Can Foreigners Invest Property in Bali? What You Need to Know

Bali, the island of gods, is a dream destination for many people around the world. Its stunning beaches, lush rice terraces, vibrant culture, and rich history have made it one of the most sought-after tourist destinations. As more people fall in love with Bali, the question arises: can foreigners buy property in Bali?

While Bali offers an incredible lifestyle and an opportunity for a great investment, there are strict regulations in place that control property ownership. In this detailed guide, we’ll delve into the various aspects of property ownership in Bali for foreigners. We will cover the legal frameworks, various ownership structures, important considerations, and practical steps involved in buying property in Bali.

The Legal Framework: Can Foreigners Own Land in Bali?

The short answer is no—foreigners cannot own land directly in Bali. Indonesian law restricts foreign nationals from owning land under their name. However, there are several ways to work around this restriction. The laws around property ownership are governed by Law No. 5 of 1960, also known as the Basic Agrarian Law, and the National Land Law.

This law states that only Indonesian citizens can hold freehold land title (Hak Milik), which is the most common form of land ownership. However, as a foreigner, you still have the option of acquiring property under different ownership schemes. Let’s explore these options in detail.

Options for Foreigners to Invest Property in Bali

If you’re a foreigner dreaming of owning property in Bali, you’re not alone. Bali’s tropical charm and vibrant culture attract people from all over the world. While Indonesian law restricts foreigners from owning land outright, there are still several options available to secure property on the island. From leasehold agreements to setting up a foreign-owned company, here’s a breakdown of the main options for foreigners looking to buy property in Bali.

1. Hak Sewa (Leasehold Agreement)

One of the most common ways for foreigners to invest in property in Bali is through a leasehold agreement. In this arrangement, a foreigner can lease land for a long period (typically 25 to 30 years), with the option of renewing the lease when it expires.

• Duration: A leasehold agreement typically lasts 25 to 30 years, though it can sometimes be extended for another 25-30 years, depending on the terms of the agreement. However, the Indonesian government does not allow foreigners to own land for an indefinite period.
• Flexibility: Leasehold agreements can be tailored to fit the needs of both the property owner and the foreign buyer. This can give foreign buyers access to prime properties, especially in popular areas like Seminyak, Ubud, and Canggu, without worrying about the legal restrictions on land ownership.
• Renewal: The lease can often be renewed once the initial period ends, although this will depend on the agreement and the availability of the land for future leasing.

Also read: Top 10 Luxury Bali Villa Designs That Redefine Tropical Living

2. Hak Pakai (Right to Use)

The Hak Pakai or Right to Use is another alternative available for foreigners. Under this type of agreement, foreigners can use land in Bali for residential or commercial purposes. However, the key distinction between Hak Pakai and Hak Milik is that the foreigner does not own the land but has the legal right to use it for a specified period.

• Eligibility: The foreigner must reside in Indonesia with a valid visa (such as a Temporary Stay Visa, KITAS, or KITAP for permanent residents).
• Duration: A Hak Pakai agreement is typically granted for a period of 25 years, and it can be extended for an additional 20 years, though it can never be converted into full ownership. Once the agreement expires, the property must be returned to the original owner.

3. PT PMA (Foreign-Owned Company)

Another popular route for foreigners who wish to purchase property in Bali is by establishing a PT PMA (Foreign-Owned Company). This is a limited liability company that allows foreigners to own property indirectly through a business entity in Indonesia.

• Ownership: Foreigners can own 100% of the shares in a PT PMA, but the property itself will be owned by the company, not the individual. This gives foreigners the ability to buy property through the company structure and use it for business or commercial purposes.
• Use for Business: Typically, a PT PMA is set up for the purpose of running a legitimate business in Indonesia, such as a hotel, villa rental, or tourism-related business. The foreigner can then use the property for their business operations.
• Cost and Process: Setting up a PT PMA involves legal and financial fees, and the process can be more complicated than a simple leasehold agreement. It’s also important to note that this route is generally best suited for commercial properties, and using the company to purchase residential property might be viewed more skeptically by the authorities.

