Land Due Diligence in Bali: Know What You Are Buying

Bali is a dream destination. Many foreigners think of buying land here and moving to Bali permanently. However, acquiring 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. For example, how do you know that the person […]

Bali is a dream destination. Many foreigners think of buying land here and moving to Bali permanently. However, acquiring 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.

For example, how do you know that the person selling the land is the rightful owner? Or whether any hidden fees may emerge further in the process? Here is our list of the key things you need to verify before buying land in Bali.

Due diligence checklist when buying land in Bali

#1 Land ownership and accuracy of the land certificate

The first thing you need to determine is whether you are dealing with the correct 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 the process is costly as well as time-consuming.

The second way is to check the inheritance documentation. This way, you can make sure you enter into an agreement with the correct persons and avoid problems that can jeopardize your property deal, such as excluding one of the actual landowners from the transaction.

#2 Zoning check

The zoning laws in Bali prevent commercial activities in some regions of the island. Having the wrong zoning can carry several negative consequences. 

For example, it is possible to buy land in a residential or tourism zone in the name of a company and acquire the ‘Right to Build’ (Hak Guna Bangunan – HGB) certificate. However, as foreigners cannot obtain business licenses in residential areas, you will not be able to run any commercial activities. 

Green zoning, which preserves land for agriculture, does not even allow buying land in the name of a company and does not permit construction activities either.

Therefore, to avoid having to discover that the land you purchased is useless, make sure your planned business activities comply with local zoning laws for the property you are considering.

#3 Payment of taxes

An essential part of any land purchase in Bali is to check whether the previous owners have paid their land taxes. If the land has outstanding charges, you cannot apply for a building permit (IMB) or any other documents, until you have settled the debts.

If the previous owner hasn’t paid land taxes for years, it should also lower the purchase price, and can be a point of negotiation when discussing the transaction. Checking the payment of taxes will also give you an idea of how much you will pay in land taxes in the future.

Note that sometimes the taxed amount covers the land, but not a building. If you are planning on building on the property, you will also have to renew the tax calculation, and the tax total will be higher. 

#4 Absence of disputes

Indonesia does not have a central notary system. Therefore, the standard due diligence undertaken by a notary may not give you a complete picture of the legal and financial state of the property.

For example, there is a chance that several notaries could be simultaneously handling the lease transaction for the same land, and they might not even be aware of it. Or, there may be a dispute about the rightful owner of the land involved in an inheritance process. 

For this reason, 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.

In Bali, expats purchasing land often neglect to check the legality and certainty of an access road, especially if the property is shared or gifted.

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

If the land you are about to purchase also has a building on it, it’s important to make sure you also have a Building Permit (IMB). The function and classification of the building must comply with the zoning regulations to avoid legal consequences.

Buildings that do not have an IMB or do not meet building permit requirements can be forcibly dismantled, according to government regulation no. 36/2005. Without knowing the complete process for verifying lease agreements and current licenses, you could end up buying thin air instead of your dream property.

By undertaking a review of all documents before entering into an agreement, we can find and understand the complete ownership structure, legal standing, and legal defects attached to the land.

#7 Estimated fees and other expenses

Many expatriates are mistakenly rushing into property deals in Bali as the offer seems too good to be missed. It’s important to note that in many of these cases the first property price is often subject to change.

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
  • taxes
  • construction costs
  • village donation
  • other expenses

#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 such cases, the land has likely been inherited by the family. Thus, make sure that everyone who has claims to the land is on board with the transaction.

#9 Limited access to your property

There are many cases in which an expatriate who buys a villa also receives road access usage permissions as a ‘good gesture’ from a previous owner who owns land connected to the villa.

However, over time, the owner may start to demand compensation for the access road. As a villa owner assuming that the access road was part of the original deal, this can quickly lead to frustration and conflict with the neighboring landowner.

Such a conflict, if escalating to the involvement of police and lawyers, often ends with the villa owner paying compensation to the landowner, and the creation of an official road usage agreement. Concluding a seemingly unimportant matter can save the villa owner time, money, and energy.

Bonus tip: don’t buy land in Bali under a local person’s name

Foreigners cannot own land in Bali, but it is common practice to buy land using an individual Indonesian nominee. In these situations, the land is registered under a local person’s name and layered with multiple agreements that are often vague and act as a “protection” for the true owner or investor.

However, this ownership structure is based on blind trust and human relationships, which can deteriorate over time. Should the “registered” owner decide to go against what was originally agreed, the true owner would have no legal protection. 

One of the safest ways to obtain property or to lease land in Bali is by setting up a foreign company (PT PMA) and acquiring the Right to Build (HGB) certificate. The process can take longer and is initially more costly, but it is a wiser choice in the long run.

Read more on how to safely buy property in Bali

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Photo by Artyom PJ on Unsplash

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