As a foreigner, establishing a business on a property that you can’t secure, will add to the baseline anxiety of owning a business. A few sources have suggested to use the nominee structure, to name the property under a trusted entity’s name, on your behalf. Let’s be honest though – that would add even more anxiety, as the property is not only not yours but that entity may one day lose their trustworthiness and may potentially stab you in the back.

The safer alternatives are Hak Sewa (Right of Lease), Hak Pakai (Right of Use) and Hak Guna Bangun (Right to Build). Note that the English translation is only rough, and each has its own terms and agreement that are not successfully translated by the keywords alone.

Different rights to property

Hak Sewa is a simple contractual agreement between tenant and landlord. While the terms are flexible (as it depends on your relations with the landlord), and you may secure a rented property, it’s unlikely that you can create a profitable business with this title deed. It is subject to a typical yearly ground rent.

Hak Pakai is more common for commercial or residential purposes. It is applicable to foreigners domiciled in Indonesia (i.e. a resident who works in and pays tax to the country), and only one foreigner can hold one Hak Pakai title deed. Unlike Hak Sewa, Hak Pakai is not transferrable. This is because Hak Pakai holds more power and control over the property. It holds for 25 years since it is first issued, and is extendable for 70 more years – effectively a lifetime ownership of the property, although it is not inheritable.

Hak Guna Bangunan is dubbed as the title deed whereby a foreigner is as close to having complete ownership to a property as possible. Hak Guna Bangunan is reserved for local companies and foreign investment companies (penanaman modal asing, or PMA). The PMA can be fully owned by foreigners, so in effect, the land is controlled by foreign individuals as a company. It holds for 30 years since first issue, and is extendable for 20 years and a further 50 years.

Investment options and their appropriate title deeds

Private villa

Renting a villa long term is technically not an investment, but it can save you a lot of money from booking hotels. If you are lucky, and the landlord grants permission to sublet your villa, you can make small amounts of extra money from informal rents, say through an online accommodation market. If your only intention is to have a place to stay in Bali, then Hak Sewa is more appropriate. It is only an arrangement mediated by a public notary.

If you are looking into having a villa rental service with more freedom to modify the buildings, apply for Hak Pakai. Not only is this a stronger claim, but you may potentially have a more solid and certified villa rental business for your entire life.

Small restaurants, warungs, cafes

Hak Pakai is again one of the most appropriate ways to establish a small business with low startup costs and with absolutely no shares to sell. You may, however, need to organize more paperwork and apply for a “CV” – a company title much smaller than a limited venture, perseroan terbatas (PT).

Hotel, resorts and large restaurants

Obviously Hak Guna Bangunan is more appropriate. You have the company and the capital to apply for nearly complete control of the property. The advantage is that you have the right to build anything you want that meets your company’s needs. Hak Pakai is only limited to very small changes, and this depends on very stringent regulations. Hak Guna Bangunan is the most secure way to control a property that acts as a foundation to your large business.

If you are looking for a property agent in Bali, look no further than Bali Coconut Living. We specialize in villas and holiday homes for people willing to sell or lease. Just tell us your budget and your prospective location, and we will lead you to our trusty clients on the other side of the table.