Buy? - No way. Build? - For a while. The end =)
It's both a joke and not =)
RIGHT NOW, THERE ARE A LOT OF QUESTIONS FROM DEVELOPERS, BEGINNING BUILDERS, AND INVESTORS, ALL WITH CONFUSION ON THIS ISSUE. Really a lot. And it all comes down to one word - PURCHASE/SALE.
Well, we just can’t wrap our heads around it =)
What does purchasing real estate mean for a foreigner?
It’s just a word meaning literally: “an urgent acquisition of the right to use and manage a property”.
Urgent - means “has a term”. This term can vary - 10, 20, 25, or 30 years, but no more than 30 years under one contract depending on the acquisition scheme.
A land certificate always serves as proof of ownership. This is a special document confirming ownership rights + a record in the state real estate registry in your name (or the name of your company).
Here is the first page of the land certificate status Hak Milik. Under this status, only Indonesians can own the land.
I have detailed the popular ownership schemes here - https://bali-legal.com/en/land-on-bali-en.
Let’s clarify this once and for all
When you purchase property in Bali you acquire ownership rights FOR THE DURATION OF THE LAND CONTRACT, on which your property is located.
If there are no structures on the land you acquire the right to own the plot of land. You can resell it, lease it, build or demolish structures, construct new ones, etc.
The list of rights will also depend on the ownership scheme - https://bali-legal.com/en/land-on-bali-en.
So, in reality, the property belongs to you, but only temporarily. On paper, it may belong to you indefinitely, BUT if the land contract is not renewed, you will need to decide what to do with your structure.
You can either demolish it, leave it for the owner, or take it with you to a new plot. This is why many here prefer modular constructions, which can simply be removed from the site and relocated.
Drawbacks of Buying Property in Bali
1 - Buying is 4-5 times more expensive than renting
For short-term investment strategies or building your own home, this is not the best optionbecause, for roughly the same rights to the land, YOU PAY FOUR TIMES the initial cost.
Let’s imagine you want to buy a plot for 25 years, build a guesthouse with 5 rooms, and rent out the rooms.
PURCHASE
Estimated net income from renting one room (short-term rental) - 800 USD per month;
Occupancy rate - 80% (a very optimistic scenario);
Net income from 5 rooms per month - 800*5*0,8 - 3,200 USD;
Cost of purchasing a 25-year lease on the land - 400,000 USD;
Cost of construction and all necessary permits (more on this below) - 100,000 USD.
Total initial investment: 500,000 USD;
Annual business income: 38,400 USD;
Return on investment: 13 years;
Net profit over the entire period: 460,000 USD.
(All figures are based on real examples and approximately represent the lower end of market prices for construction and rental.)
RENTAL
Estimated net income from renting one room (short-term rental) - 800 USD per month;
Occupancy rate - 80% (a very optimistic scenario);
Net income from 5 rooms per month - 800*5*0,8 - 3,200 USD;
Cost of renting a plot for 25 years - 100,000 USD;
Cost of construction and all necessary permits (more on this below) - 100,000 USD.
Total initial investment: 200,000 USD;
Annual business income: 38,400 USD;
Return on investment: 5 years;
Net profit over the entire period: 760,000 USD.
2 - Harsh Environment and Natural Conditions
The previous calculation is very close to market reality, but it does not account for a crucial variable – depreciation. In Bali, the wear and tear on buildings, interior finishes, the appearance of mold, humidity, natural disasters, landslides, and volcanic eruptions all take their toll.
When you own a plot for 25 years, with the investment’s payback calculated over half that period, you become a hostage to your own long-term investment, and your strategy is restricted by the initial calculation.
This means you need additional upfront costs for better construction quality to protect your investment. This includes things like concrete additives to reduce mold impact, higher-quality and more expensive engineering solutions, etc.
In reality, you can’t afford mistakes, whereas a rental strategy offers more flexibility for investors.
It’s better to understand this before you decide to sell your built property.
Because once construction is complete, the question arises, "How do I sell what I’ve built?"
