Whether it’s for your own use or you decide to become a property investor in Bali, building a villa in Bali can be an exciting, nerve-wracking, or terrible process. Or a bit of all of that.
Since Emerhub Bali works with hundreds of property investors of all scales, we gathered their (and our own) experience to get you the best chances of turning your Bali villa project into a success.
Note that this article specifically focuses on building villas in Bali. We also have a more general article for buying property in Bali.
Ownership Types and Rights
When building a villa in Bali, you will firstly need to get acquainted with the ownership types as well as know which rights can become applicable for you.
In Bali there is an option to either rent a land (leasehold) or buy (freehold) it. Both types come with distinct legal considerations, especially for international investors. As a foreign investor you cannot obtain freehold ownership but with a limited liability company (PT PMA) you can obtain the main freehold ownership rights.
As a foreigner, you can obtain a leasehold in Bali. This is a straightforward and popular method to get property in Bali. The leasehold arrangement is formalized through a lease agreement between the foreigner (lessee) and the landowner (lessor). If you want to build a villa on leasehold property make sure it’s allowed.
As a lessee, you have the right to use the property as agreed upon in the lease agreement and during the expiry of the contract. This includes living in the property, renting it out, or even making alterations.
Freehold property right is ownership that has several freehold licenses. Freehold ownership is not accessible for foreign individuals, but foreign-owned companies registered in Indonesia (PTP MA) can own freehold ownership right – Right to Build.
Some foreigners have used Indonesian nominees to hold the freehold title on their behalf. It may not be fully recognized or protected under Indonesian law.
Zoning Laws in Bali
Finding a proper land zone is one of the first steps before building a villa in Bali. Every area of land in Bali is under different land zone categories, which determines what you can do within the particular area:
- Agricultural use
The majority of bad property deals happen because the buyer buys land only to find out that building the villa they planned is not prohibited in the preferred land zone. If the villa is built in the wrong zone the government is allowed to take over your land at the NJOP value (a price assigned to land by the local government for tax purposes).
Due Diligence in Bali
Indonesians are very pragmatic when it comes to land and property. Even if a listing says that a seller is in a hurry, perhaps attacked by loan sharks, it’s unlikely that they will sell anything below market value. Stick to paying a fair price for a fair deal and do background checks.
Note that the notary will not conduct due diligence on your behalf and will remain neutral for seller and buyer on the transaction process. That’s why we always recommend spending a few thousand dollars on property due diligence assistance to avoid losing tens or hundreds of thousands.
Verify Land Ownership in Bali
One challenge for buying property in Bali is verifying that the person selling you their land is authorized to go through with it. It might seem easier than it actually is.
Ensure that the seller gives you a complete list of certificates and their registration numbers so that the due diligence team (they do it on your behalf) can run through the certificates with the National Land Institution (BPN).
If the seller is reluctant at this step, then take it as a major red flag. They most likely have something to hide.
Common Issues When Getting a Property in Bali
It’s unlikely that you’ll end up with a con artist who pretends to own a land that they actually have nothing to do with. Most commonly, the ownership has one of the following issues:
- Complicated inheritance issues. If the certificate holder dies, they might have several children who all have different ideas of what to do with the property. All of them have to agree to the transaction.
- Both spouses have to agree to the deal. For example, we’ve had several cases where the seller has a spouse they haven’t lived together with for years but who has the legal rights to block the sale. Relationships can be complicated. Make sure they don’t become your problems.
- The property is under a nominee agreement when a foreigner buys freehold property using a local nominee. For example, the local nominee sells the property without acknowledgement from the foreign owner. Legal disputes in this situation are difficult to solve.
Property Taxes in Bali
The final part of conducting the property due diligence in Bali is to check the land for any tax obligations, such as unpaid property taxes.
The good news is that once you have completed your land due diligence, the most complicated part (from the legal perspective) of building a villa is completed.
Now, let’s get to the fun parts. 😉
Three Steps for Buying Land for Your Villa in Bali
Let’s rehearse. For building a villa in Bali, you need to have land to build it on. You have checked the land zones, done due diligence, and have found the perfect spot. You also have a limited liability company.
If you ticked these boxes you can move forward with buying yourself land. Follow the steps as follows.
- Paying a Downpayment
We just covered the basics of conducting land due diligence before you purchase land in Bali. In reality, the sellers will not give you the time for it unless you pay a downpayment that indicates to the seller that you are serious about the transaction and have the funds to proceed.
The downpayment will sit in escrow and will be returned if the due diligence fails.
