A brief about Bali Real estate part -1

When we talk about a Bali villa for sale, there is basically a choice of "leasehold" and "freehold" properties. Although, according to the Basic Agrarian Law of 1960, it clearly states that foreigners may not own real property in Indonesia. There are many who do - and most have done so by using an Indonesian national as their "nominee", whereupon the Indonesian is the registered owner of the property. And legal agreements, Powers of Attorney etc need to be put in place to protect the interests of the foreign investor. This said, the majority of foreigners have opted for the leasehold option, which is 100% legally allowed by law in the Republic of Indonesia. 

There are a number of different types of title in Indonesia:

1. Hak Milik (Freehold) is the type of title that can only be held by an Indonesian citizen.
2. Hak Pakai (essentially leasehold title) and other forms of title can be held by a P.T. or PMA Company (Foreign Investment Company).

A non-Indonesian citizen cannot own land in Indonesia. However a foreigner can acquire a leasehold title to a building - almost the same as a strata title except that the title lasts only for 25 years with an extension of 30 years for a maximum of 55 years and then reverts to the original owner (lessor).

There are 2 ways for foreigners to own the land in Indonesia:

1. Using the Nomine
The Nominee will sign four documents with the foreigner as follow:

1. A Loan agreement: acknowledges that the foreigner has lent to the Nominee the purchase price of the land.
2. A Right of Use agreement: allows the foreigner to use the land.
3. A Statement Letter: where the Nominee acknowledges the foreigners loan and intention to own the land.
4. Power of Attorney: The nominee signs an irrevocable Power of Attorney giving the foreigner the complete authority sell, mortgage, lease or otherwise deal in the land.
    

The following documents should signed with your nominee, prior to the purchase:

1. Mortgage Agreement - Cost: 1% mortgage value for Notary; 1% of total mortgage value for BPN land affairs office.
2. Power of Attorney - granting exclusive rights to Mortgager to release the Mortgage.
3. Financial Loan Agreement.
4. Power of Attorney for all rights to the land.
5. Statement Letter - outlining proof of payment for the property.
6. Statement of Indemnity (for nominee).
7. Power of Attorney for IMB - authority for Building Permit.
8. Statement Letter - No second mortgage.
9. Lease Agreement - granting the purchaser 25 years lease plus an automatic extension of 25 years (added security) - Cost: 1% of lease value.

 2. Using the PMA
The most significant change in Indonesian investment law came in 1997 when the government introduced the PMA (Penanaman Modal Asing or Foreign Investment Company). This allows foreign investors to set up a company in Indonesia, without having to have Indonesian partners. The PMA can be 100% owned by the foreign investor. PMA companies are allowed to own the title of the property for a period 25 years and have to be renewed by the government.

To set up a PMA, you will be required to:

1. Submit the detailed business plan.
2. Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit.
3. Make an appropriate cash deposit in an Indonesian based Bank. The amount varies and is calculated from the capital employed in the business.
4. Show the property investment as an asset of the company.

The process takes approximately 3 to 4 months and once its completed; the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up the PMA is between IDR 30 to 40 Million or equivalent with USD 4,500.

Based information from baliproperty.com