A Guide to Property Ownership for Foreigners in Bali

October 13, 2022

Foreigners can purchase property in Bali, but there are some restrictions in place that you should be aware of before making any decisions. The Indonesian government limits foreign land ownership to a maximum of 2.5 hectares (just over 6 acres), and buildings must be constructed on this land within five years of purchase. Foreigners are not permitted to buy a property within 25 meters of the beach (or within 10 meters of a river or lake), and there are also restrictions on what type of building can be constructed on the land.

If you're interested in purchasing property in Bali, you must work with a reputable real estate agent who can help you navigate the process and ensure everything is done legally. It's also important to know the risks involved in any property purchase, especially in a foreign country. Make sure you do your homework and understand all the potential pitfalls before making any decisions.

The Different Types of Property Ownership for Foreigners in Bali

Foreigners in Bali have three types of property ownership structures: leasehold, freehold, and nominee. Each type of ownership has its own set of pros and cons. In this article, we'll briefly review each type of ownership so you can decide which is right for you.

Freehold

The most common type of property ownership for foreigners in Bali is freehold. This means you own the property outright and can do with it as you please, without restrictions. There are a few different ways to buy freehold property in Bali:

 

  1. Through a local Indonesian company (PT PMA).
  2. Through an Indonesian nominee (WNA).
  3. Through a Hak Milik (freehold) title.
  4. Through a Hak Guna Bangunan ( leasehold) title.

 

Each option has its pros and cons, so it's essential to do your research and speak to a reputable lawyer before making any decision. PT PMA companies are the safest and most straightforward way to buy freehold property in Bali as they offer the most protection for foreign investors. Nominees are less expensive but come with more risk, as you essentially give someone else control of your property. Hak Milik titles are scarce for foreigners to obtain, so Hak Guna Bangunan titles are generally the best option if you're looking for leasehold ownership.

Leasehold

Leasehold is the most common type of property ownership for foreigners in Bali. With a leasehold, you agree with the property owner (known as the "lessor") for a specified period, typically between 20 and 30 years. You have the exclusive right to use and enjoy the property during the lease period.

 

At the end of the lease period, the ownership of the property reverts to the lessor. If you want to continue living in or using the property, you must negotiate a new lease with the owner.

 

One advantage of leasehold ownership is that it gives you much flexibility. If your circumstances change and you no longer want to live in or use the property, you can let the lease expire and walk away without any financial obligations.

 

Another advantage is that it can be easier to obtain financing for a leasehold property than for other types of ownership, such as freehold or Hak Milik (Indonesian title). This is because banks view leaseholds as less risky since they do not involve a long-term commitment on your part.

 

There are also some disadvantages to consider before deciding on a leasehold ownership arrangement. The most obvious one is that you do not have any security of tenure after the initial lease period expires. This means that you could be forced to move out at some point in the future if the owner decides not to sell or renew your lease.

 

Another potential downside is that your monthly payments will generally be higher than if you owned the property outright (i.e., with a freehold or Hak Milik title). This is because you will pay the rent/lease fee and ongoing maintenance/operating costs associated with owning/using the property.

Nominee

If you're a foreigner looking to purchase property in Bali, a few different ownership structures are available. One option is to use a nominee, which means you buy the property in the name of an Indonesian citizen.

 

There are a few different ways to set up a nominee arrangement. Still, essentially it will involve you transferring the ownership of the property into the name of an Indonesian citizen or company that you trust. This person or company will then hold the property on your behalf.

 

Using a nominee can be a good option if you don't have an adequate income to qualify for a mortgage or are unsure about your long-term plans in Bali. It can also be helpful if you want to avoid some of the bureaucracy associated with owning property in Indonesia.

 

However, it's important to remember that when you use a nominee, you essentially give up your property control. Getting your property back may be challenging if something goes wrong with the arrangement. For this reason, it's essential to choose your nominee carefully and have a written agreement outlining your rights and responsibilities.

The Pros and Cons of Each Type of Ownership

Deciding how to own your property in Bali as a foreigner is a critical decision. The type of ownership you choose will have different implications on your taxes, legal status, and control over the property. In this guide, we'll cover the three main types of property ownership for foreigners in Bali: Leasehold, Freehold, and Hak Milik.

Freehold

Freehold ownership is the most popular type of ownership among foreigners in Bali. With freehold ownership, you own the land and the property outright. This means you can live in your property, rent it out, or sell it as you wish. There are no restrictions on how you use your property.

