How do I ensure that my Bali property investment is secure and legally sound?
Bali is a world-famous tourist destination with a rich cultural heritage and stunning natural beauty. This Indonesian island is a popular spot for investment in real estate due to its strong economic growth and robust property market. However, investing in Bali real estate can be a complex process for foreigners who are not familiar with the local laws and regulations. In this article, we will provide you with insider tips on how to invest in property in Bali and make your investment legally secure.
1. Understand the Bali Property Laws and Regulations
Before you start investing in Bali real estate, it is important to understand the local property laws and regulations. Indonesia has strict laws regarding foreign ownership of land and property, and these laws vary depending on the type of property you want to buy. The best way to ensure that you are investing legally is to consult a reputable local lawyer who specializes in property investment.
2. Work with a Reputable Bali Real Estate Agent
Working with a reputable real estate agent is essential when investing in Bali real estate. A good agent can help you navigate the complex legal and regulatory landscape, provide you with insider tips on the best properties to invest in, and negotiate the best possible deal on your behalf. Look for an agent with a strong reputation in the local market and a deep understanding of local property laws and regulations.
3) Conduct Due Diligence
After finally finding the property of your dreams, it is crucial to conduct thorough due diligence to ensure that you are fully aware of what you are investing in and its legal status, regardless of whether it is for business or residential purposes. It is important to exercise caution since some agents have been known to provide false information or half-truths to lure clients into investing in properties that do not meet their needs. In Indonesia and Bali, regional regulations can restrict the amount of land you can build on and the type of business you can operate on the property. Investing a little in due diligence can help you avoid future problems or an inability to use the land for your intended purpose.
To make each transaction as easy and as smooth as possible, it is important to have a Pre Due Diligence check carried out before any deal progresses further to signing, so that there are no repercussions due to legal or land aspect complications which may hold up or lead to an ineffective sale.
Pre Due Diligence should be carried out to check:
- Who really owns the land, is it shared ownership?
- Does the vendor have the right to lease the land?
- Are there any debts over the land?
- Define the piece of land exactly.
- Is there legal access to the land from a public road?
- What the land is zoned to be used for, and can it be used for the purpose the buyer wants to use it?
In preparing the documentation you need to:
- Agree on the price.
- Check taxes that have to be paid, how much and who will pay.
- Make sure the lease agreement is secure if the landowner dies or sells the land and that any new owner must honour the lease agreement.
- Make sure that the vendor has the right to sell or pass on the land to a third party and that this will not require the signature of the landowner.
- Define the period of time and extensions available plus renewal options and further extensions on that.
- How much will extensions and renewals cost – usually at market price, but can also be at a fixed price, negotiated price, or the price of gold?
- A Pre Due Diligence will ensure that everything is clearly defined and transparent to the buyer, so there are no ‘hidden’ costs or any problems with the ‘status’ of the property.
4) Bali Property Investment – Sales And Purchase Agreement
Once the due diligence is clear, you should engage a legal consultant to ensure that your agreements are sound, be it for purchase or lease. Securing your investment for the future may cost a little upfront, but it is worthwhile. We have seen agreements that do not protect clients, lean heavily towards the landowner, or fail to allow for the intended purpose. If you do not use a legal consultant, we strongly advise you to choose your own notary.
We recommend insisting on an English translation of your agreements. If it is not provided for you, make sure to request it so that you fully understand your rights and obligations. If the seller drafts the agreement, we highly recommend insisting on a certified translation, as many translations that come to our attention are incomplete.
Below are some steps that will guide you along the path to what generally takes place when purchasing a property in Bali:
- Submit a signed ‘Offer to Purchase Real Estate’ document
- Choose a Notary Public/PPAT
- Send a Deposit (to be held in the notary’s escrow account)
- Sign a binding ‘Sales and Purchase Agreement’
- Notary to conduct Due Diligence (approx. 7 days)
- Sign a ‘Sales & Purchase Deed’ (AJB) or ‘Leasehold Deed’ (Akta Sewa Menyewa)
- Take possession of property
Here’s a further explanation of some of the points mentioned above
- Submit a Signed ‘Offer to Purchase’ Document
Firstly, let the seller (or agent) know that you want to make an offer and, most importantly, insist that you wish to sign a contract. This lets the agent and the sellers know you are serious.
