Why you shouldn’t buy a villa in Bali
September 12, 2009So there I am, sitting at a bar, talking to a frequent Australian visitor to Bali – a stranger – and he is upset. Really upset. In fact, he can hardly keep track of his own stream of unhappy observations about the awful situation back in his home state, interrupting himself frequently in mid-vent to launch the next load of rhetoric before even finishing the previous one.
Being in somewhat of a lethargic frame of mind (well, it was late, and it had been a long day), I finally understood that he was referring to “those bloody ***s” (nationality deleted because it doesn’t really matter – but let’s call them bool-AY?, with an upward inflection, because he was from Queensland).
Him: What really bugs me is that we don’t own anything there anymore … they’ve bought it all!
Me: Like what?
Him: Our land! Houses! Hotels! Factories! It’s all theirs! We’re losing everything!
Me: But we sold it to …
Him: … and that is so wrong! It’s our birthright they’re buying! There should be a Law (mutter, mutter, mumble)
So this goes on for a while, as pub conversations tend to do, and some of the heat dissipates according to the inevitable laws of entropy and we move on to other topics. I am pleased, because I tend to get distressed when exposed to too much alcohol-assisted jingoistic fervour.
Me: So, you here on holiday?
Him: No, no – I’m here to buy a villa. Moving here in two months.
Me: You getting a 20-year lease?
Him: Oh no, I’m going to buy one freehold …
Me: Mmmm. Well, as a foreigner, you can’t actually own land in Bali …
Him: Yeah, yeah, I know all that – but that’s easy to get around. (He nudges me; thankfully, he doesn’t actually wink.) I just use the name of a local and stitch him up with a watertight contract which gives me use of the property. For ever. (Smugly) It’s called a name-giver deal – the agent explained it all to me.
Despite myself, I feel obliged to clarify that, while ‘circumventing’ Indonesian property ownership laws appears possible using a name-giver contract scheme, it’s actually a lot more complex. For a start, the ‘contract’ itself is considered to be void ab initio (i.e. unlawful from the start and therefore unenforceable) by some legal practitioners in Indonesia, partly because it refers to a non-existent transfer of money between the parties during the so-called ‘purchase’ transaction. Then, of course, there is the ever-present possibility that the local name-giver decides that since the freehold title (the Hak Milik) belongs to him, there is nothing to stop him from just taking over the property at some stage in the future. I point out that this has happened a number of times in the past.
I foolishly go on to explain that you may manage to perform tricky manoeuvres to sidestep the actual wording of the law – which says that a foreigner can’t own land. But what you can’t do is avoid the provisions of the Indonesian Constitution, which says that a foreigner can’t control land. I tell him that the whole freehold-buying scheme could potentially fall in a heap, because that gives the foreigner control over the property. And that leasing is much, much safer. And that it would be prudent to abide by Indonesian law while a guest in this country. This somewhat agitates my new best friend.
Him: (suspiciously) You some kind of socialist intellectual or something?
I hastily deny this, because such deviants are not generally permitted in Bali pubs, and if they did inadvertently sneak in, they would be mercilessly mocked, especially by my countrymen. It takes a considerable amount of time talking about beer and football before he is convinced that I have the necessary cultural pre-requisites to continue the conversation.
Him: I don’t like this leasing stuff. Doesn’t happen back home. I pay the money, I get the freehold.
Me: Unless you live in Canberra … most properties are on a 99-year renewable lease there …
Him: Huh? … Whatever. Anyway, that’s not the point. I don’t want to lease, I want to buy a villa here – and I can’t see why the locals should have these restrictive laws that are stopping me.
We briefly discuss the significance of land ownership for the Balinese, their culture and family structure, but I can tell he’s not really interested, even though we use approved pub language, much bagging of all and sundry and various male bonding rituals. He knows what he wants and anything that obstructs that desire needs to be made to vanish.
Right about then, I assist this process (of making me vanish) by committing a tactical blunder. I remind him that he started out being furious at those reprehensible Bool-AYs who are buying up property in his home state, thus dispossessing him of his birthright. And yet, when I point out that that is exactly what he, as a bule here, now wants to do in Bali, he is genuinely mystified. “How can you say that?” he says, “… it’s completely different!” For once, I am speechless. How is it different?
