The Asian property market is experiencing strong growth and the number of transactions is increasing. This applies not only to Indonesia, but also to other countries in the region, such as Vietnam, China, India. Many people are interested in buying a home in Southeast Asia, so let’s take an example of how to buy a villa in Bali to get investment or to move.
Legislation And Forms of Ownership
Although property legislation in Indonesia may seem complicated, this is not the case. According to information from InvestAsian, the Indonesian property market is considered one of the most transparent and efficient in Asia. The main document governing this area is the Agrarian Law of 1960.
The most suitable forms of ownership for foreign investors include:
- Freehold, also known as HAK MILIK. This is an unconditional title in which the object and the land underneath it are fully owned by the buyer. Although this form of ownership is not initially available to foreigners, it can be circumvented by entering into a notarised loan agreement with an Indonesian citizen where the property and land will serve as collateral. By law, the owner remains a local resident, so this method of ownership is suitable for those seeking to obtain an Indonesian passport in the future.
- Leasehold or HAK SEWA – long-term lease. An excellent option for individuals and legal entities from other countries. Purchasing property under the leasehold scheme, the owner has the full right to dispose of the object: sell it, rent it out, inherit it and give it as a gift. The only disadvantage is the need to coordinate all actions with the owner of the land. The law does not set limits on the lease term, but in practice it is 25-45 years with the possibility of extension (priority or guaranteed). Costs when buying property under the leasehold scheme are lower, so many investors prefer it to increase the profitability of the object. However, it is not possible to apply for a residence permit under a leasehold scheme.
- The right to use (HAK PAKAI) is only available with a passport, but until 2023 foreigners must have had a residence permit in Indonesia. It is essentially a freehold with a limited duration: the contract is for 30 years with the possibility of renewal for another 20 and 30 years. Thus, the total duration of ownership is 80 years. After that time, it is necessary to apply for a new status or reissue the HAK PAKAI. It is important to note that a foreigner can only own one property with this ownership. The size of the land plot must not exceed 20 hectares (2,000 m²) and there are restrictions on short-term rentals of such properties. The minimum value of apartments to obtain HAK PAKAI is $125,000, and for villas – $315,000.
- Development Right (HAK GUNA BANGUNAN) is granted only to Indonesian citizens and legal entities registered in Indonesia (and all capital can be owned by a foreigner). The construction right is granted for 30 years with the possibility of extension for another 80 years.
Note: There are a number of other regulations governing the real estate sector in Indonesia. These include RI Law No. 16 of 1985 on Apartment Buildings (Undang-Undang No. 16 Tahun 1985 tentang Rumah Susun), RI Government Regulation No. 4 of 1988 (Peraturan Pemerintah No. 4 Tahun 1988 tentang Rumah Susun) and RI Law No. 11 of 2020 on Job Creation (UU Cipta Kerja).
These laws deal with the ownership of apartment buildings where ownership is not assigned to a specific plot of land but to a specific unit. There are a small number of such buildings in Bali, each unit of which has a specific type of certificate – sertifikat strata. When selecting a property, it is advisable to take these laws into account during the transaction process.
Rights and Obligations of Foreigners in Indonesia
This point is important for those who want to buy a home in Bali or move there permanently.
Since 2022, Indonesia has a programme that allows you to obtain a residence permit for up to 10 years. To do this, it is necessary to invest in local property the amount from 130 000 dollars. However, there is an opportunity to issue a residence permit under programmes for pensioners, digital nomads and entrepreneurs.
When buying a property, you should take into account all statutory fees. For example, with the forms of ownership hak milik and hak guna land tax and construction tax are charged. If you plan to rent out the property, you will also have to pay withholding tax (PPH).
Please note that if you spend more than 183 days in Indonesia in a year, you will be liable to pay the same taxes as locals.
