Bali is a resort-haven widely visited by many Westerners that they often consider investing in real estate in the area so they do not have to pay hefty hotel fees and they can also earn from rental income. Many are considering to buy a property in Bali because of the area’s robust economy and a healthy real estate market. However, Bali also has tricky foreign ownership regulations.
Bali’s Property Market
Since Bali has lots of foreign investors, its property market has done well in the past decade. It is one of the strongest in Asia with luxury property prices increasing by as much as 15% y-o-y. Vacant lots have also appreciated continuously over the years that experts believe it will start to cool down.
Foreign Property Ownership in Bali
While Bali is part of Indonesia, it is extremely different culturally and demographically from other cities in Indonesia. Bali is home to a large number of foreigners but its foreign property ownership regulations are somewhat limiting. Here are some of them:
Buying with a Freehold Title (Hak Milik)
It is against the law for foreigners to buy and own a freehold property in Indonesia. So most foreigners often buy property in Bali using a freehold title. There are several ways for foreigners to buy and control the freehold property indirectly by engaging a nominee (a corporation or individual), as the owner of the title.
Whilst this gives the foreigner indirect control of the property and gaining from higher price appreciation, it is risky since the nominee can get full rights to the property in case something goes wrong. Some foreigners then opt to buy with a leasehold title.
Buying with Leasehold Title (Hak Sewa)
Getting a leasehold property means foreigners do not have to shell out a large chunk of money but they have to make do with more limitations in using the property. Another downside to a leasehold title is its poor valuation of both the structure and land compared with freehold properties, as the latter is much more in demand among locals and foreigners. This is, however, a much better option than buying a property with a right-to-use title.
Buying with Right-to-Use Title (Hak Pakai)
The right-to-use title often comes from the owner of a freehold title. Oftentimes, the lease term is from 25 years to a maximum of 70 years. This is often an option some foreigners consider if they want to reside in Bali for a long period. For individuals to obtain a right-to-use title, the buyer must be a resident of Indonesia so they must apply for a KITAP or KITAS. Some set up a Penanaman Modal Asing (PMA) company if the buyer is not a resident of the country. This allows the owner to sell and transfer the title to another person who has eligibility to own an Indonesian property.
Buying with Right-to-Build Title (Hak Guna Bangunan)
The right-to-build title or Hak Guna Bangunan (HKB) is a right for Indonesian citizens or companies incorporated in Indonesia. This includes PMA companies that are under foreign direct investment. It has a validity of 30 years but can be extended to 20 years, and 30 years.