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Buying real estate in Bali: what to consider for foreigners?
Real Estate Specialist
Date: 13.10.2024
Reading time: 13 min.
Views: 7,763Bali is not just a paradise on earth with stunning beaches and green rice terraces. This Indonesian island has become a real magnet for foreign real estate buyers. Why? Yes, because here you can not only enjoy life, but also a profitable investment. If you are thinking of buying real estate in BaliIn this article, we will go over everything you need to know before you take a step towards your dream. In this article, we will go over everything you need to know before you take a step towards your dream.
Legal aspects and restrictions for foreigners
When it comes to buying real estate in Bali, foreigners face some legal nuances. The first thing to know is that direct land ownership for foreigners in Indonesia is limited. This means that you will not be able to simply take and buy a plot of land, as is done in most countries. But don't be discouraged! There are several forms of ownership available to help you become a property owner on this beautiful island.
Available forms of ownership: lease and long term rentals
The most common option is a leasehold. This means that you can lease the land for a long term - most often 25-30 years with an option to extend. For example, my friend Alex, who bought a villa in Changgu, has a 30-year lease with an option to renew for another 30 years. He says it's a great way to have your own corner of Bali without worrying about legal complications.
Long-term rentals are also a popular choice. In this case, you can rent a property that is already built and enjoy it for several years. This is especially convenient for those who do not plan to stay in Bali forever, but want to be able to come here on vacation.
Restrictions on direct purchase of land by foreigners
As I said, direct land ownership for foreigners in Bali is a complicated issue. If you do want to own your own plot, you will need to consider nominal ownership through local residents. This means you will use the name of an Indonesian to formalize the transaction. For example, my friend Lena did just that when she decided to buy an apartment in Ubud. She found a reliable local partner who helped her to get all the necessary paperwork done.
But be careful! Nominee ownership can be risky if you don't know the person you are entering into the contract with. Therefore, it is always worth involving lawyers to help you understand the legal aspects and protect your interests.
The need for legal support to protect rights
Don't forget that legal advice is not just a formality, but a necessity. Bali has many nuances that can become a problem if you don't know the local laws. I recommend finding an experienced lawyer who specializes in real estate. For example, my friend Peter, who bought a house in Nusa Dua, says that his lawyer helped him avoid a lot of pitfalls and saved a lot of nerves.
Now that we have dealt with the legal aspects, let's move on to the next step - the process of buying real estate in Bali.
The process of buying real estate in Bali
Now that you have familiarized yourself with the legal aspects, let's delve into the process of buying real estate in Bali itself. It may seem complicated, but by following a few simple steps, you can make it hassle-free.
1. Finding an object and selecting a neighborhood
The first step is finding the right property and choosing a neighborhood. Bali has a variety of interesting neighborhoods, each with its own characteristics. Popular neighborhoods include Ubud, Seminyak, Changgu and Nusa Dua.
- Ubud - is the cultural capital of Bali, known for its rice terraces and art galleries. If you are looking for tranquility and inspiration, this is the perfect place for you.
- Seminyak - is a trendy neighborhood with chic restaurants, boutiques and beaches. It's vibrant and if you enjoy outdoor activities, you'll definitely appreciate this place.
- Changu - Is where surfing and lifestyle meet. There are plenty of cafes and co-working spaces, making it popular with digital nomads.
- Nusa Dua - is a quieter and more luxurious neighborhood, perfect for those who want privacy and comfort.
When choosing a neighborhood, it's important to consider your goals: whether you want to invest in real estate or just find a place to live personally. For example, if you plan to rent out your villa, Seminyak and Changgu may be more profitable from an income standpoint.
2. Agreement with the seller
Once you have decided on a neighborhood and found a property you are interested in, it is time to move on to negotiating with the seller. At this stage, it is important to sign a preliminary agreement called a Letter of Intent (LOI). This document sets out your intentions and the basic terms of the deal.
Be sure to discuss the deposit amount and agree on the terms of the deal. Usually the deposit is about 10% of the property value. I remember how my friend Igor, when he bought an apartment in Changgu, was very nervous at first, but in the end he found common ground with the seller and everything went smoothly. The main thing is to be open and honest in negotiations.
3. Registration and execution of the transaction
When all the terms have been agreed, it is time to register and formalize the transaction. At this stage, you will definitely need a notary to accompany the deal. He will help you formalize the lease and check the ownership of the property.
