advice needed in buying property in bali

[oksana]

Hi, My husband and I are Australian citizens residing in Australia.
We have fallen in love with the idea of purchasing land in Bali with the intention of building comfortable accommodation for the purpose of both investment and the possible thought that we could live there on a semi permanent basis sometime in the future.
It is our understanding that non Indonesian citizens are unable to own property in Indonesia without nominating an Indonesian sponsor. This scenario does not appeal to us for the obvious reasons that if the sponsor decides to pull a swifty then we are likely not to have any right of claim in an Indonesian court of law.
Our initial inquires with lawyers in Bali claim that the process can be made a lot safer by placing a mortgage on the sponsor as part of the legal agreements that would be in place. The person who provides the funding would be the Mortgagor.
Our question is, that if this was put to test in an Indonesian court of law, how enforceable would this likely to be? In addition how common is this practice?
We would also like to know if this forum has gained any statistics on the success rate of foreigners purchasing land in Bali without incident as opposed to those who have lost it all.
Any personal experience shared would be most appreciated. :?:

 

[r1nt0]

Hi Oksana:
My name rinto, I am indonesia citizen...
Hopefully can help you to catch your dream...

How about this scenario :
1. I borrow your money for buying the land that you want.
2. I spent the money and get the land document
2. You save The document of the land as the collateral.

Simple way.. but need trust..

 

[Bert Vierstra]

The nominee type of structure is, as far as I can tell, the most used. When notarized in a good way, there are usually no problems. My advice is to find a good lawyer to arrange it all for you. Find a foreign lawyer, with long time experience in Bali, there are a few.

Even the "incomplete contracts" with plenty of "holes" in them are still respected.

Of course there are the stories of the crooked nominee, exploiting the holes in contracts. Even when a contract is made up with the best legal structure, a nominee may try to "go for it".

A typical exploit would be that you have a contract with somebody that dies, and you did not arrange inheritage in the contract. The heirs don't have a contract with you, but now they own the land...

Since this nominee structure is used a lot, it has a "legal mass". If this way of owning land in Bali would be declared "illegal", the public relations for Bali would suffer enormously, so nobody will challenge this "en mass".

I heard once, that if you hold this structure "against the exact letter of the law" it is a doubtful structure.

But, I know plenty who use the nominee structure, and all are happy with it, both the nominee and the foreign owner. The main thing is, when done properly, it works. But don't use a nominee you don't know very well. Don't go for the beautiful smile and "It's all ok, trust me". Ask around, talk with foreigners, talk with Notaries married to a foreigner, there are a few.

A rather "new" thing is the "Hak Pakai" title. It is not freehold, but it is right of use. A freehold title "Hak Milik", can be changed to "Hak Pakai", and this title can be in a foreigners name, so you don't need a local nominee.

Hak Pakai for foreign investors


Since March 2004 in effect in Bali:

The government offers foreign investors land rights that are relevant to the nature of their business. Prospective buyers of land for any purpose should consult the local government authorities on land use, planning and zoning. Based on a Presidential Decree issued in June 1996, foreigners domiciled in Indonesia are allowed to own one residential property. To meet the regulations of ownership of a house or an apartment, a foreigner must be deemed to be "beneficial to national development" and must be either:

An Indonesian resident (domiciled permanently in Indonesia) in possession of a permanent resident permit
A non-resident (domiciled in Indonesia only at particular times) in possession of appropriate visit and immigration stamps in his/her passport.
A foreigner can purchase or construct a house built only on land with the right of use (Hak Pakai), the right of use with the right of proprietorship, or the right of lease (Hak Sewa). An apartment can only be purchased by a foreigner on land with right of use (Hak Pakai). Foreigners are not, however allowed to purchase houses or apartments classified as "low cost housing" or "very low-cost housing".

Ownership is limited to 25 years, and is extendible for another 25 years provided that the foreigner remains an Indonesian resident or meets the status requirements. If the foreigner departs from Indonesia, the property must be sold or transferred within one year after departure. If the foreigner or his family does not use the house for more than 12 consecutive years, then the foreigner forfeits the "being domiciled" status, for the purpose of owning residential property.

The downside of this arrangement is that with every 25 year renewal you have to pay a 5% tax on the current value of the land.

And then there is of course the lease, which is supposed to be the "safest", but not always financially attractive, unless you can earn you money back within the lease period, and leases are hard to sell, say after half the lease period.....