 

The main advantage of freehold ownership is that it gives you complete control over your property. You can do whatever you want with it without having to get permission from anyone else. It's also a good investment, as freehold properties tend to increase in value over time.

 

However, there are some disadvantages to freehold ownership. One is that it can be more expensive than other types of ownership, as you must pay the total purchase price upfront. Another is that you are responsible for all maintenance and repairs on the property. If something goes wrong, you have to fix it yourself or pay for someone else to do it.

Leasehold

Leasehold ownership allows you to use and occupy a property for a set time, typically between 20 and 30 years. You do not own the land, but you own the improvements on the ground, such as buildings, fences, and pools.

 

The Pros:

- Leasehold ownership is often less expensive than freehold ownership.

- The lease can be renewed when it expires.

- You may be able to get financing from a bank for a leasehold property.

 

The Cons:

- The landlord could sell the property or raise the rent at the end of the lease.

- It may be challenging to sell a leasehold property.

- You may have difficulty getting financing for repairs or renovations from a bank.

Nominee

Nominee ownership is favoured by many foreigners looking to purchase property in Bali as it is the simplest form of ownership and gives the foreign buyer peace of mind that their investment is well protected. Under nominee ownership, the foreigner assigns a trusty Indonesian friend or family member (the "nominee") as the official owner of record on the certificate of title ("SHM"). The parties sign a Private Agreement that gives the foreigner all voting and economic rights to the property, while the nominee agrees to hold these rights in trust for the foreigner and to transfer them back when requested. The Indonesian nominee will be registered as the owner on the certificate of title, but this does not give them any legal rights to the property – they are simply holding it for you.

 

Nominee ownership has several advantages:

  1. It is straightforward. You do not need to set up a PT PMA or local company or deal with complex asset structuring issues.
  2. It gives you complete control over your property: you can sell it, lease it, or will it to your heirs without any restrictions.
  3. It provides good asset protection.

If something happens to your Indonesian nominee (e.g., they get sick or die), their ownership rights will automatically revert to you according to the terms of your Private Agreement.

 

Despite its many advantages, nominee ownership has one significant downside: it is not recognized by Indonesian law. This means that if there is ever a dispute over your property – for example, if your nominee refuses to transfer ownership back to you – there is no legal mechanism for enforcing your agreement. In practice, however, disputes are rare because nominees are usually friends or family members who can be trusted not to renege on their agreement.

 

If you decide to go ahead with nominee ownership, we recommend that you use a reputable law firm to draft your Private Agreement. This will help ensure that your interests are well protected in future problems.

How to Choose the Right Type of Ownership for You

There are four types of ownership that foreigners can choose from when buying property in Bali:

 

-Freehold ownership (Hak Milik)

-Leasehold ownership (Hak Sewa)

-Building rights ownership (Hak Guna Bangunan)

-nominee ownership (Pemilikan Nomor)

 

Each type of ownership has its benefits and drawbacks, so choosing the one that best suits your needs is essential.

 

Freehold ownership is the complete form of ownership available to foreigners. With this type of ownership, you will own the land and the buildings on it outright. This gives you the most control over your property, and you will not have to worry about renewing your lease or losing your rights to the property. However, freehold properties are usually more expensive than leasehold or building rights properties.

 

Leasehold ownership gives you the right to use and occupy a piece of land for a defined period of time, usually 20-30 years. At the end of the lease period, you will have to renew your lease or lose your rights to the property. Leasehold properties are often less expensive than freehold properties, but you will have less control over your property.

 

Building rights ownership gives you the right to build on a piece of land, but not the land itself. This type of ownership is often used by developers who want to make multiple units on a single piece of land. Building rights ownerships are usually less expensive than freehold or leasehold properties. Still, you will have less control over your property and may have to share it with other owners.

 

Nominee ownership is a type of indirect ownership where someone else holds the title to the property on your behalf. This can be used if you don't meet direct ownership requirements or want to keep your name off public records. Nominee ownerships come with some risks, as you may not have as much control over your property as with other types of ownership.

Conclusion

Assuming you want to buy a property in Bali as a foreigner, you will need to obtain a foreign permit (Penduduk Using, or PA). The easiest way to do this is by setting up a Foreign Investment Company (PT PMA), which requires a minimal investment of US $ 1 million. Once you have your PA, you can buy land and buildings outright. However, there are some restrictions on foreigners owning freehold land in Bali – you can only hold a maximum of 1,000 square metres, and the land must be used for commercial purposes only. If you want to buy a property for residential use, you will need to lease it from the owners for 25 years.

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