It's important to remember that the process can take some time - anywhere from a few weeks to a few months. But don't worry! This is normal for Bali. Just enjoy the process and visualize how you will spend your time in your new home.
Once all the formalities are completed, you can enjoy your property in Bali. But before you do, let's take a look at the taxes and additional costs that may arise when buying a property.
Taxes and additional expenses
When you are one step closer to your dream of real estate in Bali, it is important not to forget about taxes and additional costs that may arise during the buying process. This will help you avoid unpleasant surprises and plan your budget properly. Below is a table with the main taxes and expenses you may encounter.
| Type of tax/expense | Description | Percentage of cost | Example for a $200,000 property |
|---|---|---|---|
| Real estate purchase tax | The standard tax that is payable on the purchase of real estate. | 5% | 10,000 dollars. |
| Registration fees and commissions | Expenses for notary services, execution of documents and registration of ownership. | 1% - 2% | 2,000 to 4,000 dollars. |
| Annual property taxes | The taxes that property owners must pay annually; depend on the value of the property. | About 0.05% to 0.1%. | 100 to 200 dollars. |
Now that we've sorted out taxes and costs, let's move on to the next important aspect - financing options and getting a mortgage.
Financing options and obtaining a mortgage
If you don't have enough funds to pay for the property in full, don't despair! There are several financing options in Bali, including mortgages. However, it is worth remembering that the terms and conditions for foreigners may differ from those offered to locals.
Availability of mortgage programs for foreigners
Some banks in Bali offer mortgage programs for foreigners, but terms may vary. You will usually need to make a down payment of 30-50% of the value of the property. For example, if you want to buy a villa for $300,000, you will need to put down between $90,000 and $150,000 as a down payment.
Terms and conditions of loans from local banks
Interest rates on mortgages can be quite high, so it is worth looking at all offers carefully. I have heard that some foreigners choose local banks such as Bank Mandiri or BCA as they offer more competitive terms. However, be prepared that the mortgage process can take time and require a lot of documents.
Property management and leasing
Once you own a property in Bali, the question arises: how do you effectively manage your property and possibly rent it out? This can be not only a source of income but also a way to recoup your investment.
Short-term and long-term leases
The first thing to decide on is the format of the rental. Both short term and long term rentals are popular in Bali. Short-term rentals allow you to generate income from tourists looking for temporary accommodation. For example, if you own a villa in Seminyak, you can rent it out on the Airbnb or Booking.com platform. I know people who make up to $30,000 dollars per season on rentals, which significantly recoups their investment.
On the other hand, a long-term lease implies that you rent out your property for a period of 6 months to a year. This can be convenient if you want to avoid constant rental management and have a stable income. My friend Olga rented out her apartment in Ubud on a long term lease and now enjoys the peace of mind knowing that the tenants pay regularly.
Search for management companies for facilities maintenance
If you don't plan to actively manage your property, it's worth considering a property management company. These companies can take care of everything related to renting, from finding tenants to cleaning and maintenance.
However, be careful when choosing a management company. I have heard stories of some companies defaulting and owners being left with no income. So be sure to read reviews and do thorough research before making a decision.
Taxes and obligations for landlords
Don't forget about the taxes associated with renting. If you rent out your property, you will need to pay tax on rental income, which is around 10% of the income received. It's also worth considering the costs of maintaining the property, such as utilities and maintenance.
Obtaining a visa and residence permit through the purchase of real estate
One of the nice bonuses of buying real estate in Bali is the possibility of obtaining a visa and even a residence permit. This can be especially relevant for those who plan to spend more time on the island.
What types of visas are available to property owners
When you become a property owner in Bali, it opens the door to different types of visas that allow you to legally reside on the island. Let's take a look at the main options available to property owners.
Temporary visa (KITAS)
The first and most common option is the temporary visa (KITAS). It allows foreigners to stay in Indonesia for up to one year with the possibility of renewal. This visa is ideal for those who want to spend more time in Bali enjoying their home and local culture.
To obtain KITAS you will need to prepare a number of documents including:
- Copy of passport
- Evidence of ownership of the property (e.g., lease or purchase agreement)
- Photos
- Completed questionnaire
The process of obtaining a temporary visa can take anywhere from a few weeks to a few months, so it pays to take care of the necessary documents in advance.
