A Guide to Renting out Villas in Bali as a Foreign Investor
Run a villa rental business in Bali legally and safely. Here's what you need to know to protect your investment and avoid unnecessary losses.
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Renting out a villa in Bali is one of the most common business activities among foreigners on the island. However, misinformation and a lack of experience often leads to unnecessary problems for foreigners renting out villas in Bali.
This article will explain how you, as a foreigner, can rent out a villa in Bali legally.
Bali’s reputation as a paradise island describes its historical accommodation market. Many people look for the feeling of getting lost in paradise during a cozy getaway – something that will increase in demand as covid restrictions are lifted around the world.
According to the Bali Statistics Agency, about 6.28 million international tourists visited Bali in 2019. The number of foreign visitors dropped to under 2 million in 2020 due to the pandemic. Although asking prices remained the same, the decline in tourism resulted in a standstill in the property sales from February to April of 2020.
Opportunities to Purchase Property in Bali
Although asking prices have not changed much, local realtors have seen deals closing below what they would have been in 2020.
Emerhub property analysts expect that rental market will recover, favouring investors that wish to buy-to-let and establish long-term lifestyles in Bali.
Adding the numerous entrepreneurs and nomads who have already chosen to relocate to Bali permanently, the demand for long-term rental accommodation will most likely bounce back before other areas of the property market catch up.
Profitable villa rental businesses for foreigners
People have different motives for renting out a villa in Bali. In most cases, foreign investors seek the lifestyle and not just the financial benefits of running a property business in Bali. The most popular business models amongst foreigners being:
- Buying and renting multiple villas for holiday getaways
- Buying a villa for personal use, renting it out occasionally during high seasons or while traveling
- Both – building a villa complex that has units for renting out and others for personal use
Changes to the Negative Investment list in Indonesia now prevents foreigners from owning businesses classified for villa rental. This is now reserved exclusively for Indonesians.
Renting out a villa (or villas) is still very achievable as a foreigner. There are two primary solutions to structure your business for villa rentals. Choosing between them depends on whether you want to provide short-term or long-term rental options.
To rent out a villa on a daily or weekly basis, you can set up a Hospitality Management Consulting PT PMA with 100% foreign ownership. This business structure allows you to purchase land in tourist zones of Bali and manage the buildings on that land including the provision of short-term and long-term rentals.
Owning a Hospitality management business in Indonesia also allows you to manage multiple accommodations in different locations. This involves less licensing time, cost and paperwork than other business classifications.
Foreign investors can set up 100% foreign-owned real estate businesses in Indonesia. However, only long-term rentals are legal under this classification. This is the only option available if your property lies in a residential zoning area.
Monthly rentals qualify as long-term rentals. So this works well if you plan on living in your villa for half a year. You can lease it out to tourists for the rest of the year but you cannot rent out your villa to tourists on a daily basis.
It is possible to register a real estate company using a virtual office. This means that your company will not have an actual office. Instead, it will use a registered address where your mail can be delivered.
Having a virtual office also means that you can register the company before buying the property. Consequently, you can acquire the property under the name of the company.
Why you shouldn’t use individual nominees to purchase property
The Indonesian constitution states that only Indonesian Citizens can own freehold land. The commonly used set up of using the name of an Indonesian individual to purchase property as a foreigner is illegal and also very risky to your investment.
These types of agreements are based on blind trust and give the foreigner no legal control over their investment. Even if the nominee has the best intentions, problems usually arise when other family members get involved.
If you decide to build a villa, conduct thorough research and due diligence on land acquisition and the types of land certificates required. For an in-depth overview, read our previous article on land acquisition in Bali.
Buildings classified as villas and homestays (pondok wisata) can only be owned by Indonesians.
As a foreign-owned real estate or hospitality management company, you can acquire the right to build or right to use the land these properties sit on and set up a legally binding agreement with the local owner of the building.
In this agreement, you can set out the terms of how you want to manage the building including the provision of short and long term rentals.
Once you’ve decided on the kind of property (or properties) you wish to acquire, make sure each building has the correct building permit (IMB) as this will define its legal use.
The IMB of your property will dictate the extent of your planned construction and will determine if your property can operate as a homestay or villa. If the property you desire doesn’t have the right IMB, you can obtain the right permit before your planned construction begins.
Requirements for building a villa in Bali
A building permit for a villa in Bali stipulates that the building must consist of several units and 1 unit of several rooms, not to confuse with a hotel where one building comprises many rooms, not units. Villas can have:
- Up to 25 rooms
- Up to 10 are (1,000m2)
- No restriction on room size
Requirements for building homestays in Bali
A building permit for a homestay has more restrictions than a villa.
- Up to 5 rooms (suitable for small buildings)
- Up to 5 are (500m2)
- Maximum room size 32m2
- Maximum 2 floors
- Building coverage ratio 50%
- Possible facilities: pool, kitchen, living room, family room
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