Thousands of foreigners come to Bali on holiday the first time and fall in love with the magical “island of the gods” and return, often many times. The wheels in your head begin to spin “what can I do to live here?” Many older people want to retire here or others look at Bali as an investment. The thought of owning property here becomes a dream.
I wanted to know how to make this dream possible so I went to Ray While property office and consulted with Bayu. I explained what information I wanted. He looked baffled and then blowing out a long breath, he said, “That’s a very long answer.”
The bottom line is a foreigner isn’t allowed to own property in Indonesia. However since 1996 it is allowed for foreigners to lease properties for periods of 25 or 30 years with extensions for another 25 or 30 years, (depending on what the conditions are in the lease contract). But there are other legal ways to obtain property.
OPTION 1 – FREEHOLD
Many foreigners have been led to believe that Freehold means they own the property. Not true. You must have an Indonesian citizen as a nominee. The nominee should be someone that you trust. The land title is in their name. This can work well but if there’s a falling out with your nominee you could lose everything. A legal contract must be drawn up by a notary between the parties.
So first you have to choose in what way you want to purchase a property, lease or freehold. Many times however, this choice is already made for you by the way the seller is offering his property on the market. Sellers can offer their properties with a freehold title or with a lease contract.
This means that if you want to purchase a property with a freehold title that you will need an Indonesian citizen as a so called “nominee”. In the land certificate, this Indonesian citizen will be mentioned as the legal owner. To protect your interests as a buyer you will have to make an agreement with this nominee at a notary’s office.
If you are interested to buy a property with a freehold title it is recommended that you already have a relationship with your Indonesian nominee, although in many cases the nominee of the seller can also be your nominee if this person agrees to act as your nominee.
But again in all cases the agreement should to be settled with the notary to make it a binding official agreement. The notary can be chosen by the buyer and the notary fee may vary from 1% up to 2% of the sales price, and is negotiable in some cases. The sales and purchase agreement is to be drawn up by the notary in Indonesian language, or else it is not binding. One of the duties of the notary is to conduct a “due diligence”. The notary makes sure that the property is accessible, free of mortgage and most important the property is provided with a land certificate, building license and proof of payments of several taxes.
Between the buyer and the Indonesian nominee will have to be an agreement called the security documents, to protect you and also the nominee.
The buyer declares that he/she gives the nominee a loan (mortgage) with the objective to buy the mentioned property; this loan is exclusively made to buy this particular property. The nominee declares that he receives this amount of money to buy this particular property.
Also a power of attorney (surat kuasa) is drawn up, so you as a buyer, have the full right to do with the property what you like; for example selling or renting it out. Also there will be conditions that you are free to renovate/improve the house without needing to ask permission to the nominee.
Option 2 – LEASE HOLD
The lease contract has to be drawn up officially by a notary to protect the interests of the lessee (you) and the lessor (landlord). In this lease contract the period has to be defined and the sum of money to be paid by the lessee to the lessor for this period. As soon as the period has expired the property falls back in the hands of the landlord/owner of the property.
It is recommended that one of the conditions in the lease contract is about the extension possibilities, and the price of the extension.
If the lease contract has been drawn up by a notary, this agreement is legal .
To obtain full legal protection it is recommended that the lease contract is drawn up in the official Indonesian language (to be legally binding) and another one in English to help prevent misunderstandings between parties.
OPTION 3 – HAK PAKAI….”THE RIGHT OF USE”
The Indonesian government realized that many foreign investors weren’t very comfortable with freehold and lease hold options of investing in property. They came up a way for foreigners to legally protect their property and interests in Indonesia. Thus the creation of “Hak Pakai” meaning “the right of use.”
This is similar in many ways to lease hold, with the difference being there is no landlord/landowner anymore with the title of ownership set by the government with the buyer making an agreement with the government.
This is all arranged by the notary with many foreigners seeing this as the only legal and safe way to protect their property and investments. The Hak Pakai will be 25 years with guaranteed extensions up to the maximum of 90 years. You must have a KITAS to be eligible. You don’t need a nominee. The property is yours.
You are allowed to pass the property down to your children. However, whoever inherits the property must live in Indonesia. If not, the property must be sold or the government takes it.
BUILDING YOUR OWN VILLA/HOUSE IN BALI:
If you buy land to build your own villa, again some matters have to be taken care of, in which you need the legal help of a notary.
If the objective is to build a villa on this plot of land the notary has to check at the land office (Kantor Pertanahan) if this is allowed. In other words if the land applies correctly to the zoning law. The land has to have the aspect of “residential” so an application for a building permit is possible. This is part of the Due Diligence is critical and you may need to make this clear to the notary. You are of course free to use the land as agriculture land in that case the land can stay with the zoning title “pertanian”.
If the land is zoned “greenbelt” ( jalur hijau) then you are not allowed to build on that land.
If the land meets up to all the legal conditions for building, you can apply for a building permit, called an “IMB”. This can be a lengthy process.
By Shari Hartman
The Boomer Corner is a column dedicated to people over 60 living in Bali. Its mandate is to cover topics, practicalities, activities, issues, concerns and events related to senior life in Bali. We welcome suggestions from readers.
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