Legal and Regulatory Information

Legal and Regulatory Information: How to Own Real Estate in Bali

Bali’s allure as a global paradise makes it a top destination for property investments. However, understanding the legal guide and regulatory framework is crucial for foreign investors seeking to own real estate in Bali. Indonesia has specific laws that govern property ownership, particularly for non-citizens, and navigating these regulations is essential to secure your investment.

1. Can Foreigners Own Property in Bali?

Foreigners cannot own freehold land in Indonesia directly. However, there are several legal structures available for foreign investors to acquire property rights in Bali. These include:

• Hak Pakai (Right to Use): This allows foreigners to lease land or property for an extended period, typically up to 30 years, with options for renewal.
• Hak Sewa (Leasehold): A standard lease agreement that grants usage rights for a set duration, usually 25 to 50 years.
• Hak Guna Bangunan (Right to Build): This permits foreign entities to build on the land for a specific period, often 30 years, with possible extensions.

2. Setting Up a Legal Entity for Ownership

Foreigners can set up an Indonesian company, such as a PT PMA (Foreign Investment Company), to acquire property legally. This structure allows the company to hold land under Hak Guna Bangunan or Hak Pakai rights.

• Benefits:
  1. Allows more flexibility for commercial real estate investments, such as building hotels or rental villas.
  2. Provides a long-term solution for investors planning large-scale projects.
• Steps to Establish a PT PMA:
  1. Register your business with the Indonesia Investment Coordinating Board (BKPM).
  2. Obtain a business license.
  3. Acquire property under the company’s name.

3. Key Documents Required for Property Transactions

To complete a property transaction in Bali, ensure you have the following:

• Land Certificate: Confirms the property’s ownership status and any encumbrances.
• Building Permit (IMB): Ensures that the property complies with local zoning laws and building codes.
• Tax Identification Number (NPWP): Required for legal transactions in Indonesia.
• Notarial Deed: Issued by a certified notary, this document finalizes the transaction.

4. Leasehold vs. Freehold: Understanding the Difference

In Bali, freehold ownership (Hak Milik) is reserved exclusively for Indonesian citizens. Foreign investors often opt for leasehold agreements instead.

• Leasehold (Hak Sewa):
  • Suitable for long-term stays or vacation rentals.
  • Provides rights for an agreed-upon period, with the possibility of renewal.
  • Ideal for expats or businesses seeking flexibility.
• Freehold (Hak Milik):
  • Available only to Indonesians or through Indonesian nominee arrangements, which come with legal risks.

5. Due Diligence and Professional Assistance

Investing in Bali’s real estate market requires thorough due diligence to avoid legal complications. Partnering with local professionals can simplify the process and ensure compliance with regulations.

• Engage a Notary: A local notary will verify ownership documents, contracts, and legality.
• Hire a Property Lawyer: A legal expert will guide you through zoning laws, lease agreements, and tax obligations.
• Work with Reputable Agents: Ensure the property is free from disputes or encumbrances.

6. Property Taxes and Fees

Real estate transactions in Bali come with associated taxes and fees. These include:

• Acquisition Tax: Buyers pay 5% of the property’s declared value.
• Land and Building Tax (PBB): An annual tax calculated based on the property’s assessed value.
• Notary and Legal Fees: Typically 1–2% of the transaction value.
• Lease Renewal Fees: Applicable for leasehold properties, depending on the terms of the agreement.

7. Navigating Zoning and Building Regulations

Before purchasing property, it’s essential to ensure compliance with local zoning laws. Bali has designated zones for residential, commercial, and tourism use. Consulting a legal guide can help ensure that building permits (IMB) align with the property’s intended purpose.

8. Risks to Avoid

While Bali’s real estate market is promising, investors must be cautious of potential pitfalls:

• Nominee Arrangements: Using an Indonesian citizen as a nominee to hold freehold property can lead to disputes, as this practice is legally ambiguous.
• Unclear Ownership: Ensure the land certificate is legitimate and free from disputes.
• Regulatory Changes: Stay updated on evolving property laws that may affect foreign ownership.

9. Why Legal Compliance Matters

Adhering to Indonesia’s real estate laws protects your investment and ensures a seamless property transaction. Non-compliance can result in financial losses or legal disputes.

Investing in Bali Real Estate Safely

Bali offers immense opportunities for real estate investment, but understanding the legal guide is key to a successful purchase. By choosing the right ownership structure, conducting due diligence, and seeking professional assistance, you can navigate the complexities of Bali’s property market confidently.