Around 95% of all developer transactions (according to official statistics) on the island follow this 3-step strategy:
1 - Lease the plot from the owner for 25 + 25 years;
2 - Build properties on that land;
3 - Resell or sublet the properties under a Leasehold agreement (more on this below).
Advantages of Buying Property in Bali
1 - Taxes
When renting, you pay a - 10% tax. When purchasing, the tax is only 5%.
In theory, the beneficiary, meaning the landowner, is supposed to pay this tax. But in practice, that doesn't happen.
From my recent experience renting property, when I negotiated the final payment and asked if the owner paid taxes, he confidently replied, "Of course, Pak." So, I arranged for my company to handle the tax payment on his behalf, which is perfectly legal.
However, when I sent the payment 10% less (as required by law), the owner was genuinely surprised. He claimed that the taxes are different for Indonesians and foreigners, BUT THAT’S NOT TRUE!
They simply DON'T KNOW they’re supposed to pay taxes on rental income or sales, and DON’T UNDERSTAND the process. And mind you, the owner of my villa was involved in organizing the re-election campaign for Indonesia’s current president in Bali. You’d think he’d know! =)
IMPORTANT!
In 90% of cases, taxes end up being the responsibility of the buyers
Learn more about the types of taxes in Indonesia here - https://bali-legal.com/en/nalogi-v-indonezii-en.
2 - Control Over a Potentially Longer Term
When purchasing property, you can maintain control indefinitely, especially if acquired through a smart scheme like FREEHOLD.
We provide COMPLETE TRANSACTION SUPPORT, from purchase to preparing construction documentation. If you need assistance, CONTACT US via TELEGRAM OR WHATSAPP for quick communication.
Freehold и Leasehold
And here’s where misunderstanding often arises. Thanks to English law that hasn’t changed since the 11th century!
LEASEHOLD (Hak Sewa) - a long-term lease agreement made between the property seller and the landowner under specific terms and for a defined period. For instance, 25 years.
This agreement doesn’t necessarily have to be for 25 years. It can be structured as 25 + 25 + 25 years, with the option or even obligation to buy out/extend the contract for a set amount at the end of each term.
REMEMBER!!!
The subsequent contract after the primary one may not be renewed due to reasons such as:
Increase in Land Value
Reluctance of the Tenant's Heirs
Conflicting Situations, etc.
FREEHOLD (Hak Milik) is a land sale agreement made between the seller of the property and the landowner under specific conditions and for a defined term.
BUT HOW CAN SUCH A CONTRACT EXIST IF A FOREIGNER (DEVELOPER) CANNOT OWN PROPERTY? How can such a contract exist if a foreigner cannot hold unlimited ownership of property without restrictions in Bali?
Typically, this agreement is structured through a loan provided by the investor to the landowner for the amount equivalent to the value of the land.
The loan is secured by the land itself. As a result, the land receives the status of MORTGAGED, and the owner faces limitations on its use, sale, construction, etc., without the lender's consent.
Here, the importance of ALWAYS checking land certificates before purchase comes into play, as the land may already be mortgaged. There are numerous cases of fraud involving forged land certificates.
One of the well-known "entrepreneurs" resold his unfinished properties three times to three different buyers. In Bali, this is referred to as “doing business Russian style,” but I call it fraud.
More on this can be found here - https://bali-legal.com/en/proverka-zemli-en.
Verification of land and land certificates
The cost of a notary service is 1% of the purchase price of the property plus 1,000 USD for a comprehensive verification
Submit a request
Often, the FREEHOLD scheme refers to the following.
HOW TO SELL PROPERTY TO A COMPANY?
First of all, the buyer must have a company registered in Indonesia (PT PMA) - https://bali-legal.com/en/kitas-company-en.
Hak Guna Bangunan (HGB) - purchasing in the name of a company with the right to construct, sold under a contract for 30 + 30 + 20 years. In total, a maximum of 80 years of ownership through the company, similar to the LEASEHOLD scheme.
Such a contract provides the maximum possible rights for a foreigner (who owns a company in Indonesia, PT PMA) regarding the management of the land.
To learn how to open such a company, read here - https://bali-legal.com/en/kitas-company-en
For more on the HGB contract, click here - https://bali-legal.com/en/land-on-bali-en.
