#1 WHY?
Most importantly, why do you want to invest in Bali? Is it to reside here, or is it to acquire a dual-purpose property in which you can holiday from time to time and then also draw an income from while you are not using it? This matters because while there is a massive amount of inventory for sale in Bali at the moment, and not all villages are zoned alike.
#2 HOW
How can I legally acquire a Villa in Bali? There are many ways, and all of them are directly related to the country which has issued your passport . If you are an Indonesian citizen, then you have the legal right to acquire any type of property you choose, be it leasehold or freehold. If you are not an Indonesian citizen, then the choices are many, but there are a couple of restrictions to keep in mind. First, let’s get some vocabulary straightened out because herein much of the confusion lies. The Indonesian laws on property acquisition and ownership do not use the word “freehold”, but instead use the Indonesian term of “hak milik” which translates to “right to own”. Only Indonesian citizens can acquire a property under hak milik terms, as only they have the right to own. Foreigners have introduced the term “freehold” into discussions about real estate in Bali as a means to more easily understand the laws, but in fact, such a term has muddied the waters a bit and caused more than a little misunderstanding. Yes, foreigners can shop for property that is being marketed as “Freehold”, because as long as the property matches their criteria and passes due diligence, the foreigner can acquire that property directly without the use of the now-out-of-form Nominee Agreement. The foreigner can acquire the property under a title known as “Hak Pakai”, which translates to Right of Use. This is a term agreement (consecutive 80 year terms, and in perpetuity) with the Indonesian federal government which has caused a few to balk because “it looks like a lease”.
#3 CAPITAL APPRECIATION ON A LEASEHOLD?
How does that work? And how do we exercise the “option to extend”?
In Bali, a leasehold acquisition requires that the total value of the property be paid up from and in full for the transfer to occur. Here’s an example: John and Mary acquired a plot of land under a leasehold structure and the lease term was for 25 years and the agreement came with an option to extend for 25 more years. They spent a year or so building a villa and then enjoyed the villa for 4 more years before life circumstances required that they sell the villa. Enter Tom and Kim. Tom and Kim can buy the lease contract from John and Mary and assume all of the terms and conditions that John and Mary agreed to when they acquired the land 5 years ago. Simple and straight forward. Depending on a range of factors that impact all real estate markets, John and Mary can actually price the value of their lease for an amount greater than they invested – including the funds invested to build the villa – and voila, capital appreciation is realized on a lease agreement. The longer the initial term, the greater likelihood that one will realize capital appreciation. And while the norm has been a 25 year lease plus a 25 year option to extend, many leases are structured with an initial term of 30 or 35 years.
#4 WHAT ?
What are my closing costs? As a buyer of a leasehold property, you pay no tax or stamp duty upon settlement and the agent’s fees are paid by the seller. The only fee that you would pay in addition to the purchase price is a fee of 1% of that purchase price to the public notary of your choosing to complete the due diligence on the property and draft the agreements. As a buyer of a Hak Milik/Hak Pakai property, you are required to pay a 5% transfer or acquisition fee and the 1% fee to the notary. As a seller of a leasehold property you are required to pay the agent’s fees and a 10% tax on the value of the property as recorded in the transfer deed. As a seller of a Hak Milik/Hak Pakai property, you are required to pay the agent’s fees and 2.5% of the value of the property.
#5 WHAT ABOUT……?
“We’ve heard so many stories about people getting ripped off. How do we prevent that from happening to us?” Get it in writing. A good rule of thumb to follow. If an agent – or in some cases, a legal representative – tells you that a certain practice is ‘customary’, as opposed to ‘legal’, ask them to put it in writing. Go with an established agent/agency. Agencies open and close in Bali more quickly than in other locations.
