Land acquisition in Bali

Real Estate Rights in Bali

According to the Agrarian Law No 5/1960 the following permanent titles can be issued
in relation to the real estate:

 Hak Milik – Right of Ownership

 Hak Guna Usaha – Right of Cultivation
 Hak Guna Bangunan – Right to Build
 Hak Pakai – Right to Use
 Hak Sewa – Right to Lease
 Hak Pengelolaan – Right of Management

Currently, only three of these certificates can be obtained by foreigners in Bali: Hak
Guna Bangunan, Hak Guna Usaha, Hak Pakai.

Land certificates that foreigners can obtain

 Hak Guna Bangunan (HGB) – Right to Build

HGB allows certificate holder to build on the land. This is a suitable certificate in the
case of planning to construct and own buildings in Bali.

A HGB title can be issued to:

 foreign owned companies called PT PMA (including 100% foreign owned PT

PMA)
 local companies

Hence, foreigners can obtain this certificate via their company.

HGB certificate is given out for 30 years with up to 20 years extension. It may be
renewed for another 30 years after the official extension period has expired.
The HGB can be sold, exchanged, and mortgaged. Note that in case a PT PMA is
selling land with HGB certificate to a local person, this new owner can convert it
to Hak Milik. Hak Milik, in English freehold, is the highest right of ownership.

 Hak Guna Usaha (HGU) – Right of Cultivation

HGU is a suitable land certificate for agricultural and farming purposes. HGU is valid
for 25 years and extendable for up to 35 years. Land with this certificate must be
registered at the Indonesian National Land Office (BPN).

Similarly to HGB, foreigners as natural persons cannot acquire HGU. They can get
it by using either a PT PMA or local company belonging to the foreigner.

 Hak Pakai (HP) – Right to Use

HP is the most relevant certificate out of the three – the two others can technically
be acquired by foreigners but in reality are rarely used. HP certificate allows to
harvest and use the land as per agreement with the parties. It gives the right to be
a property user for 25 years with the possibility to extend up to 80 years.

Foreigner can obtain HP from the government or from an individual. You can apply
to HP if you have PT PMA, a local company or if you are a natural person with a valid
KITAS. An expired HP property (or one that is sold to a new owner) will regain the Hak
Milik, freehold ownership status.

Certificate rights comparison

Persons entitled to
Certificate Essence Validity
apply

Initially issued for up to 30 years, can An individual with PT

HGB To use land for construction be extended for up to 20 years; may be PMA or local
renewed for 30 more years company

To use land for agricultural and Initially issued for up to 25 years, can PT PMA or local
HGU
farming purposes be extended for up to 35 years company

To use land for harvesting, building or An individual with

Initially issued for up to 25 years, can
HP any other purpose that includes a KITAS, PT PMA or
be extended for up to 80 years
production factor on land local company
The safe way of buying property in Bali

PT PMA is a foreign owned limited liability company registered in Indonesia. With

the PT PMA, foreigners have the right to acquire the Right To Build (Hak Guna
Bangunan/ HGB) License and a Freehold Title/ Right To Use (Hak Pakai).

Hak Guna Bangunan Hak Pakai

The right to use and construct property that is

Purpose of The right to use property - owning freehold
not owned by the entity constructing the
Legislation title
property

A maximum of 80 years, with an initial duration

Duration of Granted for 25 years with a renewal option
of 30 years; it can be extended first by 20 and
Right up to a total tenure of 70 years
further by 30 more years

This will give plenty of time to enjoy benefits of their property- inheriting it to the
family member, leasing it to other people or even sell the Hak Pakai to an Indonesian.

If foreigners wish to hold the property for more than 70- 80 years, they can acquire
in the future a new Hak Guna Bangunan and/or Hak Pakai.

As in acquiring Hak Pakai, foreign investors with PT PMA Companies will need to
complete a packet of forms provided by BPN, requesting Hak Pakai over the property
and including relevant supporting documents. Then, they will submit the packet back
to BPN for processing.

Once foreigners have shown a proof of land payment and the conditions of Hak
Pakai are met and built with a correct IMB, a Hak Pakai Certificate will be issued
under their company name.
Leasehold Agreement
Leasehold agreements can be signed also by a non-resident in Bali. When signing the
leasehold agreement, make sure that your rights are ensured to the maximum
extent.

Namely, the agreement should regulate as much as possible. This helps avoid
disputes what was and what was not allowed according to the agreement. Usually
the agreements set out possibility and conditions to extend, renovate, build etc.

For example, compensation has been a debatable topic for several lessees. Seems
unfair to have built up a house on an empty land during the lease period, only to be
handing it over to someone else. Unfortunately, this is the case.

Once the lease period is finished, land is given back to its original owner mostly
without any compensation to what has been built. In order to get a compensation
after your lease period write down terms in the lease agreement.

These agreements are usually drafted and legalised by a certified notary and not
registered in the BPN. Validity of the agreements is subject to parties´ decision.
However, in practice, such agreements are signed up to 25 years. In many cases,
the period is extended.

Changing the certificates during land acquisition in Bali

Depending on the acquirer and the purpose of the land acquisition in Bali, it might
appear that certificates need changing.

For example, if a foreigner is planning to buy land with a locally owned Hak
Milik status, would like to make it to HP, then the certificate needs to be adjusted.

Due diligence before the land acquisition

Prior to settling in, checking the background of the property is a must. For example,
if it turns out that there is an ongoing lawsuit or unpaid taxes with respect to the real
estate, acquiring such property may not be a good idea.

If the dispute is over the ownership of the land, and it turns out that the seller was
not actually the owner of the property, you may be left with empty hands. In addition,
tax liabilities influence drastically the actual value of the property, and hence should
also influence the price.
Another situation that may occur is landowner permitting several individuals the
same land or even alienating it to both. This may lead to arguments about rights and
area usage. Buyer could eventually not be able to put anything into practice. For
avoiding these situations add respective landowner´s representations and warranties
to the lease agreement.

Land taxes
There are two types of taxes to consider in relation to acquisition of real estate or
real estate rights: taxes related to the transactions, and taxes paid by landowners.

Fees and taxes related to transaction

When the deal of property selling is taking place, both parties need to pay the sales
tax. This is calculated over the amount given on the sales contract. Amount on the
sales contract however can be different from the actual price. For example, marking
a 2 billion land as 1.6 in sales contract to reduce the amount of tax for both parties.

When selling a luxurious property in Bali (exclusive houses, apartments, townhouses

as well as condominium units), be aware of a luxury goods tax that applies in
Indonesia. This is a one-time fee sales tax applied to certain extravagant residential
properties. As only recently the basis of this tax was property size, the current
calculation is based on the property value.

Responsibilities of the landowner

Titleholders must pay Land and Building Tax (PBB – Pajak Bumi dan Bangunan)
annually. Once obtaining rights to either land or building, individuals and companies
need to pay a land and building transfer duty (BPHTB – Bea Pengalihan Hak atas
Tanah dan Bangunan).