During the signed HGB contract, the ownership rights of the land are transferred from the owner to the state (to protect the rights of the investor), and the investor receives a land certificate indicating that their company is the owner of the land for the duration of the contract.
The idea of the scheme is that at the end of the primary contract, the land can be resold to another company (with the same owners) and continue to maintain ownership of the property.
How to arrange construction in Bali? What documents are needed? 4 Steps.
In each case, the scheme will differ slightly and depend on the initial contract and the amount paid for it.
Step 1:
Check the selected plot of land.
Verify any encumbrances/limitations on the use of the land
Confirm that the property is not mortgaged and the owner has the right to dispose of the land as they wish
Cross-check the landowner's documents with the information provided by the land committee
Review the history of transactions regarding changes of ownership of the land (if any)
Ensure that the area is suitable for business activities.
More details here - https://bali-legal.com/en/proverka-zemli-en.
Step 2:
Properly draft and pay for one of the contracts mentioned above. According to local law, you can only exercise rights over the portion of the lease/sale agreement that you have actually paid for.
Many properties here are sold based on unpaid contracts, and this is ILLEGAL! Make sure to check this if you are renting/purchasing from someone other than the owner.
Step 3:
Changing the land status and updating the new owner's information in the land certificate.
This applies only to purchase/sale or rental schemes where you are guaranteed the right to full control over the land during the rental/purchase period.
Hak Pakai
Had Guna Bangunan
Step 4:
Obtaining a construction permit.
1 - PBG (Persetujuan Bangunan Gedung) - the main document that must be obtained BEFORE CONSTRUCTION BEGINS.
In simple terms, this is a construction permit. It is issued "for life" for the entire lifespan of the building and serves as confirmation that the government allows you to build on this land and according to the designated plan legally.
Of course, the land on which you are building must also be legitimate for construction and located in the appropriate zoning area.
More about land zoning in Bali - https://bali-legal.com/en/land-on-bali-en.
2 - SLF (Сертификат Laik Fungsi) - a certificate that is OBTAINED AFTER COMPLETING ALL WORK ON AN ALREADY EXISTING BUILDING.
This certificate affirms the list of purposes for which the ALREADY constructed structure is used.
The purposes may change and be added over time, so the certificate itself is also constantly modified and supplemented during the building's operation.
There is an opinion that obtaining the first document, PBG (Building Permit Approval), is much more difficult than obtaining the second document, SLF (Certificate of Feasibility). Many developers/builders begin construction without the PBG certificate and only obtain the SLF certificate upon completion of all work, thereby legalizing the structure on paper.
This practice is indeed popular, but I will express my opinion.
1 - Starting the process of obtaining the necessary permits is not that difficult, and you can do it yourself on the website - https://simbg.pu.go.id.
Here, it is generally explained quite clearly what documents are needed to apply for the initial building permit.
2 - The costs of obtaining the documents may vary slightly from each other. It is better to choose a legalization strategy for the structure based on an understanding of the initial expenses.
To calculate the cost of obtaining construction permits for your specific case, CONTACT US via TELEGRAM OR WHATSAPP for quick communication.
We provide COMPLETE SUPPORT FOR TRANSACTIONS FROM PURCHASE TO PREPARATION OF CONSTRUCTION DOCUMENTATION.
3 - The risks of starting construction without permits are significant, and you take them on yourself. In some cases, if you manage to negotiate with the Banjar (what this is can be read here - https://bali-legal.com/en/bandzhar-glavnaya-vlast-na-ostrove-en), everything may work out.
HOWEVER, if the state inspection decides to check your property and it does not have a building permit, you will either face a hefty fine (a truly significant one) or a demolition order.
IMPORTANT!!!
Never start construction if you have already submitted documents for the PBG certificate and are waiting for your application to be approved. In this case, it is better to wait for approval and the arrival of specialists to assess your request.
We provide COMPLETE SUPPORT FOR TRANSACTIONS FROM PURCHASE TO PREPARATION OF CONSTRUCTION DOCUMENTATION. CONTACT US via TELEGRAM OR WHATSAPP for quick communication.
Together, we will make life on the island comfortable.
