Your Guide To Buying Your Dream Abode in Bali
With Indonesia’s vibrant culture, absolutely stunning landscapes, and a flourishing economy, it’s no surprise that an influx of individuals seek out property to invest in there. Given its proximity to Australia, Bali has become a hotspot for Australian investors looking to capitalise on the region’s opportunities. However, understanding Indonesia’s legal framework and market dynamics is crucial to making informed investment decisions.
Understanding Land Ownership in Indonesia
Indonesia has strict regulations on land ownership, particularly for foreign investors.
The highest form of land ownership, Hak Milik (freehold title), grants full ownership rights without a time limit, allowing the owner to use, transfer, or pass down the property.
However, Hak Milik is exclusively reserved for Indonesian citizens and certain legal entities, meaning foreigners cannot directly hold this title.
So, you might be wondering – what options are available for foreign investors?
Leasehold Agreements (Hak Sewa): Leasehold agreements, known as Hak Sewa, provide a legal framework for foreigners to lease property for extended periods.
These agreements are commonly used in three ways:
Residential Properties: Many foreigners lease villas or houses for personal use or as rental properties. Lease durations typically range from 25 to 30 years, with renewal options available.
Commercial Properties: Foreign-owned businesses can lease commercial spaces to operate retail stores, offices, or hospitality ventures. Lease terms vary based on business needs and property typ
Land Leases: Foreign investors can lease land for agricultural activities, such as farming, livestock raising, or plantation development.
2. Right to Use (Hak Pakai): Hak Pakai is another avenue that allows foreigners orentities to utilise land legally. It is generally granted for up to 30 years, with an option to extend for an additional 20 years, followed by another 30-year extension — allowing for a total of 80 years.
How Can Hak Pakai Be Used?
Foreign Homeownership: Foreigners with a valid residence permit (such as KITAS or KITAP) can obtain a Hak Pakai title to purchase residential property in Indonesia. However, the property must be for personal use and cannot be used for short-term rentals.
Business Operations: Foreign-owned companies (PT PMA) can obtain Hak Pakai to operate businesses except for commercial retail on leased land.
Land Development: Hak Pakai is commonly granted for construction projects that align with national development goals.
What’s the difference between Hak Sewa and Hak Pakai?
Hak Sewa allows foreigners to lease property for a set period (typically 25-30 years) without ownership rights, mainly for residential, commercial, or agricultural use. Hak Pakai grants a longer-term legal right (up to 80 years) to use state or privately owned land, often requiring a valid residence permit and allowing foreign homeownership under specific conditions.
3. Establishing a PT PMA (Foreign-Owned Company): For investors looking to gain more control over property ownership, setting up a Perseroan Terbatas Penanaman Modal Asing (PT PMA) — a Foreign Investment Limited Liability Company — may be the best option.
This structure allows foreign investors to develop, lease, and sell property with greater flexibility. While direct land ownership remains restricted to Indonesian citizens, a PT PMA qualifies as an Indonesian legal entity, enabling it to hold land titles such as Hak Guna Bangunan (HGB) – Right to Build and Hak Guna Usaha (Cultivation Rights on Land), which is tailored for agricultural sector.
This title permits the construction and use of buildings on leased land for up to 30 years, with potential extensions totaling up to 80 years.
What are some financial considerations to keep in mind?
Financing property purchases in Indonesia as a foreigner presents unique challenges. Obtaining a mortgage from an Indonesian bank can be difficult, as most banks require significant proof of income and financial stability.
Investors should also be aware of the taxes and fees associated with property transactions, such as:
Transfer Tax (BPHTB): ~5% of the property value
Notary & Legal Fees: Typically 1-2% of the property price
Annual Property Tax: Based on the property’s assessed value
On top of financial considerations, it’s wise to conduct comprehensive due diligence pre-purchase.
You’ll need to:
Ensure the property has clear legal titles, is free from disputes, and complies with local land use regulations.
Stay informed about and comply with local laws, especially concerning land use and foreign ownership restrictions.
Be cautious of developments that attempt to bypass ownership laws, as these can lead to serious legal issues.
At the end of the day, investing in Indonesian property can be an absolutely phenomenal experience, as long as you’re willing to navigate the intricacies of the complex legal and financial landscape.
Due to the complexities and potential for regulatory changes, we do recommend seeking out professional advice on investing in your overseas tropical abode.
