Buying a Property in Bali
1. A leasehold investment (long term renting)
This is a long-term lease contract. Although the land title is not under the foreigner’s name and remains under the ownership of the original owner, the land can be rented for an initial period of around 25 years and can then be extended up to a period of 70 years. After the lease begins, the owner’s title of Hak Milik (Right to Own) will be legally transferred to the foreigner under the Hak Pakai title (Right to Use).
Under the lease contract the property is able to be sub-leased (rented out to other people). This is how many foreigners turn a leasehold property into a lucrative investment and source of passive income. For most investors, the beauty of a lease is that their focus is immediate cash flow and a passive income, allowing freedom from the burden of watching market conditions as the actual value of the property is of no huge concern. In a low market there will be an increased number of long-term renters, and in a high market when everyone is purchasing, there is still the benefit of short-term holiday rentals.
If the leasehold is not renewed once it expires, all rights go back to the original owner and it becomes a freehold Hak Milik property again.
2. A leasehold – mortgage investment structure
The most common method for a foreigner to acquire and control land in Indonesia is a combination of the above lease agreement and a first registered mortgage over the property, together with various ancillary documents.
This security structure is a system of contractual agreements between the foreign investor and the Hak Milik land owner (often a business partner of the foreign investor) which grants leasehold occupation and mortgage security rights to the foreigner over the property for the terms of the lease and mortgage. The system of documents consists of:
(a) Deed of Lease in Notarial Form executed before an Indonesian Notary in the Indonesian language. The leasehold interest is an unregistered interest in the land so the foreigner’s leasehold rights do not appear on the Hak Milik certificate of title as an encumbrance. However, the unregistered leasehold interest of the foreigner is a strong, secure and enforceable right of occupation will take priority over subsequent encumbrances on the Hak Milik title. While the actual term of a lease is not regulated under Indonesian law, Notaries in Bali will generally grant leases to foreigners in terms of 25 years so that the lease term accords with the government decreed 25 year term of the Hak Pakai title available to an eligible foreigner as a registered interest in Hak Milik land.
(b) Notarial Loan Agreement and First Registered Mortgage: as the Notarial Deed of Lease is an unregistrable interest in the land (so the interest will not appear as an encumbrance of the Hak Milik Title) in order for the foreign investor to lawfully retain the original freehold certificate of title as against the Indonesian Hak Milik owner (being the Indonesian business partner) and also prohibit the Indonesian business partner dealing in a transfer of the title, the foreign investor may be registered as a first ranking mortgagee of the property. The principal amount of the loan is often the acquisition value of the property funded by the foreign investor as lender.
(c) Business Partner Agreement and Irrevocable Power of Attorney: this deed regulates the rights and obligations of the foreign investor and the Indonesian business partner. The power of attorney is back up protection which can be used in limited circumstances for the foreign investor to transact the property without the involvement of the Indonesian business partner. Advice should be taken on the circumstances in which the power of attorney can be implemented.
(b) Testamentary Wills: the Indonesian business partner may devise the Freehold land by way of testamentary will to the foreign investor who must re-transfer the land to an eligible Indonesian within one year. The foreigners interests in the property, primarily long term lease and the mortgage, can also be left by way of Indonesian Will to the beneficiaries of the foreigner.
List of propertie services
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Property for Sale in Bali
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