It could have come to raised voices, if not actual blows, but we ended up parting on reasonably amicable terms, although his demeanour and body language clearly showed that he thought that I had the reasoning capacity of a dog biscuit. Maybe I have. Maybe my belief that the right to legislate property ownership laws in this place belongs to those who historically and culturally have a claim to it has clouded my logic. Maybe logic has nothing to do with it.
But I can only hope that, on reflection, my temporary friend will come to believe, as I do, that there is no difference between his ire at foreigners owning land in perpetuity in Australia and that of Indonesians when faced with the loss of their birthright here. Under current laws and constitutional guidelines, ‘freehold’ ownership of propery by non-nationals remains problematic.
But gee … wouldn’t it be nice to actually own a villa in Bali?
Borborigmus in Bali 
Ah yes – the same people who are keen to use semi-legal or in fact illegal methods to get their way in Indonesia will no doubt be the same ones who decry the nasty system of KKN when their “freehold” title mysteriously disappears at a later date.
Was this guy wearing a Bintang singlet by any chance?
It is my plan to buy a villa near Ubud. I hope this works out OK.
I totally trust the local who will help me in the transaction but I am curious about who would assume ownership in the event of his death.
Scary stuff I know. Still, it seems the best way to me.
Glad you trust him. May your faith be rewarded with a good outcome!
Matters of trust aside, it is simply not legal for a foreigner to own land. Even if you use the (unlawful) device of a name-giver contract, it still gives you no protection, as the Constitution expressly forbids foreigners from controlling land, and this is exactly what the name-giver ruse attempts to do. Your ‘contract’ is open to a legal challenge at any time, and if the name-giver dies, those who inherit his assets will not be bound by the ‘contract’ you signed anyway, and you may well lose your ‘title’ – which was never in your name to start with. If it was me, I would get a villa on a leasehold deal which gives you (as a foreigner) infinitely more protection – and is legal. Just my 2c worth – ultimately you need to make your own choices, evaluate the risk, and hope that you will not join the many who have lost everything … 😉 Best of luck!
You are frightening me now. I will be back in Bali in a few weeks to sort this out.
Thanks for your advice.
I do appreciate it.
Andra
I am also considering buying in Bali, or another part of Indonesia, my situation is a little different though in that I am married to an Indonesian.
We would be bound to the same rules as a foriegner in that she would also not be able to purchase in Indonesia if we did not have a pre-nuptual registered with the Indonesian gov. The pre-nuputual basically has to state that the property will not be joint ownership and will be in her name. If we divorce it is hers and if we die it goes to the children. Even then at 18 the children (if dual passports) have to choose indonesian or my nationality and if they choose my nationality then they will also have to sell the property (ie cant hold as freehold).
This is a fraught area of Indonesian law. As you say, the pre-nup (as long as it is properly executed in Indonesia) is critical.
Except of course, that some people question the very existence of the ‘law’ which allows government agencies to virtually steal from a widow. One poster on a forum [ http://tinyurl.com/3b5tlpl ] challenges this supposed law’s existence – and it’s worth a read.
On top of that, the government has supposedly passed a new law this year which makes things easier for people in Indonesian/Foreigner marriages, but this may not have an impact of the rules governing property ownership. However, like many new laws in Indonesia, no-one knows if this one has been implemented, whether regulations have even been written – or even publicised widely. See http://www.thejakartaglobe.com/home/foreign-spouses-granted-more-residency-rights/434168
I am an american married to an indonesian man. we don’t have a pre-nup (didn’t know we needed one 6 yrs ago when we married) but the land we have in bali is definitely under his name. we want to buy around ubud sometime. i heard sometimes officials don’t know the rules of land ownership and mixed marriages. i am sure the man in buleleng didn’t know the rules. hopefully the same will hold true later in ubud.
now…what can i do to make sure that i’ll get the land if he dies? i was told i’d have 6 months to sell everything if that happened.
we have 2 children–currently just american citizens (my husband is a green-card holder). if we moved back to bali, we’d apply for them to also be indonesians until they got to the age when they’d have to decide.
The current situation, especially with new laws passed (but possibly not yet officially promulgated through regulations) is too complex for unqualified people like me to advise you. I’d strongly suggest you get a good lawyer/notaris who is up to speed on all the twists and turns. That in itself could be an interesting challenge …
yes, an interesting challenge!! : )
overall, are you pleased you made a home in bali?
Despite all of Bali’s problems, on balance, yes.
