Investing in real estate is a major decision that requires a lot of care and effort. Doing it in a foreign country brings more challenges.
Bali attracts a lot of foreign investors. Watch our video with Herb Meiner of BVR Group Asia to find out why you should invest in Bali real estate.
Before entering any deals, there are a few things foreign investors must know. Angga Manu is the Senior Legal Associate for Property in Emerhub Bali. He listed the most common mistakes people make when buying property in Bali below. Find out what these are and what you should do to avoid them.
Table of contents
#1 Not Checking the Land Certificate
In Indonesia, land certificates dictate the legal rights relevant to a property. Before investing in a property, make sure to check the land certificate. This is necessary for a couple of reasons.
There are still some properties in Indonesia that do not have land certificates. Most properties in Bali have land certificates. However, this is still an issue in other areas like Lombok, Jawa, and Lampung.
There are also some restrictions to note with land certificates. Not all land certificates are available to foreigners. Land certificates also restrict what you can do on the property. For foreign investors, we recommend the following land certificates:
- Hak Guna Bangunan (Right to Build). This certificate is suitable if you wish to acquire land in Bali for business purposes. Foreigners can get this certificate by setting up a foreign-owned company in Indonesia.
- Hak Pakai (Right to Use). This certificate is best suited for a property that you will use as your personal residence in Bali.
#2 Not Checking Access Roads Around the Property
Be wary of properties with unbelievably low prices. More often than not, when a property is cheap, it is because there is no road access.
In such cases, the landowner may request road access from neighboring properties. However, this is a costly process in which you will essentially buy part of your neighbor’s land to get road access. In some cases, buyers ended up paying more for the access road than the land itself.
It is important to know if a property does not have road access before entering a transaction. We can help you draft an agreement with your neighbor to gain road access. Reach out to our consultants, we will be happy to help with your property concerns in Bali.
#3 Not Understanding the Difference Between Zoning and Land Aspect in Bali
Many people mistakenly interchange Informasi Tata Ruangan (ITR) or zoning and land aspect. While both dictate what you can do on a property, they are not the same. Not understanding the difference between the two can cause problems. This is especially true if you plan on using the property for a business.
Zoning applies to a large area, not a single plot of land. Only government rulings can change the zoning of an area. Zoning will affect building permit applications.
On the other hand, the land aspect applies to a single plot of land. A property’s land aspect does not affect its neighbors. It is possible to change the land aspect as long as it is in accordance with the zoning of the area.
#4 Buying a property in Bali with Zoning Restrictions
As indicated in the previous point, zoning dictates how you can use your property. It is very important to check the zoning in the area in which your selected property is. This applies to all properties, regardless of what you intend to do with it.
For example, if the land is in “green zoning,” you will not be able to build anything on it. You will also not be able to apply for a building permit or any business licenses. It is also not possible to acquire property in a green zone with a right to build or right to use certificates.
Make sure the area has appropriate zoning for your intended activities. Emerhub can help you navigate zoning regulations in Bali. We will advise you on whether zoning in the area matches your planned activities.
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Get answers to your real estate concerns in Bali by contacting Emerhub.
#5 Not Understanding Tax Regulations for Bali Real Estate
Per Indonesian law, each sale and purchase of a property incurs tax for both seller and buyer. The general calculation as follows:
5% × land value
2.5% × land value
Some people may suggest stating a lower price on official documents to reduce taxes. Note, however, that tax offices thoroughly check all transactions. If the tax office finds a transaction suspicious, it is enough to deny tax clearance. This, in turn, means that the seller will be unable to transfer the title to the buyer.
We advise paying taxes for the full transaction amount to avoid such issues.
#6 Using the Nominee Scheme to Obtain Land in Bali
The Hak Milik (Right to Own) or freehold certificate is not available to foreigners. Because of this, many foreigners mistakenly think that they cannot obtain land in Bali. As such, some enter nominee schemes to buy land in Bali. In such a scheme, a local person “owns” the land on paper and will enter an agreement with the real owner.
While it may seem like a reasonable option to acquire property in Bali, it carries many risks. In cases of dispute over the land, nominees often stand a better chance in court as the legal owners. Nominees can also prevent you from eventually selling your property.
As we have mentioned above, foreigners can obtain land in Bali with the right to build or right to use certificates. Both certificates grant the holder rights to the property for up to 80 years. The process might take longer and may cost more, but it is a much safer option when investing in Bali real estate.
#7 Buying Land Bound to a Nominee Arrangement
When buying a property, make sure that you are not engaging in a transaction with a nominee. As mentioned above, investors enlist nominees to own the land on paper. The nominee agreement helps the real owner protect his or her investment.
It’s important to check if the property is under a nominee arrangement. In some cases, the owner must pay the nominee to get them to sign the sale and purchase papers. Additionally, as the legal landowner, the nominee may refuse the sale completely. As such, canceling nominee agreements is a prerequisite for any transaction.
#8 Not Working with the Right Agent or Broker
Not finding the right agent or broker can lead to some issues. Misunderstandings and miscommunication between you and a broker will cause delays.
Before finalizing any deals, you must first verify the real estate broker’s claims. This will ensure that the property meets all your requirements. An impartial third party can offer a second opinion on the property’s legal status.
#9 Buying a Property Without Conducting Due Diligence
You can avoid most of the mistakes listed above by conducting property due diligence. Emerhub advises prospective buyers to conduct due diligence before making any deals.
By doing this, you will learn several things about the property including:
- The property’s potential for business
- Any possible risks or issues with the property
- Accuracy of the property’s documents
- The property’s land history
- Hidden conditions
Emerhub can conduct property due diligence on your behalf in Bali and other parts of Indonesia. Aside from Bali, our team can also assist you in your real estate deals in Lombok, Jawa, and Lampung.
Conducting due diligence will mitigate any risks and issues with buying a property in Bali and other islands in Indonesia. Get in touch with us to learn more by filling out the form below. You can also send an email to [email protected].