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Bali’s property market continues to attract foreign investors looking for vacation homes, rental properties, or long-term residences. However, Indonesian property laws are distinct from those in Western countries, and purchasing property as a foreigner requires careful legal navigation.

Many first-time buyers assume they can own freehold property in Bali outright, only to discover that Indonesian law prohibits foreign freehold ownership. Instead, foreigners must explore alternative options such as leasehold agreements or Hak Pakai (Right to Use) titles, both of which provide secure yet legally compliant avenues for property acquisition.

The difference between freehold and leasehold ownership is crucial to understand from the outset. Freehold, or Hak Milik, is the strongest form of property ownership available in Indonesia, but it is restricted to Indonesian citizens.

Foreigners cannot hold land under a freehold title, which means that even if an international buyer were to enter into an informal arrangement with an Indonesian nominee, the legal risks would be significant. Leasehold, on the other hand, is a well-established and fully legal alternative.

Foreign investors can lease land and property for an initial period of 25 to 30 years, with the possibility of renewing for an additional 20 to 30 years, making leasehold agreements an attractive option for those looking to invest in Bali’s real estate market. Another option, Hak Pakai, is available to foreigners who hold a KITAS or KITAP visa, which allows for long-term residence in Indonesia.

This title enables a foreigner to obtain the right to use a property for up to 80 years, provided they meet certain requirements, including purchasing a property valued at no less than IDR 5 billion. While less common than leasehold arrangements, Hak Pakai provides an alternative for those who qualify.

Legal Due Diligence: Why It Matters

Regardless of which ownership structure a buyer chooses, conducting legal due diligence is an essential part of the purchasing process. In Bali’s fast-moving property market, where land transactions are frequent and documentation standards can vary, it is vital to confirm that the property being purchased has a clear and legal title.

Buyers should verify that the property has not been previously sold or leased to another party and ensure that there are no outstanding taxes, disputes, or encumbrances. An essential part of due diligence is checking zoning regulations.

Land in Bali is classified for different purposes, including:

• Residential use

• Commercial use

• Tourism use

• Agricultural use

Some properties may be located in areas where foreign leasehold ownership is restricted or where certain types of development are prohibited. Without verifying zoning status, an investor may purchase a property that cannot legally be used as intended, leading to financial losses or legal issues down the line.

A reputable notary, or PPAT (Pejabat Pembuat Akta Tanah), is a necessary partner in any property transaction. A notary’s role includes:

• Verifying the authenticity of land certificates

• Drafting legal agreements

• Ensuring that all necessary paperwork is correctly filed with the Badan Pertanahan Nasional (BPN)

Investors should always work with a qualified notary and legal consultant rather than relying on informal agreements or verbal assurances.

The Importance of a Well-Drafted Lease Agreement

For foreign investors who choose a leasehold agreement, the structure of the contract plays a crucial role in protecting their interests. A properly drafted lease should clearly outline the lease duration, extension rights, and financial terms, including any pre-agreed conditions for extending the lease in the future.

Without explicit renewal clauses, a foreign investor may face difficulties renegotiating terms when the initial lease period expires. Another critical aspect of the lease agreement is defining permissible property modifications and usage rights.

If a buyer intends to renovate or rent out the property as a short-term or long-term rental, these conditions should be outlined in the lease to avoid disputes later on. Additionally, an exit clause is advisable, detailing how the leaseholder may transfer or sell their remaining lease term to another buyer if needed.

Without these provisions in place, an investor may find themselves locked into unfavorable terms with no legal recourse. Engaging a legal expert to draft or review the lease agreement can prevent costly mistakes and ensure that the contract reflects the investor’s long-term goals.

Property Taxes and Fees

Aside from the purchase price, buyers must account for taxes and legal fees when acquiring property in Bali. The Land and Building Acquisition Tax (BPHTB) is a mandatory tax imposed on property purchases, typically amounting to 5% of the transaction value.

Legal and notary fees can vary but generally range between 1% and 2% of the property price. For those leasing property, annual land and building tax (PBB) is a recurring obligation, though it is usually modest compared to similar taxes in Western countries.

Meanwhile, sellers are required to pay a Capital Gains Tax (PPh) of 2.5% when transferring ownership. These additional costs should be factored into an investor’s budget when evaluating the affordability of a property.

Alternative Investment Structures for Foreign Buyers

For investors looking to hold property with stronger legal protections than a leasehold agreement offers, establishing a foreign-owned company (PT PMA) can be a viable option. A PT PMA (Penanaman Modal Asing) is a legally recognized entity that allows foreigners to conduct business in Indonesia, including purchasing land under a Hak Guna Bangunan (Right to Build) title.

This structure is commonly used by those investing in commercial real estate or villa rental businesses, as it enables more direct control over the property. However, setting up a PT PMA requires compliance with Indonesian business regulations and ongoing administrative oversight.

Some buyers explore nominee agreements, in which an Indonesian citizen holds the title on behalf of a foreign investor. While this approach may seem convenient, it is legally risky and not recommended, as Indonesian law does not recognize nominee arrangements, leaving the foreign investor vulnerable to potential disputes.

Avoiding Common Pitfalls

Despite Bali’s reputation as an attractive investment destination, buyers should be aware of common pitfalls that could jeopardize their purchase. One of the most frequent mistakes is relying on verbal agreements instead of legally binding contracts.

Every transaction should be formalized through a written agreement in both Indonesian and English, ensuring transparency and enforceability. Investors should also avoid purchasing property without verifying zoning and building regulations, as non-compliant properties may face demolition orders or legal disputes.

Additionally, failing to confirm the seller’s legal standing can result in complications, particularly in cases where land certificates have not been properly updated or where multiple parties claim ownership rights.

Securing a Smart Investment in Bali

Purchasing property in Bali offers a wealth of opportunities, but understanding the legal framework is essential for a secure and successful investment. Whether opting for a leasehold agreement, Hak Pakai title, or PT PMA structure, buyers must conduct due diligence, work with trusted legal professionals, and ensure that their contracts are airtight.

This also applies if you’re eyeing land for sale Bali to build your dream villa or start a business. Bali Coconut Living is here to guide you through every step, making the process smooth and stress-free.

Get in touch with us today and let’s find the perfect property for you in Bali!