4. Building a Nominee Agreement

Some foreigners choose to enter into a nominee agreement with an Indonesian citizen. In this structure, the foreigner essentially works with a trusted Indonesian partner who holds the title of the property on their behalf. While this method may seem like an easy solution, it carries significant risks.

• Risks: The main issue with this arrangement is the lack of legal protection. If the Indonesian nominee decides to sell the property or transfer the title without the foreigner’s consent, the foreigner has limited recourse.
• Legal Concerns: Although some people use this method to avoid the restrictions on land ownership, it’s important to note that the Indonesian government does not officially recognize this type of agreement as valid under their land laws. Therefore, it is highly risky and not recommended.

Important Considerations Before Buying Property in Bali

While the options outlined above can help foreigners navigate the property market in Bali, there are several important considerations to keep in mind before moving forward with any transaction.

1. Due Diligence

Before finalizing a property purchase or lease agreement, it’s crucial to conduct thorough due diligence. This includes checking the legitimacy of the property title, verifying the ownership status, and ensuring that there are no pending disputes or legal issues with the land.

• Property Title: Ensure that the property has a legal title under the correct category (i.e., Hak Sewa, Hak Pakai, or Hak Milik) and that the current owner is legally entitled to sell or lease the land.
• Zoning: Check whether the property is in a zoning area that permits the intended use, particularly if you are buying for commercial purposes. Some areas in Bali have strict zoning regulations that limit the types of buildings that can be constructed.

2. Legal Representation

Engaging a local lawyer who specializes in property law is essential to avoid complications. They will help you navigate the complex legal landscape and ensure that all agreements comply with Indonesian law.

• Lawyers’ Role: A lawyer will assist in drafting contracts, verifying titles, and liaising with local authorities. They can also help protect your interests in case of legal disputes with the property owner or government agencies.

3. Property Taxes

Foreigners must be aware of various property taxes and fees involved in the purchase process.

• Income Tax: If the property is used for a business, foreigners must pay income tax on earnings generated from renting or selling the property.
• Land and Building Tax (PBB): This is a tax paid by property owners annually based on the size and value of the land and buildings.

Also read: 10 Best Interior Villa Designs in Bali That Redefine Luxury

4. Cultural Sensitivity and Community Involvement

Bali is a culturally rich and diverse island, and the local community plays an essential role in shaping the landscape and environment. Foreign investors should respect local customs and traditions, especially when it comes to development projects.

• Community Involvement: Be prepared to collaborate with local communities and authorities when building or modifying properties, as there may be regulations or social expectations you need to consider.

Steps to Buying Property in Bali

If you’re ready to move forward with purchasing or leasing property in Bali, follow these steps:

1. Research and Choose the Right Property: Visit multiple properties, consult local agents, and choose the one that fits your needs.
2. Engage a Legal Expert: Hire a lawyer and/or notary to review the property’s title, zoning status, and legality.
3. Negotiation and Agreement: Negotiate terms with the seller or landlord, and ensure that the agreement includes all necessary provisions.
4. Finalizing the Deal: After all legal checks are completed, sign the agreement and make the required payment.
5. Paying Taxes and Fees: Ensure that all taxes, fees, and duties are paid according to Indonesian law.
6. Maintain Compliance: Stay up-to-date on any changes to local regulations or taxes, and ensure that your property remains compliant.

Conclusion

While foreigners cannot directly own land in Bali, there are still plenty of ways to invest in property through leasehold agreements, Hak Pakai, setting up a PT PMA, or navigating nominee agreements (albeit with significant risk). Understanding the complexities of Indonesian property law and seeking expert legal advice is crucial to ensuring a successful property transaction.

Investing in property in Bali can offer a fantastic return, whether for personal use, rental income, or business ventures, but it requires careful planning and compliance with Indonesian laws. By following the right steps, conducting thorough research, and seeking expert guidance, foreigners can successfully navigate the property market and enjoy all that Bali has to offer.