This article guides foreigners in the process of land acquisition in Bali, helps to consider which land certificates to choose, and what to take into account if choosing the real estate, and drafting the agreements.
Land acquisition in Bali
Real Estate Rights in Bali
According to the Agrarian Law No 5/1960 the following permanent titles can be issued in relation to the real estate:
- Hak Milik – Right of Ownership
- Hak Guna Usaha – Right of Cultivation
- Hak Guna Bangunan – Right to Build
- Hak Pakai – Right to Use
- Hak Sewa – Right to Lease
- Hak Pengelolaan – Right of Management
Currently, only three of these certificates can be obtained by foreigners in Bali: Hak Guna Bangunan, Hak Guna Usaha, Hak Pakai.
In our previous article regarding buying property we have outlined the reasons why buying land in the name of a local person (nominee) is risky. We demonstrate why it is better to use a foreign owned company instead. For further information read our full article describing the safest way of buying property in Bali.
Land certificates that foreigners can obtain
- Hak Guna Bangunan (HGB) – Right to Build
HGB allows certificate holder to build on the land. This is a suitable certificate in the case of planning to construct and own buildings in Bali.
A HGB title can be issued to:
- foreign owned companies called PT PMA (including 100% foreign owned PT PMA)
- local companies
Hence, foreigners can obtain this certificate via their company. See our explanation how to set up a PT PMA and other most common legal entity formats in Indonesia.
HGB certificate is given out for 30 years with up to 20 years extension. It may be renewed for another 30 years after the official extension period has expired.
The HGB can be sold, exchanged and mortgaged. 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, in English freehold, is the highest right of ownership.
- Hak Guna Usaha (HGU) – Right of Cultivation
HGU is a suitable land certificate for agricultural and farming purposes. HGU is valid for 25 years and extendable for up to 35 years. Land with this certificate must be registered at the Indonesian National Land Office (BPN).
Similarly to HGB, foreigners as natural persons cannot acquire HGU. They can get it by using either a PT PMA or local company belonging to the foreigner.
- Hak Pakai (HP) – Right to Use
HP is the most relevant certificate out of the three – the two others can technically be acquired by foreigners but in reality are rarely used. 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.
Foreigner can obtain HP from the government or from an individual. You can apply to HP if you have PT PMA, a local company or if you are a natural person 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 is sold to a new owner) will regain the Hak Milik, freehold ownership status.
Certificate rights comparison
|Certificate||Essence||Validity||Persons entitled to apply|
|HGB||To use land for construction||Initially issued for up to 30 years, can be extended for up to 20 years; may be renewed for 30 more years||An individual with PT PMA or local company|
|HGU||To use land for agricultural and farming purposes||Initially issued for up to 25 years, can be extended for up to 35 years||PT PMA or local company|
|HP||To use land for harvesting, building or any other purpose that includes a production factor on land||Initially issued for up to 25 years, can be extended for up to 80 years||An individual with KITAS, PT PMA or local company|
Leasehold agreements can be signed also by a non-resident in Bali. When signing the leasehold agreement, make sure that your rights are ensured to the maximum extent.
Namely, the agreement should regulate as much as possible. This helps avoid disputes what was and what was not allowed according to the agreement. Usually the agreements set out possibility and conditions to extend, renovate, build etc.
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 finished, land is given back to its original owner mostly without any compensation to what has been built. In order to get a compensation after your lease period write down terms in the lease agreement.
These agreements are usually drafted and legalised by a certified notary and not registered in the BPN. Validity of the agreements is subject to parties´ decision. However, in practice, such agreements are signed up to 25 years. In many cases, the period is extended. Emerhub can assist with due diligence of the draft lease agreement to ensure that your rights are sufficiently protected in the lease agreement.
Changing the certificates during land acquisition in Bali
Depending on the acquirer and the purpose of the land acquisition in Bali, it might appear that certificates need changing.
For example, if a foreigner is planning to buy land with a locally owned Hak Milik status, would like to make it to HP, then the certificate needs to be adjusted.
Due diligence before the land acquisition
Prior to settling in, checking the background of the property is a must. For example, if it turns out that there is an ongoing lawsuit or unpaid taxes with respect to 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 actually the owner of the property, you may be left with empty hands. In addition, tax liabilities influence drastically the actual value of the property, 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. This may lead to arguments about rights and area usage. Buyer could eventually not be able to put anything into practice. For avoiding these situations add respective landowner´s representations and warranties to the lease agreement.
Before land acquisition in Bali, we suggest conducting a due diligence. At least with respect to the status of the ownership, disputes and taxes, and Emerhub can assist you with this.
There are two types of taxes to consider in relation to acquisition of real estate or real estate rights: taxes related to the transactions, and taxes paid by landowners.
Fees and taxes related to transaction
When the deal of property selling is taking place, both parties need to pay the sales tax. This is calculated over the amount given on the sales contract. Amount on the sales contract however can be different from the actual price. For example, marking a 2 billion land as 1.6 in sales contract to reduce the amount of tax for both parties.
When selling a luxurious property in Bali (exclusive houses, apartments, townhouses as well as condominium units), be aware of a luxury goods tax that applies in Indonesia. This is a one-time fee sales tax applied to certain 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 Land Tax and Tax for Buildings either annually or as per agreement in blocks. Once obtaining rights to either land or building, individuals and companies need to pay a land and building transfer duty (BPHTB – Bea Pengalihan Hak atas Tanah dan Bangunan).
In case of unanswered questions or, if you would like to take the next step towards land acquisition in Bali, reach out to our consultants – fill in the form below or contact our Emerhub Bali office.