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Foamcrest

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Jun 11, 2016
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Yes Markit such leases exist in Australia. I live in Manly and the Catholic Church owns a large area of waterfront land which they lease for 100 years for an annual fee calculated at the renewal date of the lease. That’s not to say you have to wait 100 years as of course the closer to the expiry date the less attractive it is to sell your property. I did know of one property where the lease was down to 12 years and and he had to pay something in the order of $300,000 to renew the lease. The lease can be and often is topped up over the course of the lease in order the make the property more saleable. The values of the houses are in the millions of dollars.
In Canberra all residential land is owned by the government and but with a less commercial attitude than the Catholic Church. The lease fees here are nominal and renewal is automatic .
Cars are often leased from finance companies and despite all your washing and polishing, repairs etc the ownership of the car reverts to the company at the end of the lease, usually between 3 and 5 years.
Why shouldn’t the Balinese do the same?
 
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Cisco Kid

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Hi Mark. I am no expert, but have for some years now taken an interest in news items relating to land disputes in Bali. You say there are no precedents - implying that land disputes involving the nominee structures have not been to court. But they have, many times I think, and my impression is that Bali courts respect nominee structures. You say "it would probably not stand up in court" and I think here you are repeating views from a notaris Rainy Hendriani - and I think what she maintains is that if a case went to the Supreme Court, it is possible they may rule that the nominee structure is trying to circumvent the law that says land must be owned by Indonesians. .

There is some history to this on this forum. Back in 2008 (I think) Rainy Hendriani published one of these views in the Bali Update newsletters put out by Jack Daniels. Roy, who is a friend of Jack Daniels and was still active on this forum then recommended the article to the forum. A forum participant (Balilife) responded by suggesting there may be some self interest in publishing such views. Roy was not amused and "forced" Balilife to apologize - he never came back to the forum after the apology.

My view is that the nominee structure is working well for many people, and that the local courts respect it. The chances of the Supreme Court intervening in an adverse way are probably remote.

REPLY: The above response is solid, for the reasons stated and for other features, unstated. Contrary to the plethora of nay-sayers, in my own 28 years of professional and personal experience both Jakarta and Bali, I know for a fact, in the many court cases I have seen involving the so-called "nominee" structure, not one was ever dismissed or rejected because of illegality associated with this structure. In fact the detractors of a nominee arrangement (of which there are legion) reflects a paranoia unsupported by any specific black and white law of Indonesia. At most, it is merely an interpretation by people of various persuasions (but not by Indonesian advokats). And by the simple expedient of putting an international arbitration clause in the documentation used, courts are obviated and a much more level playing filed is induced into litigating against an Indonesian party by a bule. A simple and sound way for a foreigner to invest in land is to have it bought by an Indonesian buyer and leased to the foreigner for 100 years, This is achieved by 4 consecutive 25 year leases, all signed, sealed and delivered at the same moment. And the lessee holds onto the sertifikat hak milik for extra security. A loan agreement secured by a mortgage in the lessee's name, factors another component of secured recourse into the equation. This is all transparent and does not transgress any statute or regulation. If further elaboration is of interest, I would be only too pleased to respond. (info@balisafeharbor.com)
 
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Cisco Kid

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Oct 24, 2015
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No need to apologize, I'm with you on that score!


Interesting idea, didn't they call that communism bbback in the U, bbback in the U, bbback in the USSR? :kiwi-fruit:

Nevertheless, an interesting concept, off the top of my head the sticking-point would still be +50% local equity



Generally I agree it has some merit.


But remember guys, a bule cannot own shares in a domestic company (Pt.). In a PMA Pt. yes, but there cannot be a PMA set up just to own land. There must be an Investment Plan for an on-going commercial enterprise, and the PMA established for that purpose. As I am sure you must already know, a PMA Pt. can own land under a HGB certificate, and in certain sectors, a foreigner can own 100% of the stock which means effective land ownership. But there are several other land acquisition investment structures, nearly tantamount to ownership which are perfectly legitimate and totally transparent.
As for your disdain for lawyers, while its true that one or two bad ones can ruin the batch, in my 30 years of professional experience here, I have worked for/with many
fine, competent, ethical Indonesian advokat, both in Jakarta and on Bali who earn every Rupiah they bill out. Sometimes when there is not a sound retainer agreement
up front, a bad fee experience results. As for notaris, for sure there are a wide variety of philosophies and viewpoints among them out there. Means we must spend a lot of time to find one who is right for us. I personally work with around half a dozen who are quite cost-effective and professional.
 
