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How to safely, securely, and legally acquire property in the Gilis, Lombok and Bali as a foreigner.

Article by Palm View Properties

If you are reading this article, chances are you’ve been to the mesmerizing Gili Islands, Lombok or Bali, and the thought of living here, buying a property, and/or launching a business has crossed your mind at least once! On the other hand, if you are reading this article and have never heard of the Gili Islands, Lombok or Bali…well, then you are in for a real treat! The best way to describe these three amazing parts of Indonesia are by using words such as ‘incredible’ or ‘paradise.’ Some even throw around the phrase ‘heaven on earth.’

Often, around the globe, we see that in areas with large annual tourist numbers, real estate prices are sky-high. The reason for this is quite simple: the more tourism, the more valuable the property. It is supply and demand. The Gili Islands, Lombok and Bali are certainly no different. As the COVID-19 pandemic has started to wind down (finally!), we are seeing a massive increase in the number of property-related inquiries for expats who are looking to make a more permanent move to Indonesia…and the prospect of white sandy beaches and turquoise waters, after two years spent indoors, are not damaging the cause. The pandemic, if anything, has clearly highlighted the fact that it is possible to be efficient whilst working remotely. This is demonstrated by the recent rise in the number of digital nomads in Indonesia. Their numbers have grown to such a degree that the government is contemplating a new five-year digital-nomad-specific visa, although as of the writing of this article, it does not yet exist (we are keeping our fingers crossed!).

With the recent increase in property-related inquiries, as a licensed real estate agency, we feel the need to demystify Indonesian property ownership for foreigners by clearly explaining how to go about the process in a safe, secure, and, most importantly, legal way.

First, it’s important to know that foreigners cannot own property ‘freehold,’ in their name, in Indonesia. However, foreigners can lease property in their name if the sole purpose of that lease is residential. To be clear, this means that the foreigner cannot, at any point, legally generate any form of revenue or income from that leased property. So, if you are a frequent Bali, Lombok or Gili Islands traveler and want to rent a property purely to enjoy it as your own special accommodation when you visit, that is fine.
However, renting a property for several years when you will only utilize it once or twice a year means that there is a massive period when the property will stand empty—and you cannot legally rent it out to others. It is a common misconception that you won’t face any legal trouble if you decide to rent it out on Airbnb or another online platform. However, as a foreigner holding a residential lease, you are not allowed to do this… and you will face a high risk of problems not only with the tax office, but also with the immigration office.

So, how do millions of expats and foreign business owners invest in real estate, build private villas or resorts, and legally benefit from rental income in Indonesia? The answer is simple. As a foreigner, when you want to safely, securely and, most importantly, legally acquire property that will provide you with a return on your investment and rental income in the foreseeable future, you start by setting up a PMA Company. We aren’t exaggerating when we say that this is the best advice you will ever receive as a foreigner interested in investing and making rental income in Indonesia.

To launch the PMA process, first, you will need to approach a real estate agency or licensed, trusted notary for a consultation about the set-up requirements. We recommend that you read this great article from our trusted partners at Seven Stones Indonesia on correctly setting up your PT.PMA, which includes a list of important questions to ask. We would like to stress that it is highly inadvisable to enter into any sort of ‘nominee agreement’ (an informal agreement where you pay for the property, but it is technically owned by an Indonesian citizen who then agrees to let you use it). These agreements are not legally recognized and will not stand up in any Indonesian court of law. To be frank, a good, credible real estate agency or broker will never advise this practice.

Setting up a PMA creates a formal, legal structure that will protect your business and assets—an essential step in your investment as a foreigner in Indonesia. Therefore, take no shortcuts! We are sorry to say that there are no legal ways around this, and it’s important that you do it right the first time.

A PMA is a foreign-owned company, known in the western world as PTY Ltd., which is registered under Indonesian law and regulations. While you cannot freely own property, your PMA can. In terms of its structure, your PMA company must comprise a minimum of two shareholders, including a director and commissioner. As the director of the PMA company, you will then have direct control over the assets held by the company, namely your property. The PMA is a business like any other, and is subject to corporate income taxes and other established government taxes. Please see here for more on the PT.PMA.

