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, not all foreigners buy property in Bali safely. 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).
Bali property ownership by foreigners
Law 5 of 1960 regulates property and real estate ownership in Indonesia, with two types of rights relevant to this article:
- ‘Right to Own’ (Hak Milik)
- ‘Right to Build’ (Hak Guna Bangunan)
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 share some of the stories of foreigners who have lost either their money or land using such a scheme.
How to buy property in Bali safely?
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) license.
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) licenses.
Hak Guna Bangunan
Purpose of legislation
The right to build
The right to use property
Duration of the right
A maximum of 80 years, with an initial term of 30 years; extendable first for 20 and further by 30 years
Granted for 25 years with a renewal option up to a total tenure of 70 years
This will give you plenty of time to enjoy the benefits of your property. You can also inherit it to a family member, lease it to other people, or even sell the Hak Pakai to an Indonesian.
If you wish to hold the property for more than 70- 80 years, you can acquire a new Hak Guna Bangunan and a Hak Pakai once the old licenses expire.
Note that you can hold Hak Pakai only if the land already has a building on it. There is also minimum value to the property and it must be located in a tourism, residential, or a trading area as you cannot acquire land in Bali in agricultural or greenbelt zones.
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 6-10 weeks in Bali and our consultants will handle the process completely.
The process of buying property in Bali
To acquire Hak Pakai, you will need to submit a packet of completed forms to the Indonesian National Land Office (BPN), requesting Hak Pakai over the property and including relevant supporting documents.
Once you have shown proof of land payment and the conditions of Hak Pakai are met and built with a correct building permit (IMB), the BPN will issue a Hak Pakai Certificate under your company 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 property in Bali.
Why you should never buy property in Bali using a nominee scheme
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 also 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 thought 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 it is based on blind trust.
Human relations can take wrong turns, or something might happen with your trustee. Divorce, marriage, death – all these scenarios can involve third parties who may not have the same intentions with your property.
Therefore, unless you are ready to accept that in the worst case scenario you will lose your entire investment, don’t go for that 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
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 went to take over her house as a way to get their money back.
Johnston’s nightmare in paradise has caught the eye of many expats across Bali. With her story, Johnston is cautioning foreigners with the dark side of nominee ownership.
The author of Bali: Heaven and Hell, Phil Jarratt, claimed the so-called “nominee ownership crisis” taking over Bali is not new anymore. He also 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 legal rights over your assets.
Interested in buying property in Bali?
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 Hak Milik, but the Hak Guna Bangunan title is completely firm.
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].