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Cisco Kid

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Following up the recent thread on land due diligence, and having completed a property transaction in Bali some months back, I thought I’d summarize some thoughts and observations. The list of issues and considerations below is by no means complete, authoritative or universally applicable. It is not meant to be relied on in lieu of one’s own due diligence and legal representation. Rather, it is based on one mixed marriage couple’s experience buying land near Ubud, and is hopefully a good starting point for those on this board who are contemplating a property transaction. As there is loads of experience on the board, it would be very interesting to hear other comments, perspectives and stories on the process as well.

Ownership Considerations:

1. As a foreign individual, you cannot own freehold land in your name in Indonesia (hak milik title). If someone tells you otherwise, they are either lying to you or are woefully uninformed. There are some company structures that may allow it, but you would need to do your own homework on this option.

2. While using an Indonesian nominee to own the land on your behalf is a popular workaround for many foreigners wishing to ‘own’ freehold land in Indonesia, note that this arrangement would probably not stand up in court if there is a dispute between you and your nominee. Some foreigners have tried a ‘belt and braces’ approach to using a nominee structure by having, for example, mortgage agreements in place secured by the land, a lease over the land on top of the nominee arrangement, etc. Whether these would stand up in court is anyone’s guess, as far as I know there is no legal precedent and you are taking a chance on an Indonesian court supporting a foreigner over a local in event of dispute. A long-term lease is a tried and true method for foreigners to control land, and is fully supported under Indonesian law.

3. If you are married to an Indonesian and do not have a prenuptial agreement in place, your spouse technically cannot own freehold land in Indonesia. Why is this? On the one hand, absent a prenuptial agreement, Indonesian law views property as co-owned 50/50 by a married couple. On the other hand, the Indonesian constitution provides that only Indonesian citizens can own freehold land. Regarding mixed marriages, this conflict has been resolved in favor of the constitution, so an Indonesian married to a foreigner without a prenuptial agreement loses the right to own freehold land. While this shouldn’t present any problems at the point of initial purchase (the seller just wants your money after all), issues will arise at the next point of sale, when the potential buyer’s notary will ask for a no objection declaration from the seller’s spouse, ie, you. This is when things could get sticky, as there would technically be a cloud on the title, which the notary may not be able to legally and inexpensively resolve.

4. For those contemplating marrying an Indonesian and wishing for their spouse to continue to enjoy the right to own freehold land in their own name, I would recommend engaging a lawyer or notaris and entering into a prenuptial agreement in Indonesia. Make sure it is registered before the wedding and also make sure that your marriage is duly registered in Indonesia. Note that a prenup can also protect the foreign spouse in the event of a subsequent dissolution of the marriage, especially where he/she owns a business or has other individual assets in Indonesia.

Purchase / Lease Considerations:

5. Once you’ve found a property that you’re in love with and can afford, things get serious. Step one, consider using a notaris of your own choosing, and not necessarily the one that may be recommended by your friendly vendor / lessor. This is not a hard and fast rule – use your own judgment, but you are perfectly within your right to suggest a notaris. The notaris should be based in the regency where the property is located. Do not be upset if the vendor / lessor is not willing to contribute to paying the notaris fee, which is very possible if you insist on choosing the notaris. These fees are a very small part of the transaction (usually 1%) and if you are bearing the full amount the notaris may feel some obligation towards you, though legally they are supposed to be neutral.

6. Ensure that the notaris confirms that the vendor / lessor owns the property free and clear, that the land certificate accurately describes the property that you are acquiring, and that the property is not in a ‘green belt’, too near to an important temple or have any other impediment that would preclude constructing a building (assuming that is your objective). Consider having a survey done to confirm the boundaries. This is not expensive, and if the property is on a slope or has a lot of terracing, consider asking the surveyor to do a 3D contour map as well. Get this in a digital file – it will be very useful for your architect later.