Long-term visa (KITAP)
If you plan to stay in Bali for a longer period of time, you may want to consider a long-term visa (KITAP). This visa is issued for up to five years and can also be extended. KITAP is suitable for those who want to not only enjoy life on the island, but perhaps consider Bali as a second home.
To obtain KITAP, you will need to submit a more extensive set of documents including:
- Documents confirming the title to the real estate
- Evidence of financial solvency (e.g. bank statements or tax returns)
- Copy of temporary visa (if you already have KITAS)
- Photographs and a completed application form
Please note that the process for a long-term visa can be more complicated and time-consuming than for a temporary visa, so it is recommended that you work with experienced lawyers or immigration consultants.
Visa for pensioners
Also worth mentioning is the Retirement Visa, which is available for people over the age of 55. This visa allows you to live in Bali for a period of up to one year with the possibility of extension. To obtain this visa, you will need to provide proof of retirement income and health insurance. This is a great option for those who want to enjoy a relaxed life on a tropical island.
Risks and how to avoid them
Just like any other business, real estate purchase in Bali There are certain risks involved. But if you are careful and aware, you can minimize them and make the process safer.
| Risk | Description | Ways to avoid |
|---|---|---|
| Fraud | There are many cases of fraud in Indonesia where sellers try to sell properties that are already mortgaged. | Use qualified lawyers and notaries. Make sure your lawyer is experienced in dealing with foreign buyers and has a good understanding of local laws. Do not hesitate to ask questions and check the lawyer's reputation before trusting him or her with your money and documents. |
| Registration through intermediaries | Some agents may not be licensed or may be acting in their own best interest rather than yours. | Always check the licenses and reputation of agencies before entering into a contract with them. Work only with trusted partners and avoid deals with strangers. |
| Nominal possession | Using a local resident to handle the transaction can be risky if you don't trust that person. | Make sure that you have full confidence in the local resident with whom you are arranging the transaction. Avoid going through friends or acquaintances without proper legal support. |
| Verification of documents and property rights | Improper document review can lead to legal disputes and financial losses. | Be sure to check all documentsrelated to real estate. Make sure the seller has all the necessary permits and rights to sell. If in doubt, contact a lawyer to help you verify title and other documents. This may seem like an additional waste of time and money, but it is worth it to avoid future problems. |
If you have any doubts, don't hesitate to contact a lawyer to help you verify title and other documents. It may seem like an extra waste of time and money, but trust me, it's worth it to avoid problems in the future.
Conclusion
Buying real estate in Bali is an exciting and potentially rewarding process, but it requires careful preparation and awareness of local laws and regulations. To make your purchase a success, keep the following tips in mind:
- Explore neighborhoods to choose one that fits your goals.
- Engage qualified attorneys to protect your rights.
- Be aware of taxes and additional costs.
- Consider property management options to generate a steady income.
- Explore available visas and options for long-term residency.
If you still have questions or want professional assistance in buying real estate in Bali, do not hesitate to contact our company. We are ready to offer you support at every step of the process to make your dream of a home in Bali a reality.
Foreigners cannot own land in Bali directly. However, there are several options such as long-term leasing (Hak Sewa) or purchase through an Indonesian company (PT PMA) that allow foreigners to invest in real estate.
Foreigners can purchase property through a long-term lease (25-30 years with the right to renew), formalize Hak Pakai (right of use) for the property, or establish a legal entity such as PT PMA, which has the right to own the land.
Major expenses include notary fees, property transfer taxes (5% of the value), registration fees, and legal and contract processing costs.
A notary in Indonesia plays a key role in the transaction. He checks the legal integrity of the object, draws up the sale and purchase agreement, registers the rights to the real estate and ensures that the transaction complies with the laws of the country.
Mortgages for foreigners in Indonesia are rarely available, and are mostly only available to Indonesian citizens. Foreigners often have to rely on their own funds or foreign sources of financing to purchase real estate.
When buying property in Bali, foreigners are required to pay property transfer tax, which is 5% of the value of the property. In addition, a property tax is levied annually.
The turnaround time for real estate purchases in Bali can vary, but usually takes between 1 and 3 months, depending on the complexity of the transaction, document verification and the involvement of the parties.
The main risks include inadequate legal protection in case of incorrect transaction execution, potential problems with lease renewal, and possible disputes over ownership rights. To minimize risks, it is recommended to work with qualified lawyers and trusted agents.
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