How to invest property in Bali?

Bali is one of the most paradisiac islands in the world and attracts tourists all year long. The property market for villas is flourishing and attracts more and more foreign investors, either to live permanently in the Island of Gods or to rent accommodation to visitors. The Indonesian laws can make the purchase of land or property by foreigners rather complex and the ownership of the goods isn’t always granted indefinitely. That is why several types of contracts can be made with different terms and ownership rights and the complexity of the process can bring risks to the transaction.

Bali’s property market is booming. It attracts more and more investors looking for a good way to invest their money. There is still some room for construction on the Island of Gods and the smaller surrounding islands because the flourishing touristic activities allowed a large diversity of people in need of an accommodation, both on a short or long term. Bali’s strong tourism position means good turnover rates for sub-leased properties and high demand for properties for sale. The key is getting into the market before it’s too late.

The Indonesian property laws are really complex to understand and may be a brake for potential investors. It restricts the rights of foreign people to invest in property in Indonesia. A distinction must be drawn between the Rights to Use (Hak Pakai), the Rights to Build (Hak Guna Bangunan) and the Rights to Own (Hak Milik). The law aims to keep the ownership of property to the Indonesian people: it is not possible for a non-Indonesian investor to get the ownership of a property for good. But some turnarounds exist to bypass the laws and legally get the ownership of a property.

The first possibility is a leasehold investment which is similar to a long-term lease contract. The property remains under the name of the original owner but the investor can rent it for an initial period of around 25 years which can be extended to 70 years. The owner will keep the right to own (Hak Milik) but the investor will get the Hak Pakai title (right to Use) which allows him to sub-lease the place.

The second possibility, the freehold investment, is to find an Indonesian business partner, the property will be under the name of the sponsor. You will then have the ownership through the Hak Pakai Certificate without any time restriction. The most important thing in this kind of transaction is the binding documents between the investor and the sponsor. If the legal papers are not correct you could lose the use of the house for the benefit of your sponsor.