What You Need to Know When Buying Land in Bali
There are many ways that a property deal in Bali can turn into a disaster. Find out how you can avoid common issues foreigners face when buying land in Bali.
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Buying land in Bali is a popular investment opportunity among foreigners. It is often also a way of moving to Bali permanently. However, buying land in Bali is not as easy as one would think. There are plenty of pitfalls that can turn your property deal in Bali into a disaster.
What things do you need to check when buying land? How can foreigners buy property in Bali?
As with any investment opportunity it’s better to be careful, leave personal emotions aside and take your time and do your research before committing to a deal. Read through the article to find out what you need to know about buying land on this island paradise.
A crucial step when buying land in Bali is doing a comprehensive check on the property otherwise known as due diligence. Doing this correctly will help you avoid problems with the property before and after your purchase.
#1 Land ownership and accuracy of the land certificate
The first thing you need to check before buying a property in Bali is the property’s landowner. Make sure you are dealing with the correct landowner or a representative of the landowner.
There are two ways to verify land ownership in Bali. First, you can ask the landowners to update the land certificate. In practice, however, it does not happen often because it is costly and time-consuming. The second way is to check the inheritance documentation.
Doing this ensures that you are making a deal with the correct persons and that you are not excluding any of the landowners.
#2 Zoning check
The zoning laws in Bali prevent commercial activities in some regions of the island. The zones in Bali are:
- Trade and service
- Protected area
For example, it is possible to buy land in a residential or tourism area under a company name with a Hak Guna Bangunan (Right to Build) certificate. But foreigners can’t get business licenses in residential areas and therefore can’t operate businesses there.
Another thing to note is green zoning. Green zoning preserves land for agriculture. You also cannot buy land in a green zone using a company name or construct buildings and structures.
It’s essential that you check if the zoning suits your intended activities. Make sure your planned business activities comply with local zoning laws for the property you are considering.
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#3 Payment of taxes
When buying land in Bali you must check whether the previous owners have paid their land taxes.
You cannot apply for a building permit (IMB) or any other documents for land with unpaid taxes. Additionally, unpaid taxes will also lower the value of the property and can be a point of negotiation when discussing the purchase price with the landowner.
Checking the payment of taxes will also give you an idea of how much you will pay in land taxes in the future. However, sometimes the taxed amount covers the land, but not a building. If you are planning on building on the property, the tax will be higher.
#4 Absence of disputes
Indonesia does not have a central notary system. Standard due diligence by a notary likely won’t give a complete picture of the property’s legal and financial state.
For example, there could be several notaries handling a transaction for the same land. There could also be an issue about the rightful heir if the land is an inherited property.
For these reasons, it is essential to confirm the absence of disputes with the courts.
#5 Land borders and infrastructure
Determining the actual size of the land and if there are any overlapping property boundaries is important. This will allow you to confirm the integrity of your land transaction. Even one overlapping meter can lead to claims and disputes between the landowner and the neighbor.
Expats buying land in Bali often neglect to check the legality and certainty of an access road, especially for shared or gifted property.
Property plots generally share access roads with residents in the area. These access roads can be on land publicly owned by the local community, or privately owned. It can affect the value of the property as well as living convenience, and the overall aesthetics.
You can secure road access either through a:
- Lease agreement
- Road access usage agreement
- Land ownership title right release
- Sale and purchase transaction
#6 Building permit and licenses in Bali
If the land you are about to purchase also has a building on it, make sure you also have a building permit (IMB). The function and classification of the building must comply with the zoning regulations.
Per government regulation no. 36/2005, authorities may forcibly dismantle buildings for either one of these reasons:
- The building does not have an IMB
- The building does not meet building permit requirements
You must review all documents to keep this from happening. In addition to that, we can find and understand the complete ownership structure, legal standing, and legal defects attached to the land.
#7 Fees and other expenses when buying land in Bali
Many expats make the mistake of rushing into property deals in Bali when an offer seems too good to miss. However, the first property price is often subject to change.
Additionally, there are other fees and expenses that you should be aware of and include in your business plan, such as:
- Estimated sales and purchase fees
- Legal fees
- Construction costs
- Village donation
#8 The property has more owners than expected
Many land certificates in Bali are out of date, and may not have the current rightful owners listed.
It is very common to find out that the land certificate is in the name of a person that has already passed away. In cases like this, it is important that all inheritors of the land are on board with the transaction.
#9 Limited access to your property
You must assess the road access to your desired property. Ideally, you should have access to your property from a public road but this is not always the case.
For example, if the previous owner owns an adjacent property, they will usually grant road access usage permissions to the buyer as a kind gesture. However, the owner may eventually start to demand compensation to continue using the access road. Conflicts involving lawyers and police can arise from situations like this.