Once the PMA is now complete and set up, you, as the director or commissioner of the PMA, can apply for an ‘Investor KITAS’. This is a visa that is valid for two years and extendable, and it allows you to carry official status as an investor in Indonesia, reside in Indonesia and enter and exit the country as you please, draw dividends in Indonesia, and run your business and earn an income in Indonesia. The Investor KITAS gives investors both the great freedom of doing business and living life in paradise.
The combination of the PMA and Investor KITAS allows you to have a business that can legally, safely and securely hold your property, while holding a visa that allows you great freedom for business and multi-entry residence. In later blog posts we will elaborate more on the different types of KITAS and roles they play.

With everything set up in accordance with Indonesian law, you are now legally and correctly positioned to make a property acquisition. Ensure you go through good, credible and registered real estate companies or licensed brokers when you looking to acquire a property in Indonesia, especially if you are a first-time buyer. Unfortunately, Indonesia is no stranger to foreigners making poor property investments, ranging from acquiring land through illegal ‘nominee agreements,’ to throwing heaps of money at properties without correct and complete legal documentation, including a valid land certificate, building permits, zoning permits, access agreements, etc. The only way to avoid these potential landmines are through good and proper due diligence. At Palm View Properties we pride ourselves in listing only properties that have ticked every single box! Every property listed or advertised with us has undergone a full and complete due diligence check before adding them to our diverse and outstanding portfolio of properties.

When you are looking for your ideal property, we recommend working closely with the agency and being very open and specific about what it is you are looking for, which will help them identify which of their listed properties might be the best fit for you. Once you have decided on the property, the agency will ask you to make an official offer by simply completing and signing the “offer to purchase/lease” agreement. The agency will then present that to the property owner, and, once the asking price has been met, will start by drafting an official “Buy & Sell” or “Lease” agreement. All agreements and signatures will be verified and ratified by a licensed notary public.

Once all contracts are agreed upon and signed in front of the notary, and payments have been received, the agency will ensure the agreement is executed and keys are handed over, along with all original property documentation such as land certificates, IMBs (building permits, if applicable), etc.

The next step is to transfer the certificate of the property into the PMA company. The status of the certificate will, in most cases, change from SHM (freehold, generally if purchased directly from a local) to HGB (Right to build, which is the most common form of ownership for foreign investors and generally creates the least amount of risk). Foreigners can, under a PT.PMA, structure mainly hold one of two titles on property, listed below:

Hak Guna Bangunan, this translates to “Right to Build.” This title is valid for a period of 25 years, plus extensions, for a total of up to 80 years. This is the most common form of ownership for foreigners under a PT.PMA company structure, as it allows greater business freedom.
Hak Pakai, this translates to “Right to use property.” This title is also valid for a period of 25 years, plus extensions, for a total of up to 80 years. Please note that you can only hold Hak Pakai if the land already has a building on it, and there are business limitations for operating such a property (which we will discuss in later blogs). There is also a minimum value for the property to hold this title, and it must be in a legally designated touristic, residential, or trading zone, as you cannot acquire land in Bali in agricultural or greenbelt zones.
Since the specific purpose of Hak Pakai is to acquire property for personal use, a person can hold only one Hak Pakai (i.e., only one property). However, it is possible to acquire several properties with the Hak Guna Bangunan (Right to Build) titles, mentioned above. Naturally this raised the question from local investors; “Does the property not lose value vs its freehold (SHM – Hak Milik) counterparts as a result that its status has now shifted from previously SHM – Freehold to Hak Guna Bangunan or Hak Pakai?”. The answer is No, in most cases a Hak Guna Bangunan or Hak Pakai title can be converted back to SHM – Freehold if the end buyer is an individual Indonesian citizen and therefore the property does not lose any value but rather increase in value similar to freehold properties.
Therefor 99 times out of 100, we will advise you to pursue a Hak Guna Bangunan title under a legally correctly set up PT.PMA structure.

Once all these processes are completed and official certificates and documentation have been issued by the government, you are ready to look at aspects such as those listed below, all of which we will discuss at length in future blog posts.

Other Operating licenses & Permits, LKPM Reports, PMA Management, Taxes, Minimum Capital Investment.

We here at Palm View Properties understand that all of this may sound overwhelming at first, especially for first time investors. However, rest assured that even the most seasoned of real estate investors work closely with us and our partners to ensure that they do it right the first time. Acquiring property in Indonesia will be an exciting time in your life. It is not without its challenges, but it is also, for most investors, a dream. Our main goal, as a company, is help you realise that dream.

So, get in touch with the team at Palm View Properties, or simply pop into our island-based office here, on the mesmerizing tropical paradise of Gili Air, and we will guide you!

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