How to buy a villa in Indonesia

Real estate acquisition goals in Indonesia

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

If the purpose of buying a house is investment, you should draw up a business plan, determine your costs for independent management of the object (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 of 45-50%, although the normal load 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 the right to property will be preferred.

Region and location selection

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 not similar to 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 absolute ownership of land (we will tell you more about this 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, real estate for rent is 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 the island of Java, which means that the land will become more expensive.  

If the desired return on investment is shorter, about 5 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 the value of land. 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 hundred. For comparison, the price per hundred in the more developed and popular tourist south reaches $200,000. However, many realtors are skeptical about the prospects of the north of Bali, since talks about the construction of a new airport have been going on for 10 years, and so far these plans are not being implemented.

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

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

Bali is home to more than 5 thousand Russian speakers, most of them settle in the districts of Changgu, Bukit, as well as in 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 real estate ownership

Foreigners cannot own real estate in Indonesia in the usual sense. Only Indonesians can get unconditional ownership of a house or apartment – Freehold (or Hak Milik).

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 the number) and own them for 25 years with further prolongation (a total period of 80 years). According to the legislation, it is possible to extend after the end of this period, but there have been no such precedents yet.

The company may, if desired, sell the object or objects, or rather, cede its rights to them to both foreigners and Indonesian citizens, respectively, under the Hak Pakai and Hak Milik agreements. In addition, it is possible to sell a villa or plot 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 issue 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 object is purchased from a foreign company with the corresponding right.   

Hak Pakai can be obtained only for one unit of real estate, while the size of the land plot cannot exceed 1500-2000 sq. m (depending on the location). There is also a minimum value of real estate that can be purchased by issuing a Hak Pakai. The limits in Bali 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 owner of the Hak Pakai leaves Indonesia (for example, he has expired his residence permit or work permit), he needs to transfer his right to real estate to another person within a year, otherwise the state may withdraw the house without compensation. Legislation allows this. However, there were no such precedents in practice.

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

Under Hak Sewa contracts, tax obligations arise only from the landlord (10%), but property taxes, 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 the rights to real estate (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 make purchases for nominal holders. Nevertheless, the practice of reissuing a nominal ownership agreement with new foreign holders exists (this option may be of interest to those who want to keep their ownership of real estate secret).

Acquaintance with neighbors, site measurement and legal verification

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

If you are buying land for development, the signature of the neighbors and the head of the village will be needed in order to apply and obtain a construction permit. It is important that all interested parties are not against it. It is necessary to talk separately with the head of the village 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), in what time and in what amount (for example, once a year to buy a bag of rice or to contribute funds, say, for the needs of the school).

Localrealtors advise before buying to make sure that the purchased land is not agricultural, as well as independently make measurements of the site and make sure that the parameters match those specified in the certificate. If there are discrepancies, it will take about a year to measure and reissue the certificate.

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

It should be borne in mind that not all locals speak English, respectively, an interpreter will be needed.

Much of the above is irrelevant if the transaction is conducted 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 contract is drawn up first. To make some kind of deposit on it is necessary for the object to be withdrawn from sale.

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

Settlements between the parties are made in dollars, euros or Indonesian rupiah 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 is not disconnected from SWIFT to the seller's account (if there are documents on the origin of the 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 not allowed to take out housing loans, but locals rarely use this option because of high rates.

The terms of registration of rights depend on the contract under which a foreigner acquires a real estate object. 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. Making changes to land certificates is carried out in the capital, and the passage of all instances takes time.

The realtor's services are usually paid 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 the 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 a real estate tax (annual), which is 0.1- 0.2% of the estimated value of the object. The more expensive the villa, the higher this tax. So, 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, let's give an example. Owner of a mini-hotel with an area of 2000 sq. m. m on a plot of 40 acres must pay the state about $ 600 of tax per year.  

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

When selling a house and transferring ownership rights, it will also be necessary to pay money to the treasury   10% of the total selling value of the object.

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

Tax revaluation is carried out 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 prolongation, it must be taken into account that at the time when it comes time to sign a new contract for prolongation, 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 6-8 times depending on the region). From this point of view, in order to protect yourself, it is better to negotiate a longer lease 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 a 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 owner of the land. Considering that we are talking about the prospect of, say, 20-25 years, it is possible that the seller will not get in touch, and you will have to solve the issues of extension yourself.

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

In addition to legal aspects, it is necessary to carefully study whether the house is built qualitatively, taking into account the peculiarities of the operation of buildings in the equatorial climate. One of such moments is the height of the foundation and the materials used for waterproofing. According to local realtors, there are often houses on a 40 cm high foundation without waterproofing. A few years after the construction of such a building, moisture penetrates into the walls, 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 for May 2022

Antikovidnye restrictions

Since 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, there is no need to do a PCR test at the airport upon arrival. However, pass the test before traveling (at least 48 hours in advance) 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 on 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 offered to apply for a tourist, business visa or other types of visas that allow longer residence in the island state.

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

Air travel

The most optimal routes from Russia to Indonesia for May 2022: via Dubai;(by Emirates Airline), via Qatar (Qatar airways) or Istanbul (Turkish Airlines). Perhaps direct flights from Moscow will resume soon.

Traveling to the islands is expensive so far. 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 "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

Author: Elizaveta BARSKIKH