How to buy real estate in Indonesia: tips and recommendations

Purchasing real estate in Indonesia: key points

If you are thinking of buying a home in Indonesia, there are many important things to consider in order to make the right choice. First of all, you should find out why you want the property: whether you are going to live permanently on this beautiful island or whether you want to use it for rental income.

If you are going to live in this country, you should pay attention to the availability of important infrastructure such as supermarkets, international schools and medical facilities. This will help you choose the most convenient place to live. Do your market research and make a list of potential properties that you and your family might like to live in.

Business plan for rental real estate

In the event that you plan to own a property with a view to renting it out, you will need to compile adetailed business plan. Careful consideration should be given to all possible costs associated with property management, including:

• the registration of a legal entity;
• obtaining the necessary permits;
• Property management costs if you choose to outsource these responsibilities to professionals.

Usually, the calculated annual rental income is based on a conservative estimate of the occupancy rate, which is about 45-50%. However, many owners assure that the actual occupancy rate can reach 70%, and even 100% during peak seasons.

Choice between ready-made facility and construction

It is also important to determine whether you want to buy a ready-made property or dream of building a home from scratch. The answers to these questions will help you choose how toregionand a specific location on the island, as well as decide on the most appropriate form of ownership.

Regions of Indonesia

Speaking about the choice of the region, it is impossible not to mention that Indonesia is a special country in Southeast Asia, made up of more than 17 thousand islands, of which only about 6 thousand are inhabited. The largest islands are:

• Kalimantan (Borneo);
• Sumatra;
• Sulawesi;
• Java.

These islands are inhabited by people of different cultures and peoples, speaking over 700 languages.

Legal aspects of the purchase

However, it is worth bearing in mind that land suitable for development with access to utilities and fresh water is scarce in Indonesia. Therefore, local laws limit the right of foreigners to fully own land plots, which should also be taken into account when planning a real estate purchase.

The tourist flow in Indonesia does not stop throughout the year. The country has both rainy and dry seasons, but the need for rental accommodation remains constant regardless of the time of year.

Legal audits

Equally important aspects of the purchase arelegal issues. When closing a deal, you must go through all the necessary legal checks, including:

• site assessment;
• communicating with neighbors;
• analyzing all the legal nuances.

No matter how long you intend to spend in Indonesia, knowing all the legal aspects will help you avoid surprises.

Conclusion

In conclusion, the process of buying real estate in Indonesia requires an in-depth analysis of all the details, from choosing a region to understanding the local laws. Approach the process responsibly, and your decision will bring you joy both for living and achieving your investment goals.

Promising regions for investment in Indonesia

According to the opinions of experts studying the real estate market, the most attractive regions for investment in Indonesia are considered Bali, Lombok, Sumba, Sumbawa and Kalimantan (also known as Borneo). If you make forecasts for the long term, i.e. for 25-30 years ahead, experts advise to pay special attention to Kalimantan. This is due to the fact that in the coming years it is planned to move the capital of the country from Java, which will certainly lead to an increase in land prices in this area.

Investments in the northern part of Bali

For investors looking for a quick return on investment, around five years, experts highlight the northern part of Bali as very attractive for investment. A new international airport is expected to be built in the area, which would likely contribute to a significant increase in land prices.

Currently, the cost of beachfront land in the north of Bali ranges from $20,000 to $30,000 per hectare. In comparison, plots on the more developed and popular among tourists south coast can reach $200,000 per hundredweight. Nevertheless, some realtors express distrust in the actual implementation of this project, as discussions around the construction of the airport have been going on for ten years and nothing has been done in practice.

Bali Resorts

It is worth noting Bali separately as the most famous resort island in Indonesia, consisting of eight districts and one municipality. The southern part of this island is washed by the waters of the Indian Ocean, known for its powerful tides, which has made this area popular among surfing enthusiasts.

The central part of Bali, called Ubud, will win the hearts of those who appreciate nature: this region is surrounded by picturesque rice terraces, but it takes about an hour and a half to reach the beach.

Northern part of Bali

In the north of the island is the Bali Sea, part of the Pacific Ocean, which makes this region particularly attractive for diving and snorkeling enthusiasts. However, it should be noted that the tourist infrastructure in this part of the island is much less developed: there are often no large shopping centers and the supply of restaurants is limited.

Russian-speaking population in Bali

Bali is currently home to more than five thousand Russian-speaking citizens, most of whom have chosen such popular areas for living as Changu, Bukit and, of course, Ubud. However, the north of the island has yet to see a significant number of citizens from Russia, Ukraine, Belarus and Kazakhstan. Nevertheless, interest in local investment projects is steadily growing.

