Buying property in Bali – Laws & regulations

Buying property in Bali – Laws & regulations


Laws & Regulations for foreigners
to purchase a property in Bali/Indonesia

There are various ways to acquire property in Indonesia and enjoy full beneficial rights to the property. In any case, we recommend that buyers seek impartial and independent advice from an accredited legal firm specializing in property acquisition. There are a number of law firms on the Island and our office staff will guide you in the direction of the most appropriate legal partners.

Be wary of real estate firms who offer ‘legal services’. Their primary objective in offering those services may be to sell you something quickly and cut corners.

Indonesian law recognizes different rights on land depending on the status of the titleholder. Only individual Indonesian citizens – not companies – are entitled to own land with freehold status (“Hak Milik”). Indonesian companies, domestic or foreign owned, as well as foreign individuals are entitled to leaseholds, rights of use, rights of exploitation or rights to build.

buying property in bali indonesia

Buying  property in Bali: In practice, there are four different ways for foreigners to acquire property in Indonesia:

1) A popular method is to enter into a legal contract with an Indonesian citizen (‘nominee’ as they are referred to), whereby he/she holds a freehold title to the property but signs over practical control to the foreigner through power of attorney to sell the land and a loan agreement with the property pledged and secured as collateral.

2) Forming a foreign investment company (“Penanaman Modal Asing”, PMA) is the preferred choice of those intending to operate a business in Bali. A foreigner can fully control a PMA company and the title of the property will be in the company’s name in the form of a right to build (“Hak Guna Bangunan”, HGB). The HGB expires after 30 years and can be renewed several times. However, there are tax implications to be considered and the Department of Trade will review PMA companies after 30 years so it may be necessary to re-apply for the PMA license.

3) The Government has recently introduced a right of use (“Hak Pakai”) title for foreigners. This title ‘floats’ over a freehold title in the name of an Indonesian citizen and is granted for an initial 25 years term and for KITAS holders (temporary stay permit) an initial 80 years term. It can be extended up to three times adding up to a total tenure of 100 years for non KITAS holders. A foreigner is entitled to only one “Hak Pakai” title for a property not exceeding a certain size. The “Hak Pakai” is transferable or renewable if sold to another foreigner.

4) Acquiring the leasehold (“Hak Sewa”) of a property is a straightforward approach for a foreigner. At the expiry of the lease, the property reverts back to the Indonesian owner with all structures built on it. This method is popular in commercial property situations where a return on investment can be achieved within the lease period, but less popular with individuals who wish to make longer-term investments. Lease periods vary and extensions are often agreed in advance; 20-30 years is a common lease period in Indonesia.

The 5 Step Process of Acquiring Property in Bali
1) Find your dream property(s) for North Bali on our website www.bali-property-real-estate.com and request a property inspection.

2) Visit your favorite property a minimum of three times and with assistance of your agent ask the questions that need to be asked.

3) Once we have negotiated the very best price for you and both buyer and vendor have agreed on the terms and conditions of the deal, the buyer normally engages a notary or lawyer to initiate due diligence with regard to the authenticity of the title and to make sure that no encumbrances, mortgages or other liens are attached to the property.

The notary will also make sure that it is possible to build on the property, verify access, and any other issues related to the property including the settlement of all outstanding government taxes. Fees for due diligence vary. Notaries/lawyers either charge a fix amount which could be between USD 1.000 to USD 3.000 depending on the complexity of the deal or include the cost for due diligence in their overall fee to secure the property for the buyer.

4) If the buyer decides to proceed with the acquisition of a property a Sale and Purchase Agreement (“Akte Jual Beli”) is signed and notarized. Until full payment is made, the notary holds the land title on escrow. Once the vendor has received full payment the title is transferred to the new owner. Typically the notarial fee would vary between 0.75% – 1% of the actual transaction value. There is no rule as to which party has to pay the notarial fees, however, the foreign buyer mostly ends up paying the fee as he opts to choose the notary. Both buyer and owner have to pay 5% government transfer tax, which is based on the government designated value of the property (“Nilai Jual Obyek Pajak”, NJOP) and which is substantially below the market price.

5) The transfer of titles may take about two weeks once the notary is in possession of the land certificates and has concluded due diligence. All our offices have escrow accounts allowing monies to be safely held prior to disbursement.

 PROPERTY LAWS AND CONTRACTS 
The most frequently asked questions, concerning property and ownership rights in Bali.
As the legal situation changes with every government, we give you an overview of the legal situation, and the most used regulations by foreigners, as of today, the year 2003. As there are national elections in 2004 (spring), it remains to be seen, whether the today applied laws stay the same, or –what one would expect from a modern government, trading with western countries – opens further up to the possibility of foreigners owning land (up to a certain size) in their OWN NAME.
Can a foreign person or other foreign entity legally purchase property in Indonesia?
The Indonesian government issued Law 5 of 1960 on the “Basic Regulation Of Land in Indonesia”, which came into force on 24 September 1960. This law explicitly and implicitly revoked many older laws. As a result, it can be said that UU 5/1960 established revolutionary new rules and principles concerning rights in land. This law recognized and regulated several rights over land and houses, including the:

Right of Ownership (Hak Milik), Freehold
Right to Cultivate (Hak Guna Usaha), 
Right of Building (Hak Guna Bangunan),
Right of Use (Hak Pakai), 
Right of Building Lease (Hak Sewa Atas Bangunan).

HERE THE IMPORTANT LAW, THAT APPLIES TO YOU AS A POTENTIAL LAND OWNER :
Documents drawn up at the Notary. 