- Choose a Notary in Bali
We recommend that you, not the seller, choose the notary. Let us know if you need recommendations for a reliable notary in your area. Note that notaries cover specific regency, so if you buy property in multiple locations, you’ll have to use multiple notaries.
- Appoint a Buyer Representative
Unless you live in Bali and have a good knowledge of Indonesian and a lot of free time, it’s a standard procedure to appoint a buyer representative who attends the frequent meetings in the notary office on your behalf.
Emerhub provides that service for our customers. Our team can prepare all of your documentation to complete your land purchase. Let’s start with our free consultation. Fill out the form below and give us an overview of your project, and we will book a meeting with you soon.
Choosing an Architect in Bali
You’ve found the land, made sure everything checks out legally, paid for the land, and are now ready to start building a villa in Bali.
The following points are not necessarily unique to Bali, but we’ll share some of our own experiences that give you a sense of local context.
Common Pitfalls With Choosing an Architect
Bali attracts lots of creative people from all over the country and the world. Where’s the demand there’re solutions. You’ll have no trouble finding someone who claims to be able to design your dream villa.
There are a couple of things to watch out for before you jump into action:
- Many foreigners claim to represent an international firm that is actually delegating all of the work to a local company. E.g. You expect to get a French architect with the price they gave you, but you will get a lower quality local work instead. Suggest meeting in their office rather than in a coffee shop.
- Check if the firm has experience with international clients. The style preferences of local and international clients tend to be very different. E.g. One likes shade, and the other wants big windows. Know what you want, and make sure to choose a firm that has experience with similar projects.
- Don’t pay all the money at once. We had an experience where the architectural firm sent our client a project with details that were left there from their previous project. We had to find another firm that was more dedicated to this project but the client didn’t lose all of their budget.
Services to Request from an Architectural Firm in Bali
The typical cost of a good architect in Bali for a standard-sized villa starts from about 10,000 USD. This amount is attractive enough that you will be able to receive bids from multiple firms and get a full service, including:
- MEP consultant for electrical plans and installation;
- Structural consultant for developing structural drawings from the architect’s concept;
- Quantity Surveyor to ensure that Bill of Quantities is submitted correctly and everything is purchased at market price and appropriate quantities.
Choosing architects who already have solid contractors is often a good option because you’ll want them to be in constant communication with your contractor. This way ensures everything gets built as wanted or that the revisions during the construction process will be done for the right reasons, not just to cut corners.
Submitting a License to Build (PGB) and a Function Worthy Certificate (SLF)
Once you have your building planned, the next step is to get a permit for actually being allowed to build it – the PGB (Persetujuan Bangunan Gedung). After PGB approval you can start building.
The building permit process doesn’t take significantly long in Bali. The PBG is usually issued within 2 months. If the application doesn’t pass the verification, though, the process by the authorities for the resubmission can take up to a year.
Once the building is complete, you must apply for a Function Worthy Certificate (Sertifikat Laik Fungsi/SLF). This is the final check from the Indonesian authority to prove your building has followed the building plan that was previously approved.
Opening a Tender for Construction
You now have your land, the drawings, the zoning approval, and the license to build – you are ready to start building!
As mentioned earlier, it’s common to use a contractor your architect has experience working with. We recommend opening a tender to receive bids from multiple firms and then deciding based on their references, communication, and price.
The standard construction costs for a villa in Bali range from 500 USD/m2 (standard quality villas) all the way to 1500 USD/m2 (luxury villas) and beyond.
Paying Your Contractor
Contractors in Bali have two preferred methods of getting paid:
- You pay for each milestone
- You pay a monthly fee
It’s almost always better to pay per milestone. It aligns your incentives – both of you want to get the job done as efficiently as possible. Monthly payment is better if you expect to make a lot of changes throughout the process and don’t want to limit yourself to the agreed milestones.
Tax Aspects to Consider When Building a Villa in Bali
The most tax-efficient way to build a villa in Bali is by registering a company in Bali.
If you build a villa as a company, make sure that you deduct withholding tax from every payment. This is your, or your tax advisor’s, responsibility. The tax payments also become deductible for your annual corporate income tax.
Smooth Your Process for Building a Villa in Bali
We hope this article gives you a general understanding of how to build a villa in Bali. As long as you come prepared and are cautious, you will avoid some of the pitfalls highlighted in this article.
As anything property-related is an abstruse process in Indonesia, we strongly recommend you consult with Emerhub before you start building your villa in Bali. To sign up for our free consultation, fill out our contact form below this article. Our consultant in Bali will contact you briefly.