Legal aspects of real estate ownership

It is important to mention that foreign nationals cannot own real estate in Indonesia in full ownership as is common in other countries. Full ownership of housing (freeholdorcopyright) is available exclusively to Indonesian citizens. However, for foreign nationals wishing to purchase a villa in Bali, there are three main forms of participation:

• hak guna banguan(right to build)
• how to use(right of use)
• hak sewa(right to lease)

These formats offer excellent opportunities for long-term investment in a comfortable and attractive environment for tourists.

The hak guna banguan system in Indonesia

Under Indonesian law, the hak guna banguan system allows foreign nationals who are registered in the country to build and own a home for a period of 25 years, renewable for an additional 80 years.

Although such an extension could theoretically take place after the expiration of the initial term, in practice there are no such precedents. Foreign companies can transfer their real estate rights to both other foreigners and locals using hak pakai and hak milik contracts.

Reselling real estate

The property acquired, whether it is a villa or a plot of land, can be resold through the transfer of shares or the company itself. This significantly reduces the tax liability on the sale.

If the new property owner has an Indonesian residence permit or work visa, he or she is able to apply for a special hak pakai right, which allows the use of the plot or house.

Validity period of hak pakai

The validity of hak pakai depends on the status of the seller:

• Up to 80 years old if the transaction is with an Indonesian with hak milik rights;
• Up to 50 years if the real estate is purchased from a foreign company.

Limitations of hak pakai

It is worth noting that hak pakai can only be assigned to one unit of real estate, and the area of the recorded land plot should not exceed 1,500-2,000 square meters, depending on the location.

In addition, there are minimum price criteria to the properties:

• In Bali, the minimum value for apartments is Rp 2 billion (approximately $137,000) and for houses it is Rp 5 billion (approximately $342,000).
• In Jakarta, the minimum values are Rp 3 billion (approximately $205,300) for apartments and Rp 10 billion ($684,200) for houses.

Duties of the hak pakai owner

It should also be taken into account that if a hak pakai owner leaves the country (e.g., when his visa or work permit expires), he must transfer his real estate rights to another person within a year. Otherwise, state authorities have the right to seize the property without providing any compensation, although in practice such cases do not usually occur.

Lease agreement hak sewa

As for hak sewa, it is a separate type of lease that does not require registration with government authorities. Nor does it need notarized confirmation; the signatures of two witnesses and a stamp are sufficient. In this case, a residence permit or work permit is not necessary.

The contract can be for any term, but most often when a 100-year contract is signed, it is divided into four contracts of 25 years each.

Tax liabilities under hak sewa

With hak sewa contracts, tax liabilities arise only for the tenant (10%), while property taxes and annual land taxes are paid by the tenant.

Conclusion

Thus, the legal opportunities for foreign investors to manage real estate in Indonesia are varied, but require careful analysis of the law and compliance with all necessary conditions.

Scheme of real estate ownership in Indonesia

In Indonesia, there is a practice that allows foreign nationals to formalize land titles through a nominee holder who is a resident of that state. This scheme, known as hak milik, is not regulated by law and notaries are not currently involved in nominee transactions. Nevertheless, this form of ownership is still relevant, which may attract those who wish to hide their assets in the country.

Communication with local residents

Before buying land or property in Indonesia, it is crucial to establish contact with neighbors and the head of the local community. Their consent may be required at various stages of the transaction. For example:

• To get permission to access a public road, you need to collect signatures from all the residents on your street, as the road was built with their money.
• Failure to obtain the required signatures may result in additional costs.

Obtaining construction permits

If you plan to build on purchased land, it is also important to arrange for neighbors and the village head to sign documents to obtain the necessary permits.

Forming a real estate purchase agreement

A real estate purchase agreement may be executed with or without the involvement of a notary. If a notary is not involved, the document is drawn up in a simple written form and signed by both the seller and the buyer with the participation of two witnesses.

Transaction payments may be made in different currencies such as Euros, US dollars or Indonesian rupiahs, depending on the prior arrangements between the parties.

Payments and terms in 2022

In May 2022, Russian citizens were able to make payments via bank transfers using accounts that were not subject to sanctions and remained accessible in the SWIFT system to vendor accounts, provided they had documentation to prove the legitimacy of the source of the funds.

Payment for the purchase of real estate under construction usually takes place in three stages. Long-term installments in this situation are rare, and mortgage lending is underdeveloped.

• Foreign nationals are prohibited from taking out mortgages.
• Locals also rarely resort to mortgages due to the high interest rates offered by banks.

Timeframe for real estate title registration

The timeframe for registering real estate rights depends on the terms of the contract under which the foreigner makes the purchase. The lease procedure (hak sewa) can take only a few hours.

When transferring ownership from an Indonesian to another non-resident or foreign firm, the process can take up to six months because changes to land certificates are only made in the capital city, which takes time due to the various government agencies.

