What is the process of land acquisition in Bali, which land certificates to choose, and what you need to keep in mind when selecting real estate and drafting agreements in Bali?
This article was last updated in July 2019.
Real estate rights in Bali
According to the Agrarian Law No 5/1960, the following land titles are available in Bali:
Title of license
Foreigners can obtain
Right to own
Hak Guna Usaha
Right to cultivate
Hak Guna Bangunan
Right to build
Right to use
Right to lease
Right to manage
Land certificates foreigners can obtain in Bali
#1 Hak Guna Bangunan (HGB) – Right to Build
HGB allows the certificate holder to build on the land and is a suitable certificate if you plan to construct and own buildings in Bali.
A HGB title can be issued to:
- foreign-owned companies (including 100% foreign-owned PT PMAs)
- local companies
The validity of an HGB certificate can be up to 30 years with up to 20 years extension. It may be renewed for another 30 years after the official extension period has expired.
You can sell, exchange, and mortgage your HGB. Note that in case a PT PMA is selling land with HGB certificate to a local person, this new owner can convert it to Hak Milik. Hak Milik, also known as freehold, is the highest right of ownership but can be held only by Indonesian individuals.
#2 Hak Guna Usaha (HGU) – Right to Cultivate
HGU is a suitable land certificate for agricultural and farming purposes. Similarly to HGB, foreigners as individuals cannot acquire HGU. They can get it by using either a PT PMA or a local company belonging to the foreigner.
HGU is valid for 25 years and extendable for up to 35 years. Keep in mind that you also need to register your land with this certificate at the Indonesian National Land Office (BPN).
#3 Hak Pakai (HP) – Right to Use
HP is the most relevant certificate out of the three – foreigners can technically acquire the two others; however, they rarely do it.
HP certificate allows to harvest and use the land as per agreement with the parties. It gives the right to be a property user for 25 years with the possibility to extend up to 80 years.
As a foreigner, you can obtain HP from the government or an individual. You can apply to HP if you have PT PMA, a local company or if you are an individual with a valid KITAS. We have covered KITAS and work permit regulations more thoroughly in one of our previous articles.
An expired HP property (or one that you sell to a new owner) will regain the Hak Milik, freehold ownership status.
To use the land for construction
Up to 30 years, extendable for up to 20 years; renewable for another 30 years after that
To use the land for agricultural and farming purposes
Up to 25 years, extendable for up to 35 years
To use the land for harvesting, building, or any other purpose that includes production on land
Up to 25 years, can be extended for up to 80 years
What you need to know before signing lease agreements in Bali
The Agrarian Law requires the persons to be residents to enter into lease agreements in Bali. However, in practice, it is also possible for non-residents to sign lease agreements in Bali.
When signing the lease agreement, make sure you ensure your rights to the maximum extent. Namely, the contract should regulate as much as possible.
Usually, the agreements set out the possibility and conditions to extend, renovate, build, and so on. This way you will avoid disputes regarding what was and what was not allowed according to the agreement.
For example, compensation has been a debatable topic for several lessees. Seems unfair to have built up a house on an empty land during the lease period, only to be handing it over to someone else. Unfortunately, this is the case.
Once the lease period is over, the land is given back to its original owner mostly without any compensation to what has been built. To get compensation after your lease period ends, write the terms already in the lease agreement.
These agreements are usually drafted and legalized by a certified notary and not registered in the BPN. The maximum validity of the contracts according to the law is 25 years.
In many cases, the period is extended. Emerhub can assist with due diligence of the land as well as the draft lease agreement to ensure that your rights are sufficiently protected in the lease agreement.
Make sure not to enter into unsafe nominee agreements
In our previous article on how to buy property in Bali as a foreigner, we have outlined the reasons why buying property in the name of a local person (nominee) is risky.
It’s also a common practice among foreigners in Bali to buy land using a local nominee. These arrangements, however, are based on blind trust and provide no legal protection for the foreign national.
The safest way to buy land in Bali is by setting up a foreign company and acquiring the necessary licenses yourself.
Changing the certificates during land acquisition in Bali
Depending on the acquirer and the purpose of the land acquisition in Bali, you may need to change the land certificates.
For example, if you are planning to buy land with a locally-owned freehold status and would like to make it to Hak Pakai, you also need to change the certificate.
Why you need to do your homework before buying land in Bali
Before purchasing, checking the background of the property is a must. For example, if it turns out that there is an ongoing lawsuit or unpaid taxes concerning the real estate, acquiring such property may not be a good idea.
If the dispute is over the ownership of the land, and it turns out that the seller was not the owner of the property, you may find yourself with empty hands. Also, tax liabilities influence the actual value of the property drastically, make company registration on the property impossible, and hence should also influence the price.
Another situation that may occur is landowner permitting several individuals the same land or even alienating it to both which may lead to arguments about rights and area usage. The buyer could eventually not be able to put anything into practice.
To avoid these situations, add respective landowner´s representations and warranties to the lease agreement.
Before land acquisition in Bali, make sure you conduct proper due diligence. At least concerning the status of the ownership, disputes, and taxes, and Emerhub can assist you with this.
Read more about the land acquisition due diligence report in Bali.
Land taxes in Bali
There are two types of taxes to consider in relation to the acquisition of real estate or real estate rights: taxes related to the transactions, and taxes paid by landowners.
Fees and taxes related to a transaction
When the deal of property selling is taking place, both parties need to pay the sales tax which is calculated over the amount given on the sales contract.
In practice, people often mark the value of the land lower than the paid sum. However, this means that in the company’s accounting and asset values, the value of the property should be the same as in the agreement.
When selling a luxurious property in Bali (exclusive houses, apartments, townhouses as well as condominium units), be aware of the luxury goods tax that applies in Indonesia.
The luxury goods tax is a one-time fee sales tax applied to specific extravagant residential properties. As only recently the basis of this tax was property size, the current calculation is based on the property value.
Responsibilities of the landowner
Titleholders must pay the land tax and tax for buildings either annually or as per the agreement in blocks. Once obtaining rights to either land or building, individuals and companies need to pay land and building transfer duty (BPHTB – Bea Pengalihan Hak atas Tanah dan Bangunan).
In case of any unanswered questions or, if you would like to take the next step towards land acquisition in Bali, reach out to our consultants by filling in the form below.