Content:
I’ll start with the traps that potential real estate investors on the island should be aware of.
One common pitfall, particularly for those looking to build a shop, restaurant, or café while searching for land for ownership or long-term lease, is LAND ZONING.
On the island, there is a strong appreciation for the local flora, and efforts are made to preserve Bali's most important heritage—the rice fields and forest areas. To manage this, the government has established a zoning system that is color-coded.
5 Main Land Use Zones in Bali
Conservation Zone (Brown): This land is considered cultural heritage and is owned by the state. Building is strictly prohibited in this area.
Agricultural Zone (Green): This land belongs to the state, communities, or local individuals and is designated solely for farming (construction is not allowed). Interestingly, Indonesian laws provide a way to use this zone for development, but in such cases, the investor must offer an equal area of land suitable for agriculture as a "replacement." However, this is rarely practiced.
Commercial Zone (Purple): This zone is designated for industrial buildings, offices, schools, and hospitals. It’s important to note that the office you rent must also be located in the purple zone for it to be considered legal.
Residential Zone (Yellow):This area is meant for private villas, personal residences, and long-term rentals. Essentially, it is for real estate primarily used for private purposes, and no additional licenses are required for this type of property.
Tourism Zone (Red): This zone allows for the construction of hotels, restaurants, clubs, and other tourist properties. Additional licenses are required to operate in this category.
Understanding these zones is essential for anyone considering investing in land or property in Bali, as it can greatly affect your plans and legality of any construction projects.
Before you start building anything on a piece of land, it's crucial to check which zone it belongs to. There is an official website where you can view large sections of land and determine the zoning of your desired property.
However, a downside of the website is that you need to have a strong understanding of the Indonesian language. Additionally, the information may not always be up-to-date. It's always advisable to have a land verification done by a notary or a company that is managing your transaction.
IMPORTANT!
The cost of land verification on the market is between 12,000,000 to 15,000,000 IDR, which is approximately 1,000 USD.
There are cheaper options available. For example, our clients who are building two restaurants in Bali ordered a land verification for 3,000,000 IDR, but this savings turned out to be very costly for them. Ultimately, the land they paid for and acquired is located in the green zone (construction is not allowed), and they do not understand how to legally conduct business on illegal territory.
In Bali, there are entire areas marked in green (such as Canggu and Seminyak) where villas, restaurants, cafes, and hotels for tourists are being built. Right now, the government is turning a blind eye to this, widely using bribery mechanisms. However, in 2024 there will be new presidential elections, and who knows how the new government will respond to such blatant law violations?
DO YOU WANT TO RUN A LEGAL BUSINESS IN BALI WITHOUT RISK? – DO NOT BREAK THE LAW.
After the land verification, you can proceed with securing ownership rights.
How Can a Foreigner Buy Land Ownership?
In short, a foreigner cannot own land. According to Indonesian law, foreigners are not allowed to be landowners.
So, how has this stopped investors? – It hasn't. Four MAIN SCHEMES OF LAND OWNERSHIP have been developed and are widely used on the island. All four schemes have been tried and tested, and there is a wealth of experience in their use.
Hak Pakai – Right to Use Land
This applies to individual investors. With this document, you can lease land for a period of 30 years and receive a certificate from the land office (BPN). This certificate confirms your right to the land. You can manage the land, build on it (as long as it complies with zoning regulations), and sublease it, among other things.
This right can be extended two more times for 20 and 30 years, respectively. The total lease period can ultimately reach up to 80 years.
However, there isn't much practice yet for extending these agreements, and there have been increasing reports of landlords denying the lease after the first 30 years due to the significant rise in land value over those years.
For example, right now, renting one hectare of land costs about 3,000,000 IDR per year (this price is fair for the Ubud area). In contrast, 30 years ago, the same land was rented for 300,000 – 500,000 IDR per year.
If we calculate the cost of a 30-year contract for 1,000 square meters, it currently costs about 900,000,000 IDR (around 60,000 USD), whereas it used to be only 6,000 – 10,000 USD.
Tip! If you are using this scheme for investment projects, don’t rely on an 80-year contract. It's better to calculate the efficiency based on the initial 30-year certificate.
Hak Milik – Absolute Ownership Right (Freehold)
Since foreigners cannot own property in Indonesia, they can use a local resident/Indonesian citizen as a nominal owner.
This popular scheme involves a loan agreement between the investor and the Indonesian, with the property and the land it stands on serving as collateral. It's essential that this agreement is notarized.
As a result, most large hotels, restaurants, and significant properties are owned by Indonesians. The downside of this method is clear — you, as an investor, will never truly own the property. It will always belong to someone else.
Regarding the cost of purchasing (the loan agreement), it is indeed more advantageous than acquiring under Hak Pakai. However, there are numerous cases where properties registered under Indonesians were ultimately appropriated by the local resident.
TIP! Use this scheme only if you truly trust your local partner or plan to obtain long-term residency in Indonesia, allowing you to eventually transfer the land ownership to yourself.
There are frequent stories of property being taken over, even within married couples. A Canadian friend of mine lived for 10 years with a Javanese woman in a legal marriage. As soon as he transferred land ownership worth $100,000 to her, she filed for divorce and became the full rightful owner of the land.