For larger properties a PMA structure may be suitable. A PMA is a Ltd, same sort of structure, and this PMA can obtain the use of property by means of "Hak Bangunan" right to build. The land is "owned" by the PMA, this PMA can be owned by foreigners, without the "use" of Indonesian Citizens. The shares of this PMA can be traded. A PMA assumes a business, so owners would be elgible for tax, at least USD 1200 a year, but they would also get a Kitas and Working Permit for 5 years.

I heard the stories about people loosing their "Nominee" property, but I never met anyone in person who has, I wonder if anyone on this forum actually met someone.. All I know, are happy with it, allthough somewhat scared sometimes, after all we are strangers overhere. Some may say that the law is not in favor of foreigners, and know examples of this, but I know otherwise too. Just recently a guy who borrowed money to a Balinese, but the Balinese failed to pay back, and this foreigner now holds the property of this Balinese, by nominee....


And, don't trust anyone with green glasses.... They may tell the "Agrarian Office" that they lost their certificate, and have a new one issued 8) (Another possible exploit)

Just kidding rinto...


I think its important too, that when you have decided to buy something somewhere, to "go local", meet the people living in the area, the Kapala Desa and other officials there, if possible. Meet the people of the Desa, village, without the presence of who ever introduced you to the property....

 

[oksana]

Bert, thank you very much for your valuable prompt advice, it was nice to hear something positive otherwise we were almost getting put off the whole idea of a "balinese dream house" for ourselves.
Just a few more questions:

1) you were mentioning the good international lawyers, the one we're talking to now is "Austrindo" in Kuta, can you recommend someone else?

2) you also mention "notaris" married to foreigners, isn't that common practice to go to a notary office suggested by your lawyer, if not who could you recommend?

3) at the end if in our scenario we are the Mortgagor who actually holds the original of the title?

4) after all the monetary transaction how long does it usually take to receive the official documents from the government offices?

5) and at last what's your viewpoint on the private landsale (search on the property history will be of course done by our lawyers) as opposed to the real estate agents?

Thanks again
Oksana

 

[Bert Vierstra]

Re: RE: advice needed in buying property in bali

1) you were mentioning the good international lawyers, the one we're talking to now is "Austrindo" in Kuta, can you recommend someone else?

Peter has a reputation to uphold, I suppose you are talking with him?

2) you also mention "notaris" married to foreigners, isn't that common practice to go to a notary office suggested by your lawyer, if not who could you recommend?

This is just one of the possibilities.

3) at the end if in our scenario we are the Mortgagor who actually holds the original of the title?

The certificate will not be in your name, but you will have the original, BTW you cannot be mortgager as far as I know, you will supply a loan, with the property as security.

4) after all the monetary transaction how long does it usually take to receive the official documents from the government offices?

Depends a little. If the certificate has to be changed in name, it can take about a month or three. But this may vary by region.

5) and at last what's your viewpoint on the private landsale (search on the property history will be of course done by our lawyers) as opposed to the real estate agents?

Well, a good real estate agent should not only "know where it is". The agent should be added value, provide extra service, some security, and a good price advice. The agent should be knowledgeable about the current price levels in the area, and he should bring you in contact with the owner(s), without 6 telephone calls.

With the "local" land sales you may (or may not) run into problems with a lot of middle man and a greedy price level. But you may meet a greedy real estate agent as well....

 

[oksana]

You' re right Bert, we're talking to Peter now, thanks again for your valuable tips, as to the real estate agents, I've sent a couple inquries on the net expressing my interest to buy 5 are land in Canggu Beach area but so far none of the agents came back to me. I suppose I'll keep looking (hard to do that physically being in Australia).
Sometimes I start thinking that it's much easier to buy already built villa but then in most of the cases prices do suck.
Thanks again for your help.

