 5 of 1960 on Basic Agrarian Principles and further regulated under Government Regulation No. 24 of 1997 on Land Registration. SHM is recognized as the highest and strongest proof of ownership, granting the owner full rights to use, manage, and transfer the property as inheritance.

It’s important to note that SHM is just one of several types of property certificates. Besides SHM, there are certificates like Right to Build (HGB), Right to Cultivate (HGU), and Right to Use, which come with specific limitations and are not as strong as SHM. Understanding the type of certificate is crucial when purchasing property.

After learning about the definition of SHM, let’s explore the advantages and disadvantages of home ownership in Indonesia.

Advantages of Owning Property with SHM in Indonesia

1. Long-Term Asset
   Properties with SHM certificates are stable investments with values that typically increase annually, particularly in Greater Jakarta and other major cities.
   
   According to data from Bank Indonesia's Residential Property Price Survey (SHPR), residential property prices in the primary market continued to rise in the first quarter of 2024, with the Residential Property Price Index (IHPR) growing by 1.89% year-on-year (yoy). This growth is higher compared to the 1.74% yoy increase recorded in the fourth quarter of 2023. This data indicates that owning residential property is a safe form of investment.
   
2. Avoiding Unstable Rental Prices
   Owning your own home protects you from yearly rental price hikes. Unstable rental prices tend to occur in big cities, often disrupting long-term financial stability and impacting the stability of life.

3. Freedom to Design and Renovate
   Purchasing your homes with cash or credit with SHM gives homeowners full rights to their property, to design, renovate, or expand their property without needing third-party approval. This in itself is a luxury for the homeowners.

4. Financial Security in Retirement
   Owning a house provides significant financial security during retirement, reducing the burden of rent or generating passive income. 

Disadvantages of Owning Property with SHM in Indonesia

1. High Maintenance Costs
   Homeownership comes with responsibilities like routine maintenance and repair, which can become expensive depending on the property type.
   
2. Loan and Mortgage Interest Burden
   Many people use home loans (KPR), which often have high interest rates, creating long-term financial obligations that may disadvantage homeowners with unstable economic conditions due to risk of high inflation.

3. Impact of Regulatory and Tax Changes
   Before purchasing a home with cash or credit, it is essential to take property taxes and other regulations into account. For instance, Land and Building Tax (PBB) are subject to regular adjustments, and new regulations may add financial burdens especially for those in urban areas.

Owning a home in Indonesia offers stability, investment potential, and benefits that can be passed on to future generations. However, carefully considering the type of property certificate and other financial aspects will help ensure a sustainable and informed decision when buying your dream home.

Ready to take the first step to owning your dream home? Make sure you have all the correct information for your dream property before moving forward with your purchase