Foreign Buyers Guide to Property Due Diligence in Lombok

Did you know that Lombok has a large amount of untapped land? If you are thinking of buying property in the region, it is important that you come prepared to avoid common legal and financial missteps. This guide will outline key factors to consider for ensuring thorough property due diligence in Lombok before finalizing a purchase in the region.

Geographical and logistical risks to consider before buying property in Lombok

Exercising environmental due diligence when evaluating a potential property in Lombok

While available land is abundant for prospective buyers in Lombok, you must take environmental factors into account when assessing a potential plot of land. Most of the topography in the region is not flat, meaning that it is likely that you may find available land on hills and slopes. 

Potentially unstable soil can lead to long-term issues in terms of structural stability for your planned developments. Some areas may require costly reinforcements to your property’s foundation, and in the worst cases, some areas may be completely unsuitable for construction. Thus, it is important that you conduct thorough soil assessments and testing prior to signing any contracts:

• Conducting Sondir tests allows you to assess the stability of the soil, as well as the conditions of the ground on the property.
• Regional environmental assessments are a good way of determining whether certain properties may be prone to sinkholes or landslides, which should be avoided.

Confirming water access for rural property developments

A significant amount of untapped properties in Lombok may fall in rural areas. When conducting due diligence on potential properties in Lombok, you should verify whether a specific land plot is connected to the government water supply (PDAM) or if it relies on a private well. It is not unheard of for investors to overlook this step and assume that water access is standard.

Setting up a water supply can be expensive, and failure to assess the conditions before your purchase can also result in additional fees and even limited water supply during the region’s dry seasons. Below are the key steps for conducting water supply due diligence:

1. Confirm if the property is connected to PDAM or if it relies on a private well.
2. If you determine that the property requires a well, assess the specific depth and feasibility of year-round water access.
3. Ensure that your contract includes a clause regulating water supply costs and responsibilities to avoid potential additional fees.

Key legal factors to take into account to safeguard your Lombok property investment 

Securing Right of Access for your property in Lombok

With most regions having some degree of access to government roads, it is common for foreign buyers to unwittingly purchase a property to which they don’t have legal access. This is especially common for some newer plots which may depend on access via privately built roads or roads shared between landowners. In some cases, there may not even be an access agreement in place.

Failure to assess your right of access can lead to you owning a property that you cannot physically access. It can also result in ongoing legal disputes with neighbors or local authorities over rights of access or impede your ability to develop or resell your property. There are several best practices to undertake when determining access for a prospective land plot:

• Verify the land certificate (Sertifikat Hak Sewa for leasehold properties): it should indicate whether the access road is public or legally registered as shared access with neighboring landowners. 
• If a private road must be built, take the necessary steps to legally record it to avoid future conflicts and ensure the usability of your property.

Ensuring compliance with Lombok building restrictions

Before you start building a villa in Lombok, you need to verify whether your intended development complies with Indonesia’s zoning laws. These laws designate what a property can and cannot be utilized for, ranging from residential zoning to agricultural, and even protected green areas. Exercise caution when properly confirming the correct zoning – don’t always take what the seller tells you at face value!

To conduct due diligence in Lombok, you can consult with the Indonesian Land Agency (BPN) and the Ministry of Public Works and Housing (PUPR) on the zoning classification (Rencana Tata Ruang Wilayah – RTRW) to ensure zoning classification for your intended use of the land is permitted prior to starting development. You should also confirm that your intended development meets the following regulations:

• Building Height Restrictions: Structures are typically capped at 15 meters (with some exceptions). In certain tourism zones (W1 and W2), the height limit is reduced further to 12 meters.
• Land-to-Building Ratio: You must meet a specific ratio between the building size and the surrounding green space.
• Basement and Foundation Limitations: These can be regulated depending on the area’s terrain.

Essential approvals and documentation for legally inheriting property

In Lombok, it is not uncommon that land remains registered under a deceased individual’s name. It is therefore important that you confirm that the seller has a Certificate of Inheritance Rights (Surat Keterangan Hak Ahli Waris) demonstrating uncontested ownership. Failure to do so can result in legal claims from family members who may have deliberately been excluded from the transaction.

Before finalizing a sale, it is also important to verify whether your seller has secured spousal consent. Per Indonesian law, a married person cannot sell or lease property without their spouse’s consent, as all assets are shared unless a prenuptial agreement specifies separate ownership. It is also common in certain regions for men to have multiple wives. In such cases, each spouse must provide a consent letter.

Overlooking these approvals can result in expensive legal disputes. It is recommended that you consult with legal counsel regarding inheritance rights before finalizing a property transaction, and to always request notarized spousal approval letters.

Exercising financial due diligence for your property transactions in Lombok

How to verify leasehold payments to avoid ongoing disputes

Lessees typically set up staged payments over specific intervals as part of the leasehold agreement. Keep in mind, however, that you should ensure due diligence by verifying whether a lessor has outstanding unpaid dues to the original landowner. Failure to check this can result in third-party claims which may impede the usability of your property during the legal process.

Below are the key steps you should take to ensure legal due diligence on a potential property’s financial history:

• Verify lease payment history directly with the original landowner.
• Request official proof of completion from both the lessor and landowner.
• Consult a notary or legal expert to confirm that no outstanding claims exist.

Establishing efficient end-of-lease terms for your leasehold agreements

Leasehold agreements typically outline all the key terms of the contract, including what happens to the property upon lease expiration. Typically, the landowner may require all structures on the land to revert to them, resulting in unexpected financial losses, for example, if your movable property assets have not been removed.

While reverting ownership is normal practice, to avoid misunderstandings, your lease agreement in Lombok should include detailed clauses defining the following:

• What happens to the building upon lease expiration– can furniture and fixtures be removed, or does ownership transfer to the landowner?
• Renewal terms and extension options to provide clarity on whether and how the lease can be extended.

Emerhub’s local experts can help you navigate the complexities of the Lombok property market. We’ll give you insights on ensuring property due diligence, as well as assist you with key steps for securing permits or setting up your PT PMA in the region.