Imagine finding a perfect plot of land with spectacular ocean, mountain, and rice field views in Bali.
Electricity and water are easily available and it’s got great access. It’s a bit over your budget but your life savings can just about stretch to cover the purchase, the agent fees, and taxes and build the ideal home you’ve always dreamed of. The big day arrives and you’re sitting in the Notary office only to find that it’s not zoned for building, you can’t get a licence to operate a rental villa and there’s a big question mark hanging over which son of the deceased landowner owns the land and has the right to sell it. Or not.
Dominoes begin to fall in slow motion and reality kicks in. The deal is off. It’s a huge disappointment and your dream home in paradise goes up in smoke. Believe it or not, it’s not that uncommon. So, what can you do to avoid the nightmare?
The answer is Due Diligence. In the context of real estate, Due Diligence refers to the comprehensive investigation of a property and all aspects of a potential transaction. It’s essentially your homework before buying a property and is paramount to secure a smooth and successful investment.
Think of it like this…
You wouldn’t buy a used car without checking under the bonnet and taking it for a test drive, right? Similarly, Due Diligence ensures you’re not buying a property with hidden problems lurking beneath the surface ready to come and bite you where the sun doesn’t shine.
These are the main things to bear in mind when you’re investing in property in Bali.
Verify the Title and Ownership
This is like checking the car’s ownership and registration. Land ownership in Indonesia can be intricate, with various types of titles, regulations regarding foreign ownership, and the presence of unregistered land. Unfortunately, property scams exist everywhere, and Bali is no exception, so you’ll need to ensure the seller has the legal right to sell the property and that the title is clear of any outstanding claims or liens, usually with a financial institution. This typically involves obtaining a copy of the land title (SHM or HGB) and verifying its authenticity from BPN.
Zoning and Permits
Just like some roads restrict certain types of vehicles, zoning regulations dictate what type of development is allowed on a specific property. Skipping this check could land you with a property unsuitable for your intended use, like a residential plot where you envisioned a bustling restaurant.
Building Inspections
A thorough inspection by a qualified professional is like taking the property for a test drive. This helps identify any structural issues, hidden repairs, or potential problems you might not notice on a surface-level visit.
Legal and Tax Considerations
Understanding the legalities involved in the transaction is crucial. Consulting a lawyer helps ensure the contract protects your interests and that you’re aware of any potential tax implications associated with the purchase. While the purchase price might seem attractive, hidden costs like outstanding taxes, construction permits, or maintenance fees can significantly impact your investment. Due Diligence uncovers these potential liabilities, allowing you to factor them into your decision-making.
Financial History
Just like checking a car’s service history, understanding the property’s financial history can reveal potential issues. This might involve verifying any outstanding taxes or Home Owner Association (HOA) fees associated with the property.
By taking time to go through this checklist you gain a clear understanding of the property’s condition, its legal standing, and any potential risks or hidden costs, allowing you to make informed decisions, negotiate more effectively, and ultimately, secure a smooth and successful real estate transaction.
Government Regulations and Relevant Agencies
Understanding relevant government regulations and agencies will help you to conduct an effective Due Diligence. Here are some key entities to be aware of:
- Badan Pertanahan Nasional (BPN)
This national land agency manages land registration and ownership records. Due Diligence involves obtaining a “Sertifikat Hak Milik” (SHM) or a “Hak Guna Bangunan” (HGB) title from BPN, ensuring clear ownership and legal standing.
- Badan Koordinasi Penanaman Modal (BKPM)
The Investment Coordinating Board (BKPM) oversees foreign investment in Indonesia. If you’re a foreign investor, consulting BKPM regarding restrictions and regulations applicable to your transaction is important.
- Notaries
Notaries play a crucial role in property transactions in Indonesia. They handle legal documentation, ensure proper transfer of ownership, and verify the authenticity of documents. There are a lot of options available, especially in Bali, so do some research, ask friends who have had successful experiences, and choose a reputable and experienced notary to safeguard your interests.
- Kementerian Pekerjaan Umum dan Perumahan Rakyat (PUPR)
PUPR or Indonesia’s Ministry of Public Works and Public Housing is responsible for planning, developing, and maintaining Indonesia’s public infrastructure, and plays a role in establishing zoning regulations. Knowing about planned infrastructure projects such as roads, bridges, dams, irrigation systems, ports, airports, and public buildings might be a good strategy if you anticipate future development and rising land values.
Additional Tips
Gather All Documentation
Maintain a detailed file with all relevant documents, including land titles, permits, contracts, and communication records.
Seek Expert Advice
Don’t hesitate to seek help from experienced real estate agents, legal professionals, and surveyors familiar with the Bali market. Seven Stones Indonesia is reliable and experienced in this area and more than happy to offer advice.
Beware of Verbal Agreements
Unfortunately, being a man or woman of your word isn’t as common as it used to be, so ensure all agreements are documented and signed to avoid future misunderstandings or disputes. It’s a business transaction after all.
Investing in real estate in Bali (and elsewhere in Indonesia) can be a rewarding experience, but proper Due Diligence is a non-negotiable step. By thoroughly investigating the property, its legal status, and all associated details, you minimise risks and increase your chances of a successful and secure transaction. Remember, investing in peace of mind is an investment that pays off in the long run, allowing you to enjoy the beauty and serenity that Bali has to offer.
Seven Stones Indonesia offers a range of business services, including property investments, market-entry, country representation, consultancy, and advisory services as well as tax and accounting packages. If you’d like to learn more, get in touch with us at Seven Stones Indonesia through [email protected].