We will not talk at length about whether you can buy property in Bali for foreigners, why it is profitable and what is better to buy. Let's get straight to the point by looking at how property transactions in Indonesia are regulated and how they take place. It is worth understanding that now the property market in Asia is experiencing another boom, the number of transactions has increased dramatically. This is observed not only in Indonesia, but also in Vietnam, China, India and a number of other countries. People are often interested in how to buy housing in Southeast Asia, so let's consider this issue in more detail on the example of Bali.
Legal Regulation and Forms of Ownership
Because of the different forms of property ownership, property laws in Indonesia seem confusing, but this is not the case. According to InvestAsian, the Indonesian property market is recognized as the most transparent and efficient in Asia. Agrarian Law from 1960.
The main law that governs this area is the Agrarian Law of 1960. You can read it in English at https://faolex.fao.org/docs/pdf/ins3920.pdf online.
Here are the most relevant forms of ownership for foreign investors:
- Freehold, which is also called HAK MILIK. This is an unconditional form of ownership, when the object and the land on which it stands are fully owned by the buyer. This form of ownership is a priori unavailable to foreigners, but it is possible to circumvent this restriction. This requires signing and notarising a loan agreement with an Indonesian citizen, according to which the pledge will be the property and land of interest. According to the law, the owner remains a local resident, so this method of property registration is suitable for those who later plan to obtain an Indonesian passport.
- Leasehold or HAK SEWA is a long-term lease. The optimal way for individuals and legal entities from other countries. Having bought a property on leasehold, the owner can fully dispose of the object: sell it, rent it out, transfer it by inheritance, give it as a gift. The only disadvantage is that all actions must necessarily agree with the owner of the land. The lease term is not regulated by law, but in practice is 25-45 years with the possibility of prolongation (priority or guaranteed). The costs of buying property under the leasehold scheme are lower, so many investors choose it to increase the profitability of the object. However, the leasehold scheme does not qualify for a residence permit.
- The right to use or HAK PAKAI is only based on a passport, but until 2023, foreigners required a residence permit in Indonesia. It is essentially a freehold but with a limited duration. The contract lasts for 30 years with an extension for 20 and another 30 years. That is, in total, the property under this scheme can belong to the investor for 80 years. Then it is necessary to apply for a new status or re-issue HAK PAKAI. If this is not done, the asset will pass to the state or the original owner. It is important to realize that a foreigner can only own one property with this type of ownership. The area of the land plot must not be more than 20 hectares (2,000 square metres). There are also restrictions on renting out such property on a daily basis. The minimum value of apartments to be able to register HAK PAKAI is $ 125,000, for villas this amount is $ 315,000.
- The right to build or HAK GUNA BANGUNAN is only granted to Indonesian citizens and legal entities that are registered in Indonesia (all 100 per cent of the capital can be owned by a foreigner). The right to build property is granted for 30 years with an option to extend it for another 80 years.
Important. Several other pieces of legislation regulate the real estate sector in Indonesia. These include the RI Akon No. 16 of 1985 on Apartment Buildings (Undang-Undang No. 16 Tahun 1985 tentang Rumah Susun), the RI Government Regulation No. 4 of 1988 (Peraturan Pemerintah No. 4 Tahun 1988 tentang Rumah Susun) and the RI Law No. 11 of 2020 on Job Creation (UU Cipta Kerja).
These laws address the ownership of apartment buildings where ownership is not assigned to a specific piece of land but to a specific unit. There are very few such buildings in Bali where each unit has a specific type of certificate - sertifikat strata, but it is worthwhile to refer to these laws when choosing one during the transaction.
Rights and Obligations of Foreigners in Indonesia
This is an important aspect for those who plan to buy an apartmment in Bali or want to move to live on the island.
Since 2022, Indonesia has a programme that allows you to obtain a residence permit for up to 10 years. To do this, you need to invest in property from $130,000. However, there is an opportunity to apply for a residence permit under programmes for digital nomads, entrepreneurs, and other categories of people.
At the time of purchasing a property, it is necessary to pay all fees stipulated by law. In particular, hak milik, hak guna property forms are subject to land tax and construction tax. If the housing is to be rented out, it is also necessary to pay tax on the relevant income (withholding tax, PPH).
Important. A foreigner has the obligation to pay taxes on a par with citizens of the country, if he lives in Indonesia for more than 183 days a year.
Property Taxes in Bali
It is important to understand what additional costs fall on the investor, in order to really assess their financial capabilities and choose a suitable object. Here is what will need to be paid:
- notary services up to 5% of the transaction value;
- in case of freehold registration 5% of the value of the object for registration of ownership;
- VAT 11% if the property is purchased from a property developer.
Important. Land tax in the amount of 10% of the transaction amount, tax on the right of long-term lease of 10% is paid by the seller, but he usually includes these costs in the cost of the contract, in fact inflating the original price.
Some notaries require you to pay 20% at the time of registration, arguing that this rate applies to foreigners, but this is not the case. If your notary insists on 20% tax, it is recommended to change notaries and choose another one, because the law regulates the rate of 10%.
How to Buy a House in Bali
This scheme is only suitable for hak pakai, hak milik and hak guna forms of ownership. It involves the following steps:
- Checking the selected property. It is necessary to check the last few receipts confirming the fact of payment of taxes. It is also worth making sure that there is a land certificate, building permit (original), confirmation of payment of utility bills. If the housing is mortgaged, it is important to get a letter from the bank with confirmation that there are no outstanding debts on the loan and the property is not arrested. From the buyer at this stage is required only a valid passport.
- The initial contract of sale involves an agreement in which the seller and the buyer record their desire to complete the transaction. Usually the buyer makes an advance payment. The amount is discussed by the parties, but is usually 5%-30% of the value of the home.
- Signing the contract of sale, after which it is submitted to the state structures for registration of the transaction. The contract is signed directly in the state structure or at a notary.
- Payment of the transaction and additional expenses. It is recommended to use bank payments when making international property transactions, so that in the future, if any questions arise, to prove the fact of payment in a certain amount.
- Registration of ownership. After signing the contract, a certificate of transfer of ownership must be made within 7 days. For this purpose, all necessary documents are submitted to Pejabat Pembuat Akta Tanah (PPAT). The transaction itself takes about a month. Long-term lease agreements need to be notarised, but they do not need to be registered with the office.
Important. In Indonesia, foreigners can open an account in a local bank, transfer funds from any country to it and pay for property. A residence permit is not required to open an account.
In Bali is often practiced remote transactions, when a lawyer or realtor represents the interests of his client. In this case, it is necessary to provide the specialist with a power of attorney, so that he can perform all necessary actions for the purchase of property in Bali. The power of attorney is issued only for signing documents for a particular transaction on behalf of the client and does not provide for the possibility of selling or carrying out other actions with the property.
If you still have questions or you want to buy a flat in Bali, then contact our manager in any convenient way. There are also villas and houses on the site. The cost of property in Bali starts mostly from 100 000 euros. Our manager is ready to help you not only in the registration of the transaction, but also in obtaining a residence permit. Many of the properties will have a management company to manage your property to maximize your income if you do not plan to move to Bali.
