This is the first and most often asked question foreigners pose to us when considering investing in the Bali property market.
The answer is short and simple: Yes you can!
There are certain property titles or rights a foreign individual can indeed buy and own in Bali, namely leasehold and right to use titles. The acquisition of freehold titles is reserved to Indonesian citizens only. Full stop! Even 100% domestic owned companies can’t own freehold.
An exception to the above rule is the ownership of apartments. As a foreigner you can own an apartment but not the underlying land. However, this is rarely offered in Bali, as most apartments are sold as leasehold.
Alternatively, you may form a foreign investment company or so-called PT PMA and buy property under a right to build title. That’s an option, which is open for certain fields of business activities.
But let’s start by having a closer look at the laws governing foreigners buying property in Bali.
Legal Basis For Foreigners Buying Property In Bali
Property or real estate in Indonesia is governed under law No 5 / 1960 which is also know as the ‘Basic Agrarian Law’ and was promulgated in 1960. The law specifies a title called ‘Hak Pakai’ or right to use as the sole title foreigners may own. Besides, the law also grants foreigners the right to lease land.
Since then various government regulations and decrees have been passed regarding the right of foreigners to own property in Indonesia, particularly government regulation number 41 / 1996, which was replaced by government regulation number 103 / 2015. This regulation details the conditions for foreigners to own a ‘Hak Pakai’ title.
Land Titles
Under Indonesian Property law there are a total of 7 different land titles and ownership forms. The three main and most common titles are ‘Hak Milik’ or freehold, ‘Hak Guna Bangunan’ or right to build and ‘Hak Pakai’ or right to use. Land can also be sold as either Freehold or Leasehold.
We will discuss this in detail below.
Legal Actors
The most important legal actor in a land transaction is typically a notary that has a special license to act as a land agent on behalf of the government. Such notaries are called a ‘PPAT’, which stands for ‘Pejabat Pembuat Akta Tanah’ or ‘official to issue land titles’. Note that not all notaries have this qualification that is required in a land transaction. In remote areas, where there is no notary acting as a ‘PPAT’ a government official like the district head is also entitled to act as a ‘PPAT’.
Another important legal actor may be a lawyer to represent your rights and ensure that proper due diligence is undertaken before you sign and buy your property in Bali.
Taxes and Fees for Buying Property in Bali
When you buy a property in Indonesia under a leasehold agreement, you are tax exempt. In this case, the tax is paid by the lessor and amounts to 10% of the declared value of the lease.
However, if you are buying a right of use title, then you are subject to a buyer’s tax amounting to 5% of the declared value. The seller has to pay 2.5%.
The notary fee is typically 1% of the transaction amount. It is negotiable for higher value transactions.
The conversion of a title from say freehold to right of use will create additional costs, that your notary will inform you about before the transaction takes place.
In order to get a better picture, our guide on property taxes in Bali will point you in the right direction.
The Process of Buying Property in Bali
The process of buying property in Bali is straightforward.
Once you have obtained a thorough understanding of the legal framework governing foreigners owning property in Indonesia and you have found a property that you would like to buy, you need to engage with the seller to reach an agreement on terms and price.
This is best done in writing contact us to assist you with drafting a sale and purchase agreement. It is recommended that you pay a deposit of 10% to the account of a notary to secure the transaction and allow you to conduct due diligence.
Due diligence is the next step in the process. This is a check on the legal documents of the property, from title to permits, road access to physical inspection. We recommend that you use a lawyer and a builder to undertake this important step.
If all the checks are satisfying, you can proceed to appear in front of a notary and sign the final sale and purchase deed, pay your taxes and get the keys to your property.
Don't forget to protect your villa against the usual risks and take out an insurance policy from a reputable company.
Property Titles Available To Foreigners In Bali
Leasehold or Hak Sewa
This is the simplest form of property ownership available to foreigners in Indonesia. This form of ownership is not registered with the Indonesian land agency. Nevertheless, it is a solid form of ownership that is absolutely safe and sound for foreigners.
To buy a leasehold property all you need is a valid passport with a current stay permit. This can be a simple tourist or business visa or a residential permit.
You can buy as many leasehold properties as your money allows you to do. There is no legal limit.
Leasehold terms in Indonesia typically vary between 25 and 30 years. We have seen all sorts of leasehold terms, some even up to 99 years. The law actually doesn’t define a maximum term for leasehold. But following the spirit of the law, most notaries won’t do terms beyond the aforementioned length.
What is important is your ability to extend the lease once if comes close to the end of its term.
The typical leasehold template a notary will pull out from his drawer simply states that you have the right to extend your lease based on mutual agreement between the parties. This is not a very strong negotiating basis when it comes to securing your extension at any time, but particularly not towards the end of the term.
If you want an enforceable lease extension, the respective clause in the agreement needs to be drafted carefully. The best option is that you agree on defined payment terms for your extension and make those payments during the lifetime of your lease term.
To find out how to word your extension clause in a watertight way, contact our expert real estate agents.
In general, a leasehold agreement is rock solid and can’t be challenged in court even if the lessor or the lessee pass away.
Right of Use or Hak Pakai
A right of use title is the most valuable property title for a foreigner who would like to invest in Bali.
To qualify for buying such a title you need a temporary or permanent residential permit (called KITAS or KITAP) or a simple retirement visa for those above the age of 55.
You have the right to buy one such title on your name. There are certain restrictions when it comes to price and size of a property that you can acquire under a right of use title. Contact us to find out what the current rules are as they are somehow in flux.
It is important to note that you can only own such a title if there is a building on the land. Bare land is not permitted to be sold under this title to prevent foreigners speculating on land.
This title works very much like the right to build title that is reserved for Indonesian companies. It comes with an initial term of 30 years that you are entitled to extend by a second term of 20 years against a relatively small fee payable to the government. After the first 50 years, the title can be renewed again for 30 years, with the same extension of 20 years. And so on.
When you buy a right of use title, the original freehold title is normally given up and is replaced by the right of use title, which will bear your name. What makes this interesting is that upon selling your property to an Indonesian citizen, the title can get converted back to freehold. In this way you enjoy the same capital appreciation as if you were holding a freehold title.
Unfortunately, this very safe form of owning property in Bali is not well known.
Right to Build or Hak Guna Bangunan
This is a title reserved to Indonesian companies. It doesn’t matter whether the company is owned by Indonesian shareholders or by foreigners. If you form a foreign investment company, you need a minimum of two shareholders. The process of establishing a company is now very fast and efficient. Within days a notary will produce the necessary paperwork and you are ready to start business.
The right to build title works exactly as described above for the right of use title when it comes to terms and extensions.
If you want to find out more about how to establish a foreign investment company (called a PT PMA) and invest in property, please reach out to our team of real estate agents to get the latest information about this matter.
Policies are changing constantly, and what was possible yesterday may not be possible today.
FAQ
How easy is it to buy property as a foreigner?
It is easy if you follow the steps we have outlined above and don’t cut corners. Don’t be in a rush and take your time. Get good legal advice and local know-how before you decide to buy.
Can I buy property in Bali?
Yes you can buy either a right of use title if you have a residential permit or a leasehold property. Make sure you are working with a reputable real estate agency that acts in your interest. Find out about our exclusive buyer services where we guide you along exclusively as an agent to align our incentives together.
Conclusion
Buying property in a foreign country may be daunting at first. That’s why we recommend you to approach this in a systematic and not in an emotional way. Start with learning about the legal framework that governs foreign property ownership in Bali.
Talk to experts: real estate agents, lawyers & long time Bali residents. The more you know and the better informed you are, the less likely it is that you will regret your decision.
