Bali and Lombok have become increasingly popular among foreign investors, but understanding the real estate market and regulations is crucial for a successful investment.
Real Estate Prices and Foreign Ownership Regulations
Bali and Lombok have different real estate prices, with Bali having an average property price of around 200 million - 1,5 billion per 100 sqm and Lombok being around 100-300 million per sqm. However, these prices can vary based on the location, size, and quality of the property.
Foreigners face restrictions when it comes to owning real estate in Indonesia. They are not allowed to buy freehold land but can own condominiums or houses that are not built on agricultural or forested land under Hak Pakai (Right to Use) title.
Before purchasing any property in Indonesia, we recommend foreigners carry out legal due diligence on the property. It's important to engage with a lawyer who is an expert on real estate that can assist you in the legal due diligence process, understanding the type of ownership documentation required and the time it takes for the process so that you will only make a secured decision.
While some real estate agencies or developers may offer a nominee option for foreigners to purchase freehold land, this method can be risky if proper legal representation and documentation are not obtained. Setting up a foreign-owned company (PT PMA) and acquiring the 'Right to Build' (Hak Guna Bangunan) certificate is a recommended alternative for foreigners who wish to invest in real estate in Indonesia, subject to fulfilled terms and requirements of capital.
Infrastructure and Amenities
Both Bali and Lombok are rapidly developing, with new infrastructure and amenities being built to cater to tourists and expats. Bali is well-connected by air, sea, and land to other parts of Indonesia and the rest of the world, with international airports in Denpasar and Ngurah Rai. Lombok also has an international airport, and the Gili Islands are accessible by boat from both Bali and Lombok.
Both islands have extensive road networks connecting all major areas, including popular tourist destinations such as Kuta, Legian, Seminyak, and Nusa Dua in Bali and Kuta and Senggigi in Lombok.
Land Titles for Foreigners in Indonesia
There are a number of different land titles in Indonesia, each with its own implications for foreigners.
Hak Guna Bangunan (HGB), or Right to Build. This title is for Indonesian Citizens and entities like PT Companies or Foreign Investment (PMA) companies. Note, PMA's foreign ownership may be restricted to 49%. The property becomes a company asset, subject to Tax Accountability. HGB under the company must be developed within 3 years, and it can be used as mortgage collateral.
Hak Pakai (HP), or Right of Use. The Hak Pakai title is attainable by Indonesian citizens, Companies (PT), Foreign Representative Offices, and foreigners with a valid residence permit (KITAS). Losing KITAS or being away for 12+ months revokes the title. Collateral options are available.
Hak Milik (HM), or Freehold title, is considered the favored title for foreigners with an interest in land, the Hak Milik title involves acquiring the title in the name of an Indonesian Citizen. This grants you the ownership you seek while adhering to Indonesian regulations. Like other titles, Hak Milik can also be used as collateral under a mortgage agreement.
Lease agreement, you can lease land under a Notarial Deed for a period of 25 years with an option to extend (exercised) for a further 25 years. The alternate is to have a lease agreement between the Parties for a determined period. Please note that a lease interest cannot be registered on the title but under Indonesian Law, a lease interest takes precedence over any subsequent dealing. A lease can be put as collateral under fiducial.
Right of Foreigners to Own Apartments and Landed Houses, this right is confined to apartments in specific economic zones, such as special economic zones, free trade zones, industrial zones, and other economic zones like tourism or suburban areas. To hold HMSRS, you must possess a valid KITAS and disclose property worth a minimum of IDR 5 Billion. Moreover, the regulation restricts you to only one apartment unit within Indonesian territory, even if the unit area is less than 2 are. The purpose is strictly residential. Similar to the other titles, HMSRS for apartments can be pledged as collateral. For landed houses, the maximum area allowed is 20 are or 2000 M2.
Rental Income Potential
Rental income potential is a crucial factor to consider when investing in real estate in Bali and Lombok. Average rental yields are around 6-10% per year, but this can vary depending on location and type of property. Rental demand is another crucial factor to consider when investing in real estate, with larger properties having more demand than smaller ones.
Regulations around renting out properties vary from city to city, with some requiring registration with local authorities and others not requiring anything at all.
If you're considering investing in real estate in Bali or Lombok, be sure to consult with a real estate expert lawyer to understand the regulations and documentation required. With the right information and guidance, investing in these islands can be a secure and beneficial investment opportunity.
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This article was written with expert legal advice by:
Ni Luh Putu Wulan Purwanti, S.H.
Ni Wayan Anggarani, S. H
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