7. A significant amount of land in Bali is not yet properly certificated. If this is the case with your potential purchase / lease, be very careful. In order to get a certificate, a court case needs to be heard to establish ownership. This expensive process has many pitfalls. For example, during the court process there is a period where anyone having a conflicting claim to the property may present their case for ownership. If you have already agreed to purchase / lease the property before this objection period has expired, you can be certain that someone will appear out of the woodwork and lodge a claim and thereby significantly delay proceedings and the ultimate issuance of title unless otherwise compensated. Listen carefully to the advice of your notaris if the land does not yet have a certificate.

8. Ensure that there is road access to the property. If this is via a public road, as confirmed by your notaris and your own observation and checking, you’re in luck. If not, then you will have to negotiate a separate agreement with the owner(s) of the property that will provide access to yours. Do this as part of the land acquisition process and make the closing contingent on having a written agreement in place for access. You’ll no doubt have to pay something for this, but if you do it at the same time as land acquisition, the price should be reasonable (if not, walk away from the whole deal) and your friendly vendor / lessor should be able to help with negotiations. Involve the notaris and have him/her draft the agreements. If you wait until after you have done your land deal to negotiate access to it, then heaven help you. You will need it.

9. Conversely, be sure that none of your neighbors need to access your land to reach theirs. If so, this could raise sensitive issues as most likely they could not afford to pay you for this access and yet it would not go down well in the village for you to deny them access. Moreover, consider how the access would affect your building and landscaping plans. Take the advice of your notaris if this situation arises. Personally, I would consider walking away from the deal rather than open this can of worms.

10. Ensure that there is electricity available reasonably nearby. The PLN can be very helpful with this and will usually tell you what it will take to bring power to your plot. In any event, however nice they may be, the PLN will not actually provide electricity until you have a valid building permit (IMB).

11. Coming back to zoning, if relevant consider making it part of the deal that the land be reclassified from agricultural to residential. You will have to pay extra for this and it takes a bit more time (in our case an extra month) but then you have the piece of mind of knowing that once the transaction is done, you can actually build on the land.

12. Unless you’re in urbanized South Bali, water will be via a well or bore. If you’re concerned about this, have an expert come and give you an opinion before you complete the purchase.

13. If the property is on a slope and you see signs of erosion, you may wish to have a soil study done before you agree to the deal. Also, take note of the location of any nearby rivers on the same level as the land. Flooding is not uncommon during the rainy season.

14. If the land is currently rice paddies, and you don’t mind what some would consider political incorrectness by building over them, note that it could take eight months or more after the last harvest before the soil is dry enough to build on.

15. If you’re planning to rent out a villa under a pondok wisata license, learn the requirements before you agree to acquire the land.

16. If you and your notaris have included any conditional items in the P&S or lease agreement, tie the payments to the achievement of the conditions. In other words, keep the vendor / lessor motivated to fulfill the conditions and close the deal. Once you’ve handed over the money in full, you have very little leverage left (some would say zero).

17. Once the lease has been registered or the title is legally in the name of your Indonesian spouse (with whom you have a validly registered pre-nup), congratulations. It is beyond the scope of this post to talk about building, however a final piece of advice and caution is that you must obtain a building permit (IMB) before you start. Anyone who tells you that you can start building first and then apply for an IMB is wrong. Yes, it does happen, but it’s not legal and puts you at the mercy of the authorities should they wish to make an example of you, or just extract a significant financial penalty. Also, as noted above, the PLN does not provide an electricity hookup to the land until there is a valid IMB.

18. Last but definitely not least, it is very important to introduce yourselves to the headman in the banjar. There is a mix of opinion on this board as to the timing of this, ie before or after your transaction. We did it after, but nothing would stop you from doing it before and in any event I’m not sure that there is any right or wrong as to the timing. Not doing it at all, however, is a big mistake. At this meeting, it would be courteous to state your intentions regarding the property (building a family villa, having a pondok wisata , etc., living in the community full time, part time and so on), and also to confirm that you are keen to be a member of the community and to contribute as required. In our case, we were advised that this would be a small monthly security fee once we relocated to the banjar, and that any contributions for major ceremonies would be most appreciated. The headman also very diplomatically informed us that unemployment was a big problem in the banjar (as it is all over Bali), so that if we needed help (eg, gardener, pembantu, driver, etc.) it would be great if we could consider people from the community for any available positions. Not unreasonable at all in our view and we will heed this suggestion.