I guess it all depends on whether one believes that challenges are stumbling blocks, or stepping stones … 😉
oh, but everywhere has so many problems! do i want to live with the US’s issues or Bali’s?/ : )
Great post my friend, because my friend from aussy wants to buy a house in Jimbaran Bali.
I come from Italy, I think Bali is unique for the atmosphere and I would like to live there running a little eco-friendly businnes. Do you think it could be a good deal running a Bed & Breakfast with a local, buying or using a Villa there?
My personal view is that, apart from the legal difficulties of “buying” a villa, Bali is already over-supplied with accommodation venues. It may be an idea to come to Bali for a few months to learn about the difficulties and benefits faced by foreigners here before committing to any business enterprises. Once you find about the permits, visas and fees needed by those wish to work here, and the return on investment and level of security you can expect, you may reconsider your idea. Good luck.
Thank you very very much for your reply… agencies tend to hide the difficulties… and unfortunatly it seems that is easier for foreign big hotel chains that doesn’t care for sustainability…
what do you suggest then to a foreigner who would like to run something together with some local in indonesia, not only bali?
That’s a huge, unanswerable question – at least by me. You are the only one who can answer that, because running your own business involves a lot more than ‘running the business’, if you know what I mean. You need to have a passion for something that you really want to do, the entrepreneurial drive to formulate the dream, the managerial and financial acumen to make sure that the nuts and bolts of the business run properly, and the technical skills to keep control of the core aspects of the business itself. From personal experience, a lack in any of those three areas means either learning those skills, or hiring people who are good at them to support your efforts.
In Indonesia, there are further obstacles. You will need an Indonesian partner, who by law, will control 51% of the business, and you need to have a business angel well versed in the intricacies of permits, licences, appropriate gratuities to officials, and an understanding of how to handle approaches from various protection racket thugs who will want a slice of the action.
Does that seem negative? It’s not intended to be – it is background information that is essential to anyone starting a business, and especially in Indonesia. If you already have a solid understanding of running a small business, you are already light-years ahead of many who attempt it here. With that prior experience, if you set up a business and also have a good understanding of the cultural differences in business here, the one-year-in-advance rent structure, the 60 official days off for staff, the expected salary bonuses, the surreal tax assessment system, the market and its seasonal variations, the effect of location, the unreliable supply chain and the peculiar pricing structures used, you have an even better chance of success.
I’m not saying don’t do it, I’m saying go into it with eyes wide open, with full knowledge, and with very clear and realistic business goals. Otherwise, you run the risk of falling foul of the old cliche for businesses here: i.e.
“How can you end up with a small fortune running a Bali business?”
“Easy. Start with a large fortune” 😉
Hi, a very interesting blog this is. I’m a frequent visitor to Bali, a pleace which I love and I have also thought of staying there long term at some point in the future. I totally fully agree with you in the sense that Indonesian land should belong to Indonesian people, and the most ethical and also legal approach for a foreigner would be a lease option. Regarding to this, I have been looking around the somehow confusing Indonesian law and I would like to make you a question, in case you can clarify it to me. In your opinion, what sort of lease modality should be choose for a long-term basis? The Hak Sewa (standard leasehold) or that Hak Pakai atas Hak Milik? From my understanding, both modalities allow for a minimum of 25 years lease, subject to renewal, but it is not clear to me what is the difference. Also if I need or not a ‘nominee’ (I think not). Thanks!
Sorry, I forgot to say that I mean leasing a not to big plot of land (4 to 5 are, 500m2) to build a small house there. Cheers
Good question, but outside my area of knowledge.
All I can recommend is that for ANY land transaction, employ the services of a respected solicitor and Notaris to ensure that the property is actually owned by the person purporting to be the vendor, that they have the authority to enter into the transaction, and that the property itself is unencumbered, Proper legal advice as to the structuring of the lease document and a clearly laid-out agreement as to the term of the lease and the method to be used to calculate fees payable for any renewal is a must. A good lease will also specify who ‘owns’ any improvements to buildings too, and what happens in the event of the death of the owner, or the death of the lessee. And of course, any specific provisions you might want to make in the lease cannot over-ride relevant laws or Constitutional provisions.
Many lease-holders report that the owner periodically seems to materialise out of the woodwork to demand money “to keep the lease going” – and maybe this needs to be spelt out in a lease to forestall opportunistic money grabs.
As to the use of “Hak X or Y”, as far as I know, the method employed seems to depend on factors such as zoning, any caveats on the original title, and any by-laws in the district where the property is located.