There are 4 documents needed:
One describes that the foreigner gives money to the Indonesian name holder to buy land and property and the Indonesian gives this land and property to the foreigner to use it, out of his free will. The document also describes that the name holder gives the foreigner permission to sell, to rent it out or rebuild the house or property. It states that the agreement, if necessary, passes automatically to the heirs, as well of the foreigner as the name holders. It states that all of the property costs (electricity, water and taxes) have to be paid by the foreigner. The official land title or ‘Sertipikat’ will be in the foreigners possession as well as the statement of cession, signed by the name holder. Only with this ‘Sertipikat Hak Milik’ it is possible to sell the land. In the second document, selling of the property is granted to the foreigner. The name holder gives his explicit permission to do so.
In the third document the name holder gives permission to rent out the house or property.
The fourth document commits the name holder to co-operate, if the time ever comes that foreigners can own land and property in Indonesia, in making the foreigner being the new name holder on the ‘Sertipikat’. In case the law changes in the disadvantage of foreigners, the name holder will co-operate in changing the agreement into a lease-contract of 50 years with option for another term. We have such contracts running, and we can help you to draw them up. We can also translate existing contracts and help you to find the right partner, a trustworthy Indonesian, for you.

Choose the right Indonesian Partner to “own” your property or land. This may take some time and asking around. Talk with foreigners in your area, TO GET ADVICE (AND PEOPLE RECOMMENDED). Properties can be owned by companies like a PT or a PMA. A PT is an Indonesian “Limited”, a PMA is a foreign investment company which can be owned 100% by foreigners. The PMA property license has to be renewed every 20 or 30 years. Setting up a PT costs about 10 million Rp, a PMA around 40 million Rp. The foreign PMA members are entitled for work permits and residents permit in Indonesisa. In order to FOUND a PMA, you (or the company) has to deposit at one given point in time 150 000 USD on a bank account in Indoesia. This money can be used to purchase land, or to build, or to buy equipment, and DOES NOT have to stay on the account.

Right of Ownership is the most comprehensive and complete form of individual rights over land. There is no time limit, and the holder has the right to use the land, including the earth underneath and the water and air above. It does not, however, include the right to obtain wealth from resources underneath the earth. Right of Ownership can be held only by Indonesian citizens.

The Right to Cultivate is the right to cultivate State-owned land or to use it for other agricultural purposes for a certain period of time. There are two kinds of Right to Cultivate: for farming enterprises that are smaller than 25 hectares and for enterprises that are 25 hectares or more. Government Regulation 40 of 1996 on the Right to Cultivate, Right of Building, and Right of Use (“PP 40/1997”) states that the period for Right to Cultivate is not to exceed 35 years initially but can be extended for another 25 years. When the extension period expires, the Right To Cultivate shall be renewed over the same land. The Right to Cultivate may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.

Right of Building is a right over land, either State-owned or private, with which the holder may erect and possess buildings for a certain period of time not to exceed thirty years (extendable for another twenty years). When the extension period expires, Right of Building shall be renewed. There are no limitations on the size of the holding. Right of Building may only be owned by Indonesian citizens and companies established under Indonesian law and domiciled in Indonesia.

Right of Use is a right over land, either State-owned or private, which gives the holder the right to use and obtain the product of a certain piece of land. The land to which Right of Use is applied may be used as a building site or for agricultural purposes. PP 40/1997 states that the initial period for Right of Use is not to exceed 25 years but can be extended for another twenty years or even indefinitely if the land is still in use for a certain reason. Right of Use may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia.

Right of Building Lease is a right to lease land, either State-owned or private, which gives the holder the right to use the land in return for compensation. The payment could be one-time or periodical as determined by mutual understanding between the parties. Right of Building Lease may be owned by Indonesian citizens, resident foreigners, Indonesian companies domiciled in Indonesia, and foreign companies that have a representative office in Indonesia.

Property Rights of Foreigners The above mentioned law ( UU 5/1960) only allows foreigners to obtain Right of Use or Right of Building Lease. However, UU 5/1960 only provides very general information on how to obtain either of these rights, the maximum time period, or the legal assurances provided. As a result, many foreigners in Indonesia are not willing to engage in such transactions because they do not know the regulations or feel insecure with the regulations.

Renewal of rights on expiry of the initial term is via an application to the National Land Agency and is subject to payment of a fee. An application must be submitted one year before expiry of the term. Although the law is silent in regard to the period after the expiry of the extended terms, the consensus is that a land right can be extended if there has been no infringement of the conditions attached to its usage.

Procedures for Property Acquisition. All transactions of land rights must be via deeds executed before a land deed official at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located and must be registered in the regional office of the National Land Agency. The PPATs are privately managed offices (usually run by a notary) authorized by the National Land Agency to handle land acquisition matters. Although there is no regulation that contracts have to be in Indonesian language, it is recommended having contracts and agreements always drawn up and executed in Bahasa Indonesia (or two languages) to prevent later arguments that the local partner did not fully understand the content.

Our Fees

Our commission fees are amongst the lowest in Bali and are usually paid by the vendor. All properties prices we advertise on our website have our fees included.

If you need further detailed information regarding purchasing property in Bali / Indonesia, please do not hesitate to contact us:

Contact Bali Property Real Estate:
Company & Owner:  PT Bali Property Indah, Ni Kadek Monic Rustini
Owner: monic@bali-property-real-estate.com, Mobile: +62.82.144440629
Sales & Marketing: peter@bali-property-real-estate.com, Mobile +62.82.237490615
Office Email: info@bali-property-real-estate.com