Posted 7.02. 2018 by Cekindo / Last update on 26.09. 2018
Staying in Indonesia for a long period will make you consider acquiring your own property in Bali. To obtain a piece of real estate as a foreigner living on the island is, however, rather a complex task due to the restrictive policy enforced by the Indonesian government. So is renting the best option or are there any other alternatives?
Renting is probably the simplest form of property usage. It brings some advantages but also risks at the same time; there are certain points the future tenant should take care of before signing any agreement.
Namely, the future lessee and the lessor should understand in much detail as possible their rights and duties. That way, they can avoid any potential disputes in the future. Non-Bali residents could sign the leasehold agreement which could simplify all the procedure.
As this type of a contract does not fall within the competences of National Land Agency (BPN) the length of renting is not restricted and can repeatedly be extended but in practice usually does not exceed 25 years.
The Basic Agrarian Law No. 5 Year 1960 administer the legal system concerning land and property in Bali. Unlike the real estate markets in many western countries, the Indonesian law requires the owner of the land to be an Indonesian citizen. Having said that, it is impossible for a foreigner or a company with foreign investment to become an owner with full rights that come with it.
There are, however, alternatives to the full ownership, so-called freehold, that can be taken advantage of. The most common way how to acquire a property in Bali is via PT PMA (Foreign Investment Limited Liability Company) the only form of company ownership open to non-Indonesian nationals.
The legislation dealing with real estate recognizes several documents that regulate the rights of their holder. Those that a foreign individual could take advantages from include:
Hak Guna Bangunan (HGB) certificate entitles its holder to build property on land that it is issued for. It is valid for 30 years and can be extended afterwards for another 20 that gives in total a 50-year-long period during which the property built on the land is at your disposal.
Upon its expiration, the holder can re-apply for a new certificate once again under the same conditions. In addition, HGB certificate is recognized by banks and the property it is related to can be used for a mortgage and other securitization purposes. The holder of HGB is free to sell or exchange the property and if bought by an Indonesian citizen, he or she may convert it to full ownership as well.
The Right to Build is granted by the National Land Agency (BPN) and a foreign national can apply via ownership of PT PMA or if he or she is in possession of a valid stay permit (KITAS or KITAP). This is the most common and recommended way of how to build one’s own piece of property in Bali.
Hak Pakai (HP) is a form of a long-term lease. Foreign national can use the HP land certificate for the purpose(s) both parties agree on. The title is granted for an initial period of 25 years with possible extensions that do not exceed 80 years in total.
Companies with demand on a piece of land usually used this certificate for manufacturing activities. Further, international organizations this advantage for social, religious and other events. You cannot, however, deal with banks or other financial institution as there are no other rights besides the right to use the land and/or facilities connected with this certificate.
HP can be granted to a foreign citizen by a local individual or the government. An owner of a foreign-owned company, PT PMA, or a residency permit holder (KITAS or KITAP) may apply.
Hak Guna Usaha (HGU) allows its holder to use a piece of land for agricultural and farming purposes. The title is valid for 25 years and you can extend the title for another 35 years. Establish PT PMA company will enable you to exploit this right.
This relatively new government regulation allows foreigners to own a unit, an apartment or office, in a multiple story building without being the owner of the land the property is built on. The validity of the title may vary depending on the land the property stands on.
Please note that there are other forms of ownership such as Hak Milik (Right of Full Ownership), Hak Sewa (Right to Lease) and Hak Pengelolaan (Right of Management) that cannot be currently obtained by foreigners.
After living in Bali for a while and being acquainted with many locals, some expatriates decide to buy a property with the help of one of their new friends. Purchasing a property in the name of an Indonesian citizen is, however, risky. Even though the foreigner would sign an agreement with the local nominee, such document has no legal force and the only owner remains the person with Indonesian citizenship.
If such a lawsuit gets to a court, Indonesian litigant’s full ownership would be confirmed. Otherwise, the government will seize the land due to illegal contract signing on behalf of a foreign citizen.
In addition to the information mentioned above, a foreigner can acquire land or property in Bali even without establishing a PT PMA. However, there is a requirement that he or she is a holder of a valid residence permit (KITAS or KITAP). The difference between these two options is significant.
Basically, the permanent residents in Bali can purchase property or land for residential purposes only. It is subject to a minimum value in Bali; 3 billion IDR (225,000 USD) for a landed house and 2 billion IDR (150,000 USD) for an apartment. Nevertheless, if one is about to buy property for investment or business purposes then the establishing PT PMA is inevitable. In both cases, professional services provided by Cekindo can help you to obtain either the permanent residence in Indonesia or to establish the discussed company with foreign capital.
Anyone trying to buy property in Bali will most likely feel overwhelmed by the volume of regulations and enormous bureaucracy. It might be difficult to keep yourself independently up to date with all the requirements. Therefore, you will need professional assistance from a consulting company such as Cekindo. So what are the common mistakes during the process of purchasing a piece of property that can place your investment at risk?
One of the most important steps is to undertake proper due diligence research before making any financial commitment. To buy property without its background check is always a risk. You should be sure that it does not have an ongoing lawsuit, unpaid taxes or other issues.
Relying on untrustworthy nominee can turn purchase of your dream property into a nightmare. It is wise to consider the involvement of a local person very carefully.
Becoming the owner of property in Bali, you must not stay out of the country for more than one year. In the opposite case, the government has the right to confiscate your property without any compensation.
A foreigner who is about to marry or who is already engaged with an Indonesian citizen should draw up a prenuptial or postnuptial agreement in order to divide his or her and the spouse’s assets. Failure to provide the agreement may result in seizure of conjugal property by the government.
The foreigners in mix marriages do not always realize that the only legal owner with Hak Milik, Right of ownership, can be the Indonesian wife or husband since foreigners must not own properties even after entering wedlock. This issue may arise if the marriage ends in divorce.
Buying property in Bali could be a great decision and lucrative investment if approached correctly. That is why you should always seek professional legal assistance to avoid any disappointment or frustration.
Our teams in Jakarta, Bali and Semarang are fully to your service. If you have any further question, send us an email or give us a phone call at +6221 30 061 585 (Jakarta office) or +62 361 209 0299 (Bali office). Cekindo will be happy to answer all of your questions.