One final piece of advice. Be patient, take your time. If you don’t understand something, ask. Hope for the best, but be mentally and financially prepared that if something can go wrong it just might do. Treat the transaction with much more care and preparation than a similar purchase in your home country, not with less like so many seem to do in Bali. And finally don’t try to force through a deal that doesn’t seem to be working out. If it’s not meant to be, it’s not meant to be. Bali is a big and beautiful place, and there will always be another opportunity.

Good luck!
 

Cisco Kid

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Oct 24, 2015
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Re your point 3 above: In October, 2016, the Constitutional court, on 27 October 2016, through its Judgment Number 69/PUU-XIII/2015 abolished the requirement of a prenuptial agreement previously mandated by Marriaage Law 1/1974. Otherwise you made a great presentation....
 

Mark

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Re your point 3 above: In October, 2016, the Constitutional court, on 27 October 2016, through its Judgment Number 69/PUU-XIII/2015 abolished the requirement of a prenuptial agreement previously mandated by Marriaage Law 1/1974. Otherwise you made a great presentation....
Well...given that my post was made in 2013, I'm not sure how I could have anticipated a court decision in 2016...

Anyway, there is much debate about the actual impact of this court case - some legal experts point out that the court's analysis was flawed - see https://media.neliti.com/media/publ...-kritis-terhadap-perjanjian-perk-e87747bf.pdf. The most optimistic view of the decision is that it now allows for post-nuptial agreements on the separation of property in mixed marriages. Unfortunately, there have been no test cases in the courts since this decision, so the sound advice according to most legal experts is to still arrange a pre-nup if possible. If not, then do a post-nup and hope for the best. Btw, anecdotally, I have heard that if banks are involved in a transaction of real property, for example by financing a mortgage secured by the property, they still demand to see a pre-nup in the case where the WNI owner is married to a WNA.
 

ronb

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Aug 14, 2007
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It's fascinating to see this 6 year old thread still active. When I contributed to the thread back then I still owned (through a nominee arrangement) a property in Lovina but by 2014 it was sold. Since then I have bought into a long term lease in Ubud where I live with my Indonesian partner, and then later we bought a freehold property in his name. This has been relatively plain sailing. And I have to say that the initial advice of this thread stands up pretty well.
 
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Cisco Kid

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Oct 24, 2015
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It's fascinating to see this 6 year old thread still active. When I contributed to the thread back then I still owned (through a nominee arrangement) a property in Lovina but by 2014 it was sold. Since then I have bought into a long term lease in Ubud where I live with my Indonesian partner, and then later we bought a freehold property in his name. This has been relatively plain sailing. And I have to say that the initial advice of this thread stands up pretty well.
curiou
It's fascinating to see this 6 year old thread still active. When I contributed to the thread back then I still owned (through a nominee arrangement) a property in Lovina but by 2014 it was sold. Since then I have bought into a long term lease in Ubud where I live with my Indonesian partner, and then later we bought a freehold property in his name. This has been relatively plain sailing. And I have to say that the initial advice of this thread stands up pretty well.
Curious to know what link you have to the Ubud property in your partner's name? Lease? Custody of the original SHM?
 

Cisco Kid

Member
Oct 24, 2015
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Well...given that my post was made in 2013, I'm not sure how I could have anticipated a court decision in 2016...

Anyway, there is much debate about the actual impact of this court case - some legal experts point out that the court's analysis was flawed - see https://media.neliti.com/media/publ...-kritis-terhadap-perjanjian-perk-e87747bf.pdf. The most optimistic view of the decision is that it now allows for post-nuptial agreements on the separation of property in mixed marriages. Unfortunately, there have been no test cases in the courts since this decision, so the sound advice according to most legal experts is to still arrange a pre-nup if possible. If not, then do a post-nup and hope for the best. Btw, anecdotally, I have heard that if banks are involved in a transaction of real property, for example by financing a mortgage secured by the property, they still demand to see a pre-nup in the case where the WNI owner is married to a WNA.
Banks are notoriously behind the times when it comes to new law.... especially Mandiri...