- Choose a Notary Public/PPAT
The notary can be chosen by you the buyer and the fee charged by the notary is usually between 1% and 2.5% of the agreed selling price. The sales and purchase agreement is drawn up by the notary in Indonesian and in English or other language translation may be supplied but the Indonesian document is the legally binding one.
If there is a selling agent who is the third party, then they will prepare a preliminary sales and purchase agreement to be signed by all parties. The preliminary agreement will be transferred into a binding sales and purchase agreement which is drawn up by the notary.
- Send a Deposit
Transfer the agreed deposit (usually 10 – 25%) to be held in the notary escrow account. Do not, under any circumstances pay the deposit to the seller (owner). Once a deposit has been received, the seller then has to agree to take the property off the market.
- Sign a Binding ‘Sale and Purchase’ Agreement
After a buyer and seller have generally agreed upon the price and all other terms and conditions for a property transaction, the parties usually sign a preliminary agreement, a Binding Sale and Purchase Agreement or a Binding Leasehold Right Agreement (Perjanjian Pengikatan Jual Beli or Perjanjian Pengikatan Sewa Menyewa) to formally agree and reflect the conditions of the proposed transaction.
We recommend that a buyer or seller engage an independent legal counsel in order to ensure their agreed terms and conditions are properly reflected in the Binding Sale and Purchase Agreement or Binding Leasehold Acquisition Agreement respectively.
- Due Diligence
Following execution of a binding agreement, the buyer would, through a legal representative or notary, conduct due diligence on the property.
Note: It is recommended that satisfactory due diligence should be stipulated as condition for completion of the transaction under the binding agreement.
- Sign a ‘Sales and Purchase Deed’ (AJB) or ‘Leasehold Deed’ (Akta Sewa Menyewa)
In order to formally conclude the acquisition of the property as contemplated under the binding agreement, the parties would subsequently enter into notarial documents reflecting the acquisition of the property either in the form of a Sale and Purchase Deed (Akta Perjanjian Jual Beli or AJB) or in the form of a Leasehold Deed (Akta Sewa Menyewa), as the case may be. Until full payment of the agreed selling price is made and any other conditions for completion are met, the notary would hold the land certificates or deeds relating to the property transaction in escrow.
- Take Possession of The Property
Once the seller has received full payment and all taxes accruing from the transaction have been paid, the title of the property is transferred and copies of the deeds released to the respective parties. In the case of a formal transfer of title over a land plot, i.e. Hak Milik, Hak Pakai or HGB title, the transfer will be effectuated and concluded upon the issuance of the land certificate by the competent land office reflecting the name of the buyer on the certificate.Leasehold
For Leasehold Right (Hak Sewa) acquisitions, there is no formal registration at the land office and only the respective lease deed copies will be circulated to the parties.Right to Use (Hak Pakai) over Freehold (Hak Milik) Acquisitions
The Notary executes a Deed of Grant of Hak Pakai (Akta Pemberian Hak Pakai atas Hak Milik) between the Hak Milik owner/designee and the foreigner pursuant to which the Hak Milik owner grants the Hak Pakai title to the foreigner.
By separate Notarial Deed, the Hak Pakai owner may also prepay to the Hak Milik owner a number of agreed twenty-five-year renewals.
As we are not qualified legal advisers, we can only provide a general guideline as to how the process is done. For those wanting full legal advice regarding the process of acquiring property in Bali, one needs to get qualified legal advice.
If you wish further information, we recommend that you contact a Lawyer/legal adviser or speak with a notary, who can help to answer any legal questions which you may have.