How to buy a villa in Indonesia

Objectives of property acquisition in Indonesia

Before starting to search for a villa or apartment, it is necessary to clearly determine whether you plan to live on the island permanently or will rent out real estate most of the time. If a house is being purchased for yourself and your family, you need to make a list of relevant infrastructure (shopping malls, international schools) - this will provide starting points for finding suitable locations.

If the purpose of buying a house is an investment one, you should draw up a business plan, determine your costs when managing the property yourself (by opening a legal entity and buying a license), and if the company takes over this function. The annual income is usually calculated based on conservative forecasts for the occupancy rate of a villa or mini-hotel - 45-50%, although the normal occupancy rate is 70% per year, and in some months it can reach 100%. Another important point is whether you are considering only ready-made houses or are inclined to build a villa yourself.

The answers to these questions will determine the choice of the region, the specific location on the island, as well as which option of ownership will be preferred.

Choosing a region and location

Indonesia is the largest country in Southeast Asia, consisting of more than 17 thousand islands, 6 thousand of which are inhabited. The largest are Kalimantan (Borneo), Sumatra, Sulawesi and Java. People of different nationalities live here, speaking more than 700 languages that are different from each other.

The amount of land suitable for construction, that is, not intended for agriculture, as well as having transport links and access to fresh water, is limited in Indonesia. This is one of the reasons why the country's legislation prohibits non-residents from owning land absolutely (we will discuss this in more detail later).

The tourist season on the islands lasts all year round. There is a rainy season and a "dry" season, but there is no "dead" tourist season in Indonesia. For this reason, rental properties are in demand regardless of the month of the year. 

The most attractive regions for investment, according to local experts, are Bali, Lombok, Sumba, Sumbawa, Kalimantan (Borneo). If you focus on the investment period of 25-30 years, then realtors advise you to take a closer look at Kalimantan, since the capital is being moved here from Java Island, which means that land will become more expensive.  

If the desired return on investment is shorter, about 10-15 years, then, according to some experts, the north of Bali, where the construction of a second international airport is planned, is of great interest. This should lead to a significant increase in land values. Today, plots on the first line from the sea in the northern part of the island are sold at a price of $20,000-30,000 per acre. For comparison, the price per hundred square meters in the more developed and popular south reaches up to $200,000. However, many realtors are skeptical about the prospects of Bali's north, as talks about building a new airport have been going on for 10 years, and so far these plans have not been implemented.

Separately, it is necessary to note the most popular resort in Indonesia - Bali paradise. The island is divided into 8 districts (kabupaten) and 1 municipality (kota). Its southern part is washed by the Indian Ocean. Strong tides have given this coast the reputation of being an ideal surfing spot. The central part of the island, Ubud, is suitable for nature lovers. The area is surrounded by picturesque rice terraces. But it will take about 1.5 hours to get to the sea or ocean.

The northern territories are washed by the Bali Sea, which is located in the waters of the Pacific Ocean. It is a paradise for diving and snorkeling enthusiasts.The tourist infrastructure in the north is much less developed. There are no large shopping malls here, and there is not a large selection of restaurants.

Bali is home to more than 5,000 Russian speakers, most of whom live in the areas of Changgu, Bukit, and Ubud. There are still few citizens from Russia, Ukraine, Belarus, and Kazakhstan in the northern part of the island. However, interest in the projects located here is growing.

Choosing the legal form of ownership of real estate

Foreigners cannot own real estate in Indonesia in our usual understanding. Only Indonesians can obtain unconditional ownership of a Freehold (or Hak Milik) house or apartment.

Citizens of other countries who dream of a villa in Bali have the opportunity to use one of three programs: Hak Guna Banguan ("right to build"), Hak Pakai ("right to use") or Hak Sewa ("the right to rent").

Hak Guna Banguan grants foreign companies registered in Indonesia the right to build a house or houses (without limitation on quantity) and own them for 25 years with further prolongation (total period of 80 years). According to the legislation, an extension is possible after the end of this period, but there have been no such precedents so far.

The company may, if desired, sell the facility or facilities, or rather, cede its rights to them to both foreigners and Indonesian citizens, respectively, under the Hak Pakai and Hak Milik agreements. In addition, you can sell a villa or land purchased in this way by selling the company or its shares, which allows you to save on taxes. 

If the buyer of a villa or apartment has an Indonesian residence permit or a work visa, he can apply for a Hak Pakai exclusive right to use the land or house. The validity period of the Hak Pakai depends on what right the seller has: up to 80 years if the villa is sold by an Indonesian with Hak Milik rights, for the duration of the Hak Guna Banguan contract, plus a maximum of 50 years if the property is purchased from a foreign company with the appropriate right.   