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Hak Sewa – Long-Term Lease Agreement
This method is very similar to Hak Pakai, with one key difference: ownership rights are not registered with the Land Office. The land remains under the ownership of the Indonesian national, which, as experience shows, is the main downside of this option.
Despite this, the cost of renting land through Hak Pakai and Hak Sewa is usually the same. For instance, in Ubud, you would pay approximately 3,000,000 IDR (about $200) per are (100 m²) per year.
TIP! If you have the option to arrange a Hak Pakai agreement, go for it.
Hak Guna Bangunan – Right to Build
This method is quite different from the others because it requires a company established in Indonesia.
You can learn how to open a company in Indonesia HERE - https://bali-legal.com/en/kitas-company-en.
An Indonesian company has the right to acquire land for construction and use. Essentially, the company can "own" land. It doesn’t matter whether the company’s founders are Indonesian or foreign.
This right is granted for 30 years and can be extended up to 80 years. In practice, your company controls the land and its usage rights for up to 80 years—plenty of time for any commercial project. Developers, restaurateurs, hotel owners, and others commonly use this scheme.
TIP!
The most reliable way to own property in Bali is by using Hak Guna Bangunan for legal entities or Hak Pakai for individuals.
To be more specific: the best way to invest in land, your business, and ensure minimal risk is by utilizing Hak Guna Bangunan. This method offers the greatest security for long-term ownership and business development in Indonesia.
How to Buy Land for a Company: Step-by-Step Guide
1 – First, you need to open a company in Indonesia. The cost of setting up a company (PT PMA) ranges between $1,500 and $1,700. The company must have at least two founders or shareholders.
2 – Once your company documents are ready, you’ll need to apply for an Investor Visa (Visa C314). This visa is valid for two years, and your passport must be valid for at least 30 months from the date you submit the visa application. The cost for this visa is around $1,300 to $1,500 per shareholder.
The Investor Visa allows you to enter Indonesia as the founder of your own company. After issuance, you have 90 days to enter the country and get a stamp in your passport.
3 – After entering Indonesia, submit your passport with the entry stamp to the immigration office as soon as possible. Our company representative will come and collect your documents, so you don’t need to travel anywhere. However, it is best to hand over the documents the day after you arrive. You have only 30 days to obtain your KITAS (temporary stay permit) after arriving in Indonesia with the Investor Visa.
4 – About two weeks after submitting your documents for KITAS activation, you will be called for an interview at the immigration office. During the interview, the officer will ask you about the purpose of opening your company, how long you’ve been in Indonesia, and will take fingerprints of all your fingers.
By following these steps, you can successfully start a business and legally acquire land in Bali for commercial purposes under your company’s ownership.
5 – About a week after your immigration interview, you will receive your KITAS. This is a permit that officially allows you to operate and conduct business activities as an investor in Indonesia.
Overall Costs:
1. Company Formation – $1,500
2. KITAS (for each individual) – $1,500
Total for a family of two: $4,500
IMPORTANT NOTICE:
At this stage, be particularly cautious. Many companies offer cheaper services for company registration through unsafe and simplified processes. There are frequent mistakes by notaries, which can significantly delay the preparation of your documents. If errors occur, everything will need to be redone, and under Indonesian law, each mistake can lead not only to fines but also to deportation!
For more details on how deportation happens due to documentation errors, check out our detailed article HERE - https://bali-legal.com/en/deportaciya-na-bali-en.
6 – Find land that meets your business requirements in terms of:
Cost,
Location,
Right of purchase,
Zoning.
This is a lengthy process. It will take time to search. So, if you already know what you want, it’s better not to procrastinate and start looking right away. When you talk to landowners, simply state that you want to purchase the property under the company’s name.
You can even sign a preliminary letter of intent to ensure the property doesn’t go to another buyer.
7 – Conduct a final check of the property for zoning and any encumbrances from banks or other individuals and companies. This is usually done by your notary. The notary’s fees are 1% of the property’s purchase price plus $1,000 for a comprehensive check. You can reach out to us for assistance.
The process of transferring the land can take from 3 to 6 months.
8 – In the presence of the notary, pay for the land. Without the notary, the transaction will not be considered valid, so it is MANDATORY to use their services. Although many notaries in Bali make numerous mistakes in the documents and do not approach their work as we are accustomed to, if you do not have a trusted notary yet, let OUR notary handle this transaction.
IMPORTANT!
In addition to the cost of the land, you will need to pay a purchase tax of 5%. According to the law, this tax should be paid by the Indonesian as the party receiving the income, but that’s not how it works in Indonesia. WHY? – Read more here - https://bali-legal.com/en/nalogi-v-indonezii-en.
THAT'S IT!
IN ABOUT 6 TO 9 MONTHS, YOU WILL HAVE A COMPANY AND LAND IN YOUR NAME.
If you need more detailed advice on relocation, starting, and running a business in Bali, CONTACT US via TELEGRAM OR WHATSAPP for quick communication.
Together, we will make life on the island comfortable!
