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Bali is not only a comprehensive travel and holiday destination, but an increasing number of foreigners are also investing in the island by buying property in Bali.
However, foreigners often acquire property in a risky way. It’s common practice for foreign investors to acquire property using a local individual nominee which gives the foreigner essentially no protection over their investment.
In this article, we will show you how to buy property in Bali the safe way – by setting up a foreign-owned company (PT PMA).
Law 5 of 1960 regulates property and real estate ownership in Indonesia, with three types of rights relevant to this article:
- Right to Own (Hak Milik)
- Right to Build (Hak Guna Bangunan)
- Right to Use (Hak Pakai)
Many foreign investors in Bali think the way to purchase property in Bali is by using an Indonesian citizen (a nominee) to act on their behalf to acquire the Hak Milik certificate.
However, it is a tremendously risky practice as the local nominee can overtake the property and there is not much a foreign buyer can do to protect their investment.
Later in this article, we will share some stories of foreigners who have lost either their money or their right to use land with such a scheme.
The safest way for a foreign national to invest in property in Bali is to do it through a foreign-owned company (PT PMA) and acquire the ‘Right to Build’ (Hak Guna Bangunan) certificate.
A PT PMA is a foreign limited liability company in Indonesia. With a PT PMA, you will have the right to acquire the Right to Build (Hak Guna Bangunan/ HGB) and Right to Use (Hak Pakai/HP) certificates.
|Hak Guna Bangunan||Hak Pakai|
The right to build
The right to use property
|Initial valid 30 years + 20 extension + 30 renewal thus the total ownership is 80 years||Initial valid 30 years + 20 extension + 30 renewal thus the total ownership is 80 years|
Essentially both licenses make you the owner of the property. Your family members can inherit them and you can sell the property. If the buyer is an Indonesian citizen they are also able to convert the certificate to a Hak Milik (right to own).
If you wish to hold the property after the 80 years (which would potentially be in the 22nd century by then), you can acquire a new certificate once the old one expires.
Note that you can hold Hak Pakai only if the land already has a building on it and there are limitations for operating a property with a Right to Use (Hak Pakai) certificate as a business. There is also minimum value to the property and it must be located in a touristic, residential, or trading area as you cannot acquire land in Bali in agricultural or greenbelt zones.
Since the purpose of Hak Pakai is acquiring property for personal use, a person can hold only one Hak Pakai (i.e only one property). However, it is possible to acquire several properties with the Right to Build.
If you wish to learn more about PT PMA companies, read our previous article about setting up a foreign company in Indonesia. The process usually takes 2-10 weeks in Bali and our consultants will handle the process completely.
The process of buying property in Bali
To acquire the Right to Build or Right to Use, you will need to:
- Submit completed forms to the Indonesian National Land Office (BPN) requesting a certificate over the property, including relevant supporting documents. This is usually done by your representative such as Emerhub.
- Provide proof of land payment and the conditions for Hak Guna Bagunan or Hak Pakai are met
- Acquire the right to build with the correct building permit (PBG)
- The BPN will issue the certificate under your company’s name.
As with setting up a PT PMA, Emerhub consultants are here to assist you throughout the entire process. Also, make sure to follow the land due diligence checklist when buying a property in Bali.
Since foreign nationals (or even local companies) cannot acquire Hak Milik (land ownership, also called freehold), many foreign investors believe they have to use local nominees.
Hopefully, we have managed to prove that it’s not necessary as you can acquire Hak Guna Bangunan and Hak Pakai through your own PT PMA company which is the safest way to invest in property in Bali.
Sometimes foreign nationals believe that they have found a local person that they can 100% trust and that it’s better or easier to buy land under that person’s name.
While you might have all the trust and the local person can have the best intentions, it’s still an investment on shaky ground as you will have no legal rights to control the property.
Human relations can take wrong turns, or something might happen with your trustee. Divorce, marriage, death – all these scenarios involve external parties who may not have the same intentions with your property as your potential trustee.
So, unless you are ready to accept that in the worst-case scenario you will lose your entire investment, don’t go for the trustee option. In fact, trusting an unreliable individual nominee is one of the top mistakes foreign investors make in Indonesia.
Examples of foreigners getting in trouble with their property investment in Bali
Susi’s Nightmare with the Mafia
A story published by Sydney Morning Herald (2015) uncovered a couple whose land ‘ownership’ was documented illegally by an Indonesian nominee.
After the death of her husband, Susi Johnston discovered that her agreement documentation over their villa near Canggu, Bali, was not legal and not a single one of her signed papers had any legal legitimacy.
Her nominee fell into serious debt with criminals. As a result, the mafia took over her house as collateral.
Susi’s nightmare in paradise has caught the attention of many expats across Bali. With her story, Johnston is cautioning foreigners about the dark side of nominee ownership.
The Author’s Hell in Heaven
The author of Bali: Heaven and Hell, Phil Jarratt, claimed the so-called “nominee ownership crisis” taking over Bali is not new anymore. Phil had a 25-year leasehold that was ripped up on a “dodgy technicality” a couple of years into it in the early 1990s.
In Swellnet (2015), Jarratt also mentioned: “in recent years aging baby boomer hippies and surfers have been thrown onto the streets as their nominees die and the next generation claims the property or demands double the money.”
As you read the stories thoroughly, you will understand why setting up a PMA is the only safe way to invest property in Bali as a foreigner since it will provide you with legal rights over your assets.
The purpose of this article is to show you the right way of buying property in Bali as a foreigner.
The only way foreigners can safely invest in property or buy land in Bali is by owning an Indonesian legal entity- a PT PMA. Property owned by a foreigner may not be freehold ownership, but the Right to Build and Right to Use titles give you clear legal grounding.
By setting up a PT PMA, you will protect your investment, and you will have plenty of time to either enjoy the property yourself or resell it. Contact us by using the form below or send us an email at [email protected]
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