Hak Pakai can only be obtained for one unit of real estate, while the size of the land plot cannot exceed 1500-2000 square meters. m (depending on the location). There is also a minimum value of real estate, which can be purchased by issuing a Hak Pakai. Bali limits are 2 billion rupees ($137,000) for apartments and 5 billion rupees ($342,000) for houses. Jakarta has 3 billion rupees ($205,300) and 10 billion rupees ($684,200), respectively.

It is important to note that if the holder of a Hak Pakai leaves Indonesia (for example, his residence permit or work permit has expired), he must transfer his right to real estate to another person within a year, otherwise the state may seize the house without compensation. Legislation allows this. However, there have been no such precedents in practice.

Hak Sewa is a real estate lease agreement that, unlike Hak Pakai, is not registered with a government agency. In addition, it is not necessary to certify it with a notary, signatures of two witnesses and stamps are enough. A residence permit or work permit will also not be required. An agreement of this type can be signed for any period of time without restrictions. As a rule, when concluding a contract for 100 years, it is divided into four contracts of 25 years each.

Under Hak Sewa agreements, only the landlord has tax obligations (10%), however, property taxes and annual land taxes are paid by the tenant.

It should be mentioned that a scheme has been popular in the country for many years, according to which real estate rights (Hak Milik) are issued to the nominal owner of an Indonesian citizen. However, this method is outside the scope of legal regulation. Today, notaries no longer register purchases with nominee holders. Nevertheless, there is a practice of reissuing a nominal ownership agreement with new foreign holders (this option may be interesting for those who want to keep their ownership of real estate a secret).

Getting to know the neighbors, site measurement and legal review

When buying a plot or house in Indonesia, it is very important to get to know the neighbors in advance, as well as the head of the village, and inform them of your plans. You will need local approval more than once. For example, a permit for driving on a public road must be signed by all households on the street, as people once built it with their own money. The absence of a document with neighboring visas is fraught with additional costs.

If you are buying land for building, you will need the signature of the neighbors and the head of the village in order to apply for and obtain a building permit. It is important that all interested parties are not against it. It is necessary to talk to the head of the village separately and find out the conditions for obtaining his visa on the application.

It is also recommended to find out everything about the encumbrance of land - whether it is necessary to make contributions to the village community (banjar), at what time and in what amount (for example, to buy a bag of rice once a year or to contribute funds, say, for the needs of a school).

Local realtors advise beforebefore purchasing, make sure that the purchased land is not agricultural, as well as make measurements of the site yourself and make sure that the parameters match those specified in the certificate. If there are discrepancies, it will take about a year for the certificate to be measured and reissued.

Another important aspect of self-construction is access to utilities: how far the electricity goes, how deep the water is. 

It should be borne in mind that not all locals speak English, so you will need an interpreter.

Much of the above is irrelevant if the deal is handled by an agency. However, it would be useful to discuss all the subtle points with the realtor.

Transaction, settlement, registration of rights

As a rule, a preliminary agreement is drawn up first. It is necessary to make some kind of deposit on it in order for the object to be withdrawn from sale.

The contract can be drawn up and signed either with the involvement of a notary (his commission will be 1-2% of the value of the property), or without it. In the latter case, the contract is drawn up in simple written form and signed by the buyer, seller and two witnesses.

Settlements between the parties are made in dollars, euros or Indonesian rupees by agreement of the parties. In May 2022, Russians can make a payment by direct transfer of funds from a bank account that has not been sanctioned and has not been disconnected from SWIFT to the seller's account (if there are documents on the origin of funds).

Payment under the contract for the purchase of an object under construction is usually divided into 3 stages. Installments for several years are not practiced. Mortgages are poorly developed. Foreigners are prohibited from taking out housing loans, but locals rarely use this option because of the high rates.

The terms of registration of rights depend on the contract under which the foreigner acquires the property. So, you can rent a property (Hak Sewa) in just a few hours. But in the case of the transfer of rights from an Indonesian to a non-resident or a foreign company, the process can take up to six months. Changes to land certificates are carried out in the capital, and it takes time to go through all instances.

The realtor's services are usually paid for by the seller. The generally accepted commission is 5%, but it can be lowered to 2.5% for objects worth several million dollars.

Taxes

The seller and buyer of real estate in Indonesia pay a tax of 2.5% and 5% (of the transaction amount), respectively.

There is a tax of 11% on income from renting a villa or apartment&for rent.