To avoid this, check if the property has road access before buying it. If you need to go through someone else’s property, create a road usage agreement with the relevant landowner.
Don’t Buy Land in Bali Using a Nominee Agreement
Foreigners cannot buy land with a freehold title, known locally as Hak Milik. Only Indonesian citizens can get Hak Milik. As such, many expats enter nominee agreements where they buy land and register it under the name of a local person.
However, based on the law, the nominee is the rightful owner of the property regardless of any agreements made between both parties.
The safest way to buy property in Bali is by setting up a foreign company (PT PMA) and acquiring the Hak Guna Bangunan (Right to Build) certificate.
Read more on how to safely buy property in Bali.
Foreigners can buy a house with Hak Pakai (Right to Use) or a Hak Guna Bangunan (Right to Build) land certificate. Each certificate grants rights to the property for 30 years initially and is renewable.
Our consultants in Emerhub will advise you on the land certificate that is suitable for your needs. Fill out the form below to get started.
The cost will depend on the size of the villa, the overall design, and the materials used. But on average, the cost of building a villa starts at around USD 400 per square meter.
The cost of a villa largely depends on the location. The more popular the area, the more expensive the villa will be. In addition to the cost of the property, additional costs of buying property like buyer’s tax (5% of the transaction value), seller’s tax (2.5% of the transaction value), and the notary fee (0.5-1% of the transaction value).
You must also consider the legal expenses for due diligence as well as consultation and review of agreements. The total of this will depend on the scope of work done.
Foreign buyers, in particular, must consider the cost to convert the land certificate from Hak Milik (freehold) to one that is available to foreigners.
The safest way to buy property is with a Hak Guna Bangunan (Right to Build) land certificate, available to foreigners through a foreign limited liability company. The fees for converting the land certificate will depend on the location and size of the property. The land agency will determine the amount after the submission of documents.
It is common practice to declare smaller transaction values in the agreement to lower taxes. But note that the amount in the agreement is the same amount that you can declare as your investment in your company.
The rent in Bali will depend on the location and facilities of the villa. Long-term leases are a popular option, particularly among retirees. Leases usually last for 25 years and paid in total upfront.
You may face similar issues when leasing or buying a villa. As such, you should also follow the due diligence checklist before leasing a property long-term.
Aside from the rental or lease fees paid to the landowner, another expense to take into account is the notary fee (0.5-1% of the transaction value). There is also a 10% lease tax that the landowner is responsible for. This is a withholding tax, so lessors are responsible for withholding this amount. You must also consider expenses for due diligence the cost of which depends on the scope of work done.
It is common practice to declare smaller transaction values to lower taxes. However, if you are using the property for business purposes, the amount declared as your investment or the value of assets of the company must match the transaction value.
The Hak Milik or freehold title is not open to foreigners. Instead, you should buy property with a Hak Pakai (Right to Use) or Hak Guna Bangunan (Right to Build) land certificate.
Real estate is generally seen as a good investment. Bali sees millions of tourists each year and generates billions of dollars in the tourism industry. Buying property on the island is one way to get a piece of the industry.
Foreigners who wish to apply for a retirement visa must have a pension of at least USD 1,500 per month or USD 18,000 deposited in a bank account. This is enough money to live comfortably in Bali.
Foreigners may apply for a permanent stay visa (KITAP) if they meet certain conditions.
The spouse of an Indonesian citizen may apply for KITAP after two years of marriage. Retirees aged 55 and older may also apply for KITAP after four consecutive years of holding a retirement limited stay permit. A director of a company in Indonesia may apply for KITAP if he or she has held the same role in the same company for the last four years.
It’s also possible to live in Bali permanently with a limited stay permit (KITAS) as long as you renew it as necessary.
Emerhub can help you with all your visa and stay permit needs. Our consultants can advise you and facilitate the process. Fill out the form below or send an email to [email protected] to get started.
Foreigners can work in Bali if they have work permits. Your employer in Indonesia must sponsor your work permit so you can legally work in Bali. If you have a foreign limited liability company (PT PMA) where you serve as a director, you can also get your work permit through the company.
The number one mistake land buyers make is getting emotional about a potential property and throwing caution out of the window. Sure, you may have found your dream property at a reasonable price. However, there are many things that can go wrong – i.e. you can lose all your money – if you don’t do your land due diligence first.
As professional property investors know all too well, the sellers will often push to make the deal happen as quickly as possible, usually warning that there is another buyer who will take the land if you don’t act quickly.
That might be true but it’s better to lose a good deal than rush into transactions unprepared. Bali has a lot to offer and you’ll definitely find another good property to buy.
Contact us by filling in the form below or read more about the land acquisition due diligence report in Bali.
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