Commissions and taxes

Usually, the seller bears the cost of the realtor's services. The average realtor's commission is 5%, but can be reduced to 2.5% in transactions involving properties worth several million dollars.

Also, the parties to the transaction must consider tax liabilities:

• Sellerpays 2.5% of the transaction amount.
• Buyeris required to pay 5% of the final transaction amount.

Additional tax liabilities

In addition, you should take into account the tax on rental income from villas or apartments, which is 11%. There is also an annual property tax, which ranges from 0.1 to 0.2% of the assessed value of the property.

The higher the value of the property, the more significant the tax is. For example, residences worth more than Rp 1 billion (approximately $68,423) are subject to a maximum tax rate of 0.2%.

To illustrate the tax liability, we can consider the case of the owner of a 2000 square meter mini-hotel on a plot of 40 acres, who must pay about $600 per year in tax.

Tax obligations when selling a home

There is also an annual land and building tax, which is monitored by the local offices of the General Directorate of Taxes. A tax of 10% of the total sale value of the property must be paid on the sale of the dwelling and transfer of ownership.

Thus, the tax system in Indonesia makes the real estate market quite complex and multi-layered, which every potential investor or buyer needs to consider.

Taxation on transfer of real estate rights

A 20% premium real estate sales tax must be paid on the transfer of title to property valued at more than Rp 30 billion (approximately $2.1 million). The tax rates are audited every three years, but in high-growth regions, the audit may be done annually.

Peculiarities of buying real estate in Indonesia

Buying real estate in Indonesia involves many aspects that are worth paying special attention to. Property listings, especially in Bali, often claim the potential for returns of up to 20% in foreign currency. However, local experts advise you to consider the following points:

• Lease Agreement:If you enter into a lease agreement for 25 years with an option to extend it, remember that at the end of the lease term, the value of the land may increase significantly. Over the last decade, the price of land in different regions has increased 6-8 times.
• Long Term Lease:To reduce risks, it is wise to discuss longer lease options.

Documents and risks

Further, it is extremely important to obtain from the seller a document confirming his title to the land or real estate. Keep in mind that in some cases, developers offer properties with tenants whose lease term exceeds the term of their own land lease agreement. This can create a risk that the renewal of your agreement will be subject to the terms and conditions set between the developer and the land owner. Given the 20-25 year lease length, there may be a situation where the seller stops contacting you and you will have to deal with renewal issues yourself.

Purchase of land from an Indonesian citizen

If you decide to purchase land with a house from an Indonesian citizen, it is important that the contract clearly states that the original land certificates remain with the tenant and that the landlord is responsible for tax obligations. According to the law, the landlord is liable to pay income tax (PIT) of 11%. This aspect is particularly important to protect the buyer from unexpected difficulties in the future.

Quality of construction

In addition to legal considerations, attention should be paid to the quality of the construction of the property, taking into account the peculiarities of operation in an equatorial climate. Key aspects include:

• Foundation Height:Local realtors note that buildings with low foundations of only 40 cm and insufficient waterproofing are common.
• Waterproofing:Over time, several years after construction is complete, moisture can begin to seep into these buildings, leading to mold growth.

Conclusion

Thus, the process of buying real estate in Indonesia requires a thoughtful approach and careful preparation. It is important to be prepared for various risks and know how to minimize them to avoid negative consequences in the future.

Conclusion

Buying real estate in Indonesia is an exciting and complex process that requires careful preparation and attention to detail. In this article, I have tried to highlight the key aspects regarding the purpose of purchase, choice of region, legal forms of ownership and the specifics of transactions to help you avoid pitfalls and mishaps.

Purposes of acquiring real estate

It is important to consider what exactly is the purpose behind the purchase: will it be an investment or a family nest? And also what kind of infrastructure you want to see around your future property. In this context, a week spent in Bali opens your eyes to the variety of locations, from the south coast to the tranquil north. Think about which side of the island best suits your expectations and lifestyle.

Legal form of ownership

In addition, choosing the legal form of real estate ownership in Indonesia is a topic that requires serious consideration. Despite restrictions for foreign nationals, there are various programs that can help you realize your dream of owning your own house or apartment. Before making a final decision, I advise you to consult with real estate and legal professionals.

Financial aspects

Don't forget about taxes and additional costs that may arise in the process of finalizing the deal. A clear understanding of all financial aspects will avoid unpleasant surprises in the future.

Current conditions

Finally, no matter what your goals and plans are, it is important to stay up-to-date with the latest changes in Indonesian legislation, as well as to consider the crisis response to the pandemic. These factors can significantly affect the feasibility and terms of your purchase.

Results

To summarize, the process of buying real estate in Indonesia can be both a real challenge and a great opportunity if approached with understanding and preparation. I hope this article will help you better navigate this challenging but exciting process and wish you success in your investment career on a beautiful and exotic island!