In addition, there is an annual property tax, which is 0.1- 0.2% of the estimated value of the property. The more expensive the villa, the higher the tax. Thus, residences that cost more than 1 billion rupees (approximately $68,423) are subject to the maximum tax (0.2%). To indicate the order of the amounts in question, here is an example. The owner of a mini-hotel with an area of 2000 sq. m. A farmer on a 40-acre plot has to pay about $600 in tax per year to the state. 

Another tax on land and construction is paid annually and is administered by the local offices of the Directorate General of Taxes (Direktorat Jenderal Pajak, Kementerian Keuangan Republik Indonesia).

When selling a house and transferring ownership rights, you will also need to pay money to the treasury - 10% of the total selling value of the property.

When ceding the rights to an expensive villa worth more than 30 billion rupees ($2.1million)There is a 20% sales tax on luxury real estate.

Taxes are reassessed every three years, and in the most dynamically developing regions every year. 

"Pitfalls" when buying property in Indonesia

Advertisements offering real estate in Bali often promise returns of up to 20% in foreign currency. However, our experts in the region advise you to pay attention to some nuances.

Firstly, if a lease agreement (Hak Sewa) is concluded for 25 years with a preferential right of extension, it must be borne in mind that at the time when the time comes to sign a new extension agreement, the cost of land may already be many times higher than the original one (over the past 10 years, the cost of land has increased by 6-8 times, depending on the region). From this point of view, in order to protect yourself, it is better to negotiate a longer rental period.

Secondly, it is necessary to request a contract from the seller, on the basis of which he has the right to a plot or house. There are situations when a developer offers real estate on lease for a period that exceeds the term of his own land lease agreement. This means that the extension of your contract will depend on the terms of the extension of the contract between the developer and the land owner. Considering that we are talking about the prospect of, say, 20-25 years, it is possible that the seller will not contact you, and you will have to resolve the issues of renewal yourself.

Thirdly, when purchasing land with buildings from an Indonesian citizen, you should make sure that the contract contains clauses stating that the original certificates for the land are kept by the tenant, and the landlord is obligated to pay income tax. According to the law, the landlord must pay personal income tax in the amount of 11%. This clarification will allow the buyer to protect himself from resolving the issue in the future.

In addition to the legal aspects, it is necessary to carefully examine whether the house is built with high quality, taking into account the peculiarities of the operation of buildings in the equatorial climate. One of these points is the height of the foundation and the materials used for waterproofing. According to local realtors, houses on foundations 40 cm high without waterproofing are often found. A few years after the construction of such a building, moisture penetrates into the walls, and a fungus forms. The lack of waterproofing of the roof, which is also not uncommon on the islands, threatens with leaks during the rainy season.

To avoid mistakes, our experts in Indonesia recommend purchasing an object from a reliable large developer, as well as contacting local companies for advice.

Conditions for visiting Indonesia in May 2022

Anti-covid restrictions

Starting from March 2022, quarantine on arrival has been lifted in the country. Tourists no longer need to spend part of their vacation in a quarantine hotel without leaving the room, as it was before. In addition, you do not need to do a PCR test at the airport upon arrival. However, take the test before traveling (at least 48 hours in advance) It's still necessary. Note that only vaccinated tourists can visit Indonesia, and at least 14 days must pass from the moment of the second vaccination. Sputnik V and Sputnik Lite are included in the list of approved drugs, there is no statute of limitations for vaccinations.

Visas

At the end of April, new rules for obtaining visas in Indonesia came into force.

The simplest tourist visa for up to 30 days, which can be issued at the airport, is not yet available to citizens of the Russian Federation, Ukraine and Belarus. Residents of these countries are invited to apply for a tourist, business visa or other types of visas allowing longer stay in the island state.

Note that Indonesia does not recognize dual citizenship, so it is impossible to obtain a country's passport without losing your own.

Air travel

The most optimal routes from Russia to Indonesia for May 2022: via Dubai;(Emirates Airline), via Qatar (Qatar Airways) or Istanbul (Turkish Airlines). Direct flights from Moscow may resume soon.

Traveling to the islands is still expensive. The cost of a one-way ticket for May 2022 starts from 50,000 rubles. Note that to visit Indonesia, you must have a return ticket to Russia or any other country.

Payments

Since Indonesia is not included in the list of countries that are "unfriendly" to Russia, settlements, including when purchasing real estate, are possible through banks that are not yet disconnected from SWIFT.

Thanks to our experts in Indonesia:

Maxim Demenchuk, Sales manager at Arcasa-Group

Igor Maksimov, manager at Magnum Estate