Cheers,
Oksana. :roll:

 

[grastaman]

i bought my place 3 years ago - under the nominee workaround that you mention. your wariness is well placed and fundamentally, the legality of this workaround will remain tenuous- period. far crazier things have happened in Indonesia.

however i do agree with the feedback here that now this method has a critical mass that will make it difficult to change, and thus you (and i) would be sort of protected by inertia and the fact that any assault on this would hurt Bali and the landowners themselves.

one thing is to note that for the last several years more and more non-Balinese Indonesians have been buying land in Bali and it is possible that there may bee a backlash on this dilution. i recall that there was an editorial in a Bali newspaper about this in the last few months. however it was more aimed at the strong trend of well funded Javanese Indonesians coming in rather than 'foreigners'.

i, like you, proceeded cautiously when i did my contract and i think that using a well placed/informed lawyer is a good idea. however, this will be costly- several thousand dollars or more, and i have heard that a good notaris may be able to provide the same contracts/service for a lesser price. (i do not know this for a fact but have been told by friends who have multiple properties). you can find in the internet the main documents that are needed for a proper workaround (with even scans of documents). i think our paper work, due to oversights by the developer, too 9 months longer to receive than expected.

lastly, big law firms have many clients- make sure there are no conflicts of interest. this is probably less a risk to you if you are buying land and building- but, if you buy off the plan development, then take any advice you get with a grain of salt as that lawyer may also represent the seller....Bali is not a big place. im not saying there will be impropriety, but people often ask the lawyers for opinions outside of only legal contracts.

and yes, you can (try to) haggle on prices set by lawyers- its not like your contract will be much different than the hundreds of others they do.

now, if i were to get a second property, i am thinking that i might look for a well negotiated long lease- i wouldnt be overly averse to 'freehold' but just so i dont have too many eggs in one basket.

buying off-the-plan is at times easier. esp if you are off site. i would expect that doing so will save you a devlopers premium of 20-35% of the selling price, but the tradeoffs are significant as well. either way, add 50% more onto your best budget and timeline.

good luck!

 

[oksana]

Hello, Grastaman and thanks for the useful information, I wonder in the long term spectrum, when you buy your property there, do you actually get what you've planned for? I mean in terms of investment, some of the local indonesian real estate agents with big smiles were trying to tell me that a good villa in a good location will be rented out 70% of the time (which I immediately doubted, too many good villas everywhere in Bali), then after some research I heard 40% and the last comment was about 20%. From what I understood on average one can expect about 5% return on your investment? Is that close to the facts or am I missing something? :?

 

[grastaman]

slick salesmen all of them!

i posted something that i believe to be the general case (for property returns/margins) in another thread....do a search under my name....some people too minor issue w/ my opinions, and i am by no means a seasoned Bali expert- but i did enough investigation to feel comfortable.

at the high end, i really do think there will be a glut in a couple of years....as you note. i think the real occupancy rate is abour 40-50% but maybe with really good marketing you can get to 60-70%. keep in mind that you will have to give a cut to managing agent, and that isolated properties have less 'mass' to spread out these types of costs (advertising, staff, security etc). that was one of the reasons that i chose a development and off the plan.

however, my next property would likely be stand alone and buy/build.

i think a 5% return is a good conservative estimate. with 10%-13% being quite good- and possible after you develop some repeat business and clientele. i can hear brokers grinding their teeth already. go with your gut, not with what brokers say.

note that there are quite a few costs associated with sunk costs....legal fees, fees for the nominee, travel and inspection, - even furnture...etc.... this might add up to 10% of your total costs.

i did my place at an opportune time, so my major gain was capital appreciation- so far the rental returns seem to be ok, but slightly on the anemic side.

lastly with any building, there are tons of minor problems and snagging that will take significant time to rectify. view that as part of the process- its never perfect from the get-go.

dont see my opinion as discouraging- its not meant to be. it seems that youa re already fairly well informed.

good luck!

 

[oksana]

Thanks, Grastaman,
I'll definitely do more search under your name, like they say "you never stop learning".
I don't find your opinion discouraging at all, I find it quite realisic indeed. By the way, if you're interested in long lease in Vanuatu one can have it for 75 years, not 20, 25+ like in Bali... tax-free as well...

Cheers,
Oksana.

 

[nicktutty]

I want to sell my place in Bali

Hi all. I have a PMA company which owns my house in Bali freehold and I have a 2 bedroom villa with 160 degree ocean views in Medewi on the west coast (an hour and a half from Denpasar). We also have a great website which is highly ranked by google.
I need to sell my place as I need cash for another venture at home in Australia however I have no idea what the best course of action is. I know there are a thousand Real Estate places in Bali but can anyone recommend a good one which can produce a fast result? I really need the funds as soon as possible which will be reflected in the price. In other words, it is an awesome property going for very cheap and I need HELP to know how to market it. Thanks in advance to anyone who can help.
Cheers,
Nick Tutty

 

[davita]

@nicktutty post #11

You could start with Craigslist Indonesia and go from there with a realtor if unable to DIY.

