Buying a property in Bali
Understanding the property ownership laws of Indonesia is important for foreigners who are interested in buying property in Bali. Choosing the correct property title for your needs will help you to achieve your real estate objectives.
Foreigners are not allowed to own ‘freehold’ property as this title is only reserved for Indonesian citizens. Real estate laws of Indonesia allow foreigner investors to use a property under a ‘leasehold’ certificate. The leasehold certificate entitles a foreigner to secure a property for up to 80 years.
However, the safest way to buy property in Bali is through a foreign-owned company or PT PMA. Whilst a PT PMA comes with some restrictions, foreigners can operate a rental business to capitalize on the Bali real estate market.
Ownership laws for property in Indonesia
Below are the four main property titles relevant to foreign ownership of property issued under the law of Indonesia;
- Right to Own ‘Freehold’ (Hak Milik)
- Right to Lease ‘Leasehold’ (Hak Sewa)
- Right to Use (Hak Pakai)
- Right to Build (Hak Guna Bangunan)
Right to Own ‘Freehold’ (Hak Milik)
The Hak Milik title is a ‘freehold’ structure and is reserved for Indonesian citizens only. Foreigners can not own land outright, however there are other ways to legally secure long term property rights to safeguard investor capital.
The following land titles detail ways that foreigners can acquire land for property development purposes.
Right to Lease ‘Leasehold’ (Hak Sewa)
Foreigners are able to lease land from a landlord and make use of the land. If there is already a property built on the land then the foreigner can live in it. Under this title the leaseholder has a direct contract with the freeholder. The contract should detail terms such as costs and duration of the lease.
- Leasehold agreements last for 25 years from the date of inception
- Agreements can be extended with terms and costs determined by the land owner
- Leasehold property can be sold from one foreigner to another during the leasehold term
Whilst this is a secure way of buying a property in Bali, there are some conditions a foreigner must meet before the Hak Sewa is approved;
- Foreigners must hold a residency permit (KITAS) to apply OR;
- Foreign-owned companies (PT PMA) can obtain this title
Right to Use (Hak Pakai)
This title is required by foreigners looking for a property in Bali for residential purposes. The right to use an existing property already built on land depends on a minimum property value. This value varies between provinces.
A Hak Pakai title can only be issued if there is a property already build on the land. The right to use a property under this title is strictly for residential purposes only. The following conditions must be met for a foreigner to legally obtain this title;
- Foreigners must hold a residency permit (KITAS) to apply OR;
- Foreign-owned companies (PT PMA) can obtain this title
Right to Build (Hak Guna Bangunan)
This title is compulsory for foreign-owned companies looking participate in real estate business activities. A foreign-owned company for this purpose is referred to as a PT PMA company.
The title allows a PT PMA company to acquire land and build property on the land. The PT PMA company can then operate a business to develop villas for sale and/or villa rentals.
- Lease period lasting up to 30 years
- Extension period for a further 20 years
- Lease renewal period lasting a further 30 years
- Total lease period of 80 years
This is the safest way for foreigners to own land in Bali as the PT PMA company name is transferred to the land certificate. The PT PMA company has full control over the land during period, which can last up to 80 years.
Safest way for foreigners to buy land in Bali is with Hak Pakai or HGB titles
Safest way to buy a property in Bali
A foreigner buying a property in Bali should acquire the ‘Right to Build‘ or the ‘Right to Use’ title certificates. Both property titles provide the strongest ownership rights and allow foreigners to sell the property at a later date. Family members can also inherit property under this type of ownership structure.
The safest way to buy a property in Bali is to acquire the ‘Right to Build’ (Hak Guna Bangunan) title. To apply for this title a foreigner must incorporate a foreign-owned ‘PT PMA’ company in Indonesia. Under a PT PMA, foreigners are legally allowed hold the ‘Right to Build and the ‘Right to Use’ certificates. This essentially secures the full ownership of property for a period of up to 80 years.
Buying a property with a PT PMA company
A PT PMA company grants foreign investors with the same legal rights as Indonesian citizens. Buying a villa or buying land in Bali is therefore entirely possible with a foreign-owned PT PMA company. Registering a PT PMA company is the most secure way for foreign investors to buy property in Bali. The process of registering a PT PMA company is relatively straight forward and usually takes up to 4 weeks to complete.
Under a PT PMA company, foreigners can also operate a property business to generate revenue streams and profits. This is a perfect setup for foreign investors looking to capitalize on the Bali real estate market.
For example, a PT PMA real estate company can acquire land to develop villas for sale in Bali. Likewise, a PT PMA company can also operate a villa rental business as a way of generating revenue.
Setting up a PT PMA investment company
A PT PMA company is required if you are planing on buying a villa with the intent to generate rental income. As a foreign-owned company, the business can acquire land, develop the land, and generate income through property sales and rentals.
Foreign-owned PT PMA companies are required to meet certain requirements before and after company formation. There are many legal firms in Bali that can assist with the set up process for a reasonable cost. You would expect to pay between IDR 15 million – IDR 20 million for this service depending on the company you use.
Buying a property in Bali as a rental investment
It is a great time to become a property investor in Bali. As tourist numbers climb back towards pre-pandemic levels, the rising demand for private villas is out pacing supply.
Occupancy rates for private villas range between 70%-90% depending on the time of year. These rates are high and they account for impressive returns on investment. With a realistic capital payback in less than 4 years, Bali investment properties are an efficient use of your investment capital.
Real estate demand for Bali tourists
As a leading holiday destination, visitor numbers to Bali continue to increase. Demand for places to stay in established tourist resorts is on the rise. This has resulted in higher occupancy rates and higher prices for hotels and holiday villas. Looking forward, it is expected that Bali’s tourist figures will continue to increase as can be seen in the graph below (source: Statistics of Bali Province);
Bali real estate prices
The increase in tourist demand is having a similar effect on the price of Bali real estate. Two clear trends have emerged in the Bali property market. Both have affected the price of land in Bali and also the price of villas for sale;
- The demand for people staying in holiday homes and villas instead of hotel resorts is on the rise. Online booking applications like AirBnb and Booking.com have had a large part to play in this trend. Families and larger groups find rental villas a more cost effective way of living on holiday over hotel stays.
- To meet this rising demand, foreign investors are looking at buying property in Bali to capitalize on the growing rental market.
- Investors are also looking to buy land in areas suitable to develop villas for sale and/or to generate rental income.
- Acquiring land in Bali for land banking purposes has created an active market in emerging locations. In less popular areas of Bali, buying land is more accessible and affordable than in the more established resorts. The process of land banking allows investors buy land cheaply, then wait for prices to rise over the long term.
Buying property in Bali as an investment
It is a great time to become a property investor in Bali. As tourist numbers climb back towards pre-pandemic levels, the rising demand for private villas is out pacing supply.
Occupancy rates for private villas range between 70%-90% depending on the time of year. These rates are high and they account for impressive returns on investment. With a realistic capital payback in less than 4 years, Bali investment properties are an efficient use of your investment capital.
Conclusion
Finding the safest way and making sure your investment is secure is the first step towards buying a property in Bali. Foreigners can secure their land ownership rights by carefully selecting the right land certificate for their intended purpose.
The real estate market in Bali is currently primed for another period of growth. Through a foreign-owned business, investors can benefit from high rental occupancy rates in the short term. Over the long term, as land prices increase, property prices for sale in Bali will also increase.
For more information on how you can benefit from buying a property in Bali, contact us today. Our experts are waiting to answer your questions.
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