Buying real estate in Bali
Indonesia is a dreamland for foreigners. Thanks to its tropical climate, its paradise beaches, its unique fauna and flora, and its thousands of islands to visit, the country attracts many expatriates. Estimates suggest that there are about 350,000 expatriates throughout the country, but most of them are located around Jakarta. Bali, the island of the Gods, is another Indonesian haven that is very popular with expatriates. It must be said that the lifestyle in Bali is quite pleasant, even without taking into account the breathtaking beauty of the island.
In short, there are many reasons for an expatriate to buy a small piece of land, a house, or an apartment in Bali. However, the vast majority of them prefer to rent a residence rather than buy a property there. The reason behind this lies in the Indonesian legislation regarding land ownership. If it is possible today for a foreigner to enjoy a property in Bali or elsewhere in Indonesia, it remains, in most cases, a very complicated process.
For many years, local legislation prohibited foreigners from buying land or buildings in Indonesia. But by the end of the 90s, the situation somehow changed with the enactment of new laws that allowed expatriates to buy a house or an apartment. However, this is only limited to properties where the land on which the purchased building is located is not part of the sale contract.
New laws came into force in 2010 and 2015, this time allowing expatriates to lease land for a period not exceeding 80 years. However, these laws remain unclear and are subject to many interpretations. Moreover, the conditions attached to the granting of a lease to a foreigner are rather strict, not to mention that the administrative procedures are also long and complex.
Bear in mind that the law governing property in Indonesia is Law Number 5 of 1960. This law clearly states that only Indonesian citizens can acquire a Hak Milik, the local term for freehold land title. The severity of this prohibition is such that paragraph 5 of this law states that even Indonesian citizens who hold another citizenship are treated the same as foreigners and must renounce their other citizenship in order to become property owners in their own country.
What are the options and conditions for buying real estate in Bali?
Even if, as we explained before, buying property in Bali can be complicated for foreigners, you can still enjoy property on the island of the Gods without owning it.
First, be aware that Indonesia has two types of property rights, namely the "right to own" (Hak Milik), which we have already mentioned, and the "right to build" (Hak Guna Bangunan). Like the Hak Milik, the Hak Guna Bangunan is prohibited to foreigners.
As of 2015, expatriates residing in Indonesia are allowed to rent land or a residence on a long-term basis but subject to certain conditions. The government has changed the legislation in this regard in order to further encourage foreign investment and promote national growth.
Therefore, while the Hak Milik remains inaccessible to those who do not have Balinese citizenship, two other legal terms have been added to the existing legislation, the Hak Guna Bangunan and the Hak Pakai. Here are the meanings of these two terms:
- Hak Guna Bangunan allows you to build and enjoy your property for up to 80 years.
- Hak Pakai gives you the right to buy and use your property for 25 years, with an option to renewup to 70 years, to live in it, or to turn it into a rental property, either through leasing or subleasing. As the lease is long-term, you can use it as an office, transfer it to a family member or sell it to an Indonesian citizen. However, this type of lease requires an initial investment which includes all the rents, payable in advance.
Under the new law, expatriates can purchase land or a house under the Right of Use category for a period not exceeding 30 years. After the expiration of the initial period, it is possible to renew the right of use contract twice, the first time for the same period of 30 years and the second time for 20 years. If you opt for this solution, you will be renting a property in Bali for a maximum of 80 years.
There are also other options for those who wish to acquire land in Indonesia. For example, you can choose to appoint a local representative to act as your partner in your land transactions. This can be an interesting solution, as only Indonesian citizens can legally own property in Indonesia. However, such partnerships can quickly turn against the expatriate. There are many cases where the Indonesian partner incurred debts leading to the seizure of the respective asset. There have also been reports of outright extortion.
Another way for an expatriate to become a property owner in Bali is to set up a company in Indonesia. As a foreigner, you will need to set up a company called PT PMA. This is, simply put, a limited liability company founded by foreign capital. The requirements for establishing a PT PMA in Bali are as follows:
- The company must have a minimum capital of IDR 10 billion, with paid-up capital of at least 25%
- of this amount.
- The company's shares must be owned by a minimum of two persons or legal entities.
- Founders must first sign a deed of establishment before a notary. The deed of establishment must contain all the required identity information about the founders, but also about the members of the board of directors and the shareholders, whether they are individuals or companies.
Such a procedure may seem cumbersome at first glance, but it is a safer solution than partnering with a local citizen. In this particular case, the property in question will be placed under the company's ownership.
The types of land available to foreigners through the acquisition by a PT PMA company are, however, limited to certain categories. It is therefore recommended that you find out what type of classification the local legislation places the land you are interested in before you proceed.
Foreigners married in Indonesia to Indonesian citizens may also be eligible to own property in Indonesia. It is important for you to know that, in any case, there are strict conditions attached to the purchase of real estate by a foreigner in this country. For example, you will need to be a holder of a KITAS (a limited residence permit in Indonesia), and that you can only purchase individual houses or apartments.
Moreover, the Indonesian government has established a minimum amount of local property value that can be purchased by expatriates. This minimum amount will vary depending on the region and different geographical areas. In the Jakarta area, for instance, the value of your property cannot be less than IDR 10 billion (673,000 USD), while in Bali, the minimum is 3 billion (202,000 USD).
Real estate prices in Bali
As far as real estate costs in Bali are concerned, be financially savvy, as price variations can be extreme. For a high-end beachfront villa in a tourist area, be prepared to pay almost the same price as in western countries. Before the COVID-19 pandemic, a 2-bedroom villa on a 250 m 2 plot in Seminyak or Canggu would cost around 600,000 USD, compared to 350,000 USD in Jimbaran or Nusa Dua and a little less in Denpasar, around 300,000 USD.
Following the COVID-19 crisis in Indonesia, real estate prices in Bali have dropped slightly, and several companies have made efforts to attract potential investors. Some real estate developers, such as Realtek Bali, are now offering villas at USD 95,000 across the island.
Who should you turn to when buying property in Bali?
To navigate the complex and ever-changing real estate laws, it is advisable to hire a reliable real estate agent.
Some of the most reputable ones include:
- Kibarer
- Emerhub
- Ray White
- Elite Havens
These agents have extensive listings of properties for sale or rent in Bali and will assist you with the legal aspects. They will make sure that the property is legally fit to be sold or rented. This last point is extremely important, as, in Bali, real estate is often family property, being inherited and shared between different family members. You also need to make sure that the person who is negotiating the transaction has the legal right to do so to avoid any problems in the future.
Although a real estate agency is a paid option, you are assured of being protected during all stages of the transaction.