XP Bali is a large realtor Bali Villas For Sale. I believe owned by Australian and they advertise a lot in Bali Advertiser and elsewhere...all speak English.

 

[dbkbali]

Nominee agreements are illegal in Indonesia, as any agreement where the purpose is to violate the spirit of Indonesian law, can easily be ruled null and void. This is the case for foreigners buying property and is even codified in the regulations and laws for foreign investment issued by BKPM, as it used to be common practice for the restricted sectors of Indonesian investment that, a foreigner would find a nominee to hold the required local portion of that investment. On the corporate side if you want to see the types of problems that can occur, when using a nominee, just google (Astro, Lippo and TV).

With respect to real estate, whilst such an arrangement could be found illegal, you again just need to google, to find cases where people have had problems. From my own experience as an investment consultant, I have seen several such cases, which are typically ongoing, as legal challenges, and given the amounts at stake, are typically challenged right to the supreme court (civil) and if not successful there, a new series of cases commence in the criminal courts (usually alleging theft and fraud), these legal undertakings can often take many years to be resolved (5+), during which time your ability to sell or do anything with the underlying land could be impaired.

A large percentage of people subject to nominee agreements will not have a problem, as any problem would require the nominee to commence actions in the legal court system, so typically the problems occur, 1) where large amounts of investment are involved, 2) the underlying land is of strategic interest to a 3rd party, or 3) the nominee, intended to screw you in the first place and/or has a desperate need of money or has other liabilities/problems in other businesses or transactions they may be involved in (other business, gambling or other debt). I recently heard of a case that implied, there are money lender's in Jakarta, who will lend against "nominee" agreements (where there is no debt registered on the underlying land certificate), as they have legal team's in place, that can take the necessary actions to quickly invalidate those agreements and kick the tenants off the land.

The critical mass or the number of people using nominee agreements should not be of any comfort, as legal precedence, has no bearing in Indonesian courts. Normally, this is wishful thinking by people who own their own properties via nominee arrangements or have an interest in selling real estate or earning a fee, as a notary or lawyer, to put such arrangements in place. Keep in mind that lawyers and notaries,unlike in developed countries, normally don't carry liability insurance, so if later your agreements are ruled illegal, they typically have nothing to lose, and therefore their incentive is to tell the clients what they want to hear, and that is "don't worry - you are safe".

If as a buyer of a property, notwithstanding the legal risks you do decide to use a nominee arrangement, definitely a mortgage and lease arrangements can protect you, however, you need to make sure that the mortgage is actually registered at the land office, which means the payment of a registration fee (which I believe used to be 1% of loan value) - you also need to ensure the loan is legal and be aware that whilst not normally enforced, the mortgage may create a Indonesian tax liability. I am aware of several cases where in order to save the fee the notary prepares and executes the agreements but never actual registers the mortgage at the land office - again telling the client they can save money this way and "don't worry you will be safe". Holding of the land certificate alone, is not adequate protection, as there are procedures that can be followed, and that might be easily facilitated by corruption, to easily procure a new land certificate if your nominee wanted a certificate to secure a loan against your property or to sell the land without your approval.

If you are using Austrindo, or taking comfort from any lawyer in Indonesia, I recommend you read the book "Eleven Demons - Secrets of Deincarnation in Bali - by Michael Donnelly" - I am not sure whether this is available in Indonesia, for obvious reasons.

This may not be what you want to hear, but the reality is that Indonesia does not provide a good environment for foreign investment, especially in property, and if you are not comfortable with the legal risks that you potentially might incur (if your nominee happens to fit the criteria detailed above) the safest way to procure rights to property, is a Hak Pakai arrangement, which will increase your transaction costs significantly.

 

[SHoggard]

Hi all. I have a PMA company which owns my house in Bali freehold and I have a 2 bedroom villa with 160 degree ocean views in Medewi on the west coast (an hour and a half from Denpasar). We also have a great website which is highly ranked by google.

Check your Messages

 

[sakumabali]

Thanks for your input dbkbali! We not shoot the messenger for bringing bad news
Sad but true...here in nick's case he has a PMA which can legally owns a villa via HGB, it's not cheap but safe

 

[dbkbali]

Thanks for your input dbkbali! We not shoot the messenger for bringing bad news
Sad but true...here in nick's case he has a PMA which can legally owns a villa via HGB, it's not cheap but safe

Safer, if the PMA is authorized for 100% foreign ownership, if not, and there is a local shareholder, who is subject to a nominee agreement with the foreign owner, the whole investment could under current BKPM laws be ruled as invalid, if ownership was ever challenged.

