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We’d all love to own a villa in Bali. The bad news is we can’t.

In an article written by Lisa Allen, a Senior Writer from The Australian, the many charms and advantages for Australians wishing to purchase a prestige “dream villa” in Bali are enumerated.

Allen says that “for a song” a chosen few Australians can pick up a beachfront Bali villa “replete with swimming pool and cheap labor” via a leasehold or long-term rental contract. Adding temptingly: “Think rock-star lifestyle with 24-hour butlers, chefs, chauffeurs, and gardeners.”

The same article champions the purchase of Bali villas by quoting Matthew Georgeson, director of Elite Haven/Knight Frank in Bali who, when talking about Bali real estate, insists “You can buy very well.”

The article admits in passing that while it is actually illegal for foreigners to “own property outright” – AU$1.5 million will net a 400-500 square meter villa on a 1,000 square meters of land in Batubelig in “trendy Seminyak” that can be purchased in partnership with a local.

What is not revealed by the article are the grave legal problems experienced by legions of foreigners in Bali purchasing property using local Indonesians as the nominee owner. Legally wrong from the get-go, it is a well-accepted principle of law that any legal device purposely configured to circumvent or frustrate both the letter and spirit of the law are ipso facto legally null and void and therefore without legal force. And, on this count, foreign buyers should have no doubt that the Indonesian Constitution is absolutely clear in its opposition to ownership of Indonesian property by non-Indonesians.

Underlining this fact are a large number of cases of nominee deals gone bad in which foreigners have lost their “dream properties” due to their inability to enforce legal agreements created outside the law. Add to this, is the precarious position compliant nominee owners now find themselves in the changing legal environment in Indonesia where officials are taking sterner steps to halt money-laundering, asking the source of funds used to purchase properties by so-called nominees.

The Australian article quotes Tony Smith, an Australian entrepreneur living in Bali, citing his arguable claim that rental rates are rising rapidly in Bali due to Airbnb. In a seeming contradiction, Smith rightly warns that in order to rent a property in Bali the “home owner” must first obtain a pondok wisata license. The pondok wisata license can only be issued to an Indonesian property owner and is not available to foreigners holding property under a “hak pakai” arrangement, a problematic class of property ownership open to facilitate long-term control and occupation of an individual property by a foreigner that does not, however, permit sub-leasing or short term rental.

Georgeson told Lisa Allen that Australians still make up “a significant proportion of buyers, but Indonesians make up most of the market.”

Bali panoramic

What Foreign Property Buyers in Bali Aren’t Being Told

Here are come of the things not being shared with the foreign customers in Bali by those promoting property sales:

    • The fact remains that foreigners still can’t own land in Indonesia.
    • Nominee arrangements for foreigners trying to own land in Bali aren’t legal and are increasing coming to grief before the Courts, almost invariably at the cost of the foreign party.
    • Even if you trust your nominee 100% – you effectively do not own anything tangible despite whatever power of attorneys, and performa/fictive loan agreements you have been put together with a Notary.
    • Those setting up an Indonesian company to own a property should know the Investment Coordinating Board (BKPM) currently at requires USD 1 Million commitment for new Foreign Direct Investments (FDI) with an upfront cash equity injection of USD 250,000.
    • A new Foreign Investment Company (PMA) cannot be formed for the sole purpose of acquiring a single residential property.
    • The law also stipulates that a “Hak Pakai” title – the only class of “ownership” available to foreigner purchasers – CAN ONLY be obtained from an Indonesian seller. This means that when you decide to sell, you cannot sell it to another foreigner. Moreover, the plot thickens: Since Indonesians generally aren’t interested in purchasing “Hak Pakai,” the question becomes: Whom are you going to sell your property to? And if, you leave Indonesia or die, the clock starts clicking. There is only one 1 year available to dispose of your property or the government will do it for you at an indeterminate price.

    Bali Ubud hotel

    Those considering buying a villa as an investment should consider that a “Hak Pakai” property held by a foreign national cannot in principle be rented out. The government grants foreigners the “Hak Pakai” facility for “a single residential property” to provide housing to the subject purchaser. “Hak Pakai” properties held by foreigners cannot therefore be legally subleased and cannot obtain a Pondok Wisata License that can only be issued to an Indonesian citizen.

  • Sadly, the article in The Australian smacks more of being an advertorial parading as news presented by Bali-based realtors than anything resembling a factual news report on the possible pitfalls of foreign nationals trying to buy property in Bali.All credit for this article goes not to the dead tree press, but the consistently informative newsletter produced by Sign up for regular updates.
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