Obviously, any buyer/investor, as with a nominee arrangement, would have to make their own judgement as to whether this is a risk that they are prepared to take!

 

[davita]

Thanks dbkbali
You have eloquently pointed out what my limited comments here, and on numerous other forums, have also said about the nominee system.

I note, however, you say that the nominee agreements are illegal but imo, getting a relative to purchase using the foreigner's money, then allow the foreigner to live in the property, surely isn't illegal.

I have WNI relatives that own both of our properties...an apartment in Jakarta and a villa in Bali. My wife and I use both but our reality is her family actually have title. Consequently, we have to trust them, and their inheritors should they demise, so that we still have access to those properties. We have no agreements in place.

As you explained, all those agreements that foreigners use has no protection under the law, other than processing a Hak Pakai atas Hak Milik. A Constitution or Law, such as the Hak Milik Agrarian Law, cannot be circumvented by a contract. Title belongs to the WNI Nominee....even if the foreigner hides the deeds in a safety box.

Thanks again for the clarity of your explanation...I'll be filing it for future arguments.

 

[dbkbali]

Thanks dbkbali
You have eloquently pointed out what my limited comments here, and on numerous other forums, have also said about the nominee system.

I note, however, you say that the nominee agreements are illegal but imo, getting a relative to purchase using the foreigner's money, then allow the foreigner to live in the property, surely isn't illegal.

I have WNI relatives that own both of our properties...an apartment in Jakarta and a villa in Bali. My wife and I use both but our reality is her family actually have title. Consequently, we have to trust them, and their inheritors should they demise, so that we still have access to those properties. We have no agreements in place.

As you explained, all those agreements that foreigners use has no protection under the law, other than processing a Hak Pakai atas Hak Milik. A Constitution or Law, such as the Hak Milik Agrarian Law, cannot be circumvented by a contract. Title belongs to the WNI Nominee....even if the foreigner hides the deeds in a safety box.

Thanks again for the clarity of your explanation...I'll be filing it for future arguments.

Davita, poor wording on my part you are absolutely correct, nominee agreements are not necessarily illegal, but could be deemed to be null and void in the event of an ownership dispute, if a party can prove that the express purpose of the arrangement was to bypass or avoid the spirit or intent of Indonesian law. However, with respect to nominee agreements for PMA's, I understand current law explicitly states that for a BKPM approved investment, it is illegal to enter into any nominee agreement with a local shareholder, to bypass BKPM local ownership requirements.

 

[davita]

Davita, poor wording on my part you are absolutely correct, nominee agreements are not necessarily illegal, but could be deemed to be null and void in the event of an ownership dispute, if a party can prove that the express purpose of the arrangement was to bypass or avoid the spirit or intent of Indonesian law.

Actually dbkbali I think we are on the same page and agree. Imo, having a trusted nominee is perfectly OK...having those sideline contracts that some notaries add, and some foreigners believe are protection, which supports circumvention, could be deemed null and void in an ownership dispute.

A friend of ours, originally WNI but changed to UK nationality on marriage 30 years ago, inherited half a property with her brother, from their father. The brother disputed our friend's right as she was no longer WNI. Her contention was that she had the right to inherit but sell within 12 months. The court case went on and on till the legal fees were more than the value of the property. She won but her husband and I think it was lose/lose.

 

[mat]

Actually dbkbali I think we are on the same page and agree. Imo, having a trusted nominee is perfectly OK...having those sideline contracts that some notaries add, and some foreigners believe are protection, which supports circumvention, could be deemed null and void in an ownership dispute.

A friend of ours, originally WNI but changed to UK nationality on marriage 30 years ago, inherited half a property with her brother, from their father. The brother disputed our friend's right as she was no longer WNI. Her contention was that she had the right to inherit but sell within 12 months. The court case went on and on till the legal fees were more than the value of the property. She won but her husband and I think it was lose/lose.

Indonesian Wives/Husbands of mixed marriage couples can inherit or be gifted property and keep it. It is deemed to be theirs only and not shared with the foreign partner. [even without a pre-nup] One way of getting your partner to own property legally without a pre-nup. Buy in parents name and get them to gift it! Source; A mixed marriage specialist notaris.
Obviously if you change nationality the obove post by davita is true, 12 months to sell.