The locals in Bali sometimes joke about “Banyak Libur” – in other words, many holidays.
How come staying in Bali makes otherwise rational people act strange? How to avoid making decisions with costly side-effects? Here is what you should know about real estate transactions in Bali.
Frankly, many people proceed with transactions under conditions that they would never accept back home. Note that the first property price is likely to change. Without knowing the process, you might buy air instead of real estate. There is also a chance of you acquiring real estate on behalf of someone else.
Using individual nominees with blind faith
The most common mistake is buying real estate for someone else, rather than yourself. Yes, I am talking about nominee agreements. For instance, it is common to put together a financial plan before marriage. Even though you love your partner, there’s an agreement in place that helps avoid complications and useless arguments. Property acquisitions should never be impulsive decisions and buying real estate for a trustworthy friend is unusual, at least it is where I come from.
Considering faster and cheaper alternatives is natural. Unfortunately, this illustrates nominee agreements well – deals happen quickly. Don’t get me wrong, I love bold decisions, yet it is fascinating how using common sense is forgotten. This overly carefree attitude nearly eliminates the power to make calculated decisions.
Not all of the advisors you come across in Bali have good intentions, and some might even take advantage of such a state of mind. Try to avoid becoming an easy target that only helps someone to collect their commission. In most of these cases, the only agreement that holds any value from this situation is a lease agreement. So, instead of getting ownership, people often get a long-term lease.
Frequent problems with a nominee agreement
When the landowner dies, their family comes into play as well. Even though holding an original land certificate prevents the local owner from conducting transactions, it is not sufficient for you. Hence, before using the land or building, you need the owner’s signature for building permits and other documents.
Otherwise, sipping a smoothie by the pool or overlooking the jungle from the terrace remains a dream. All you can do is have a picnic on the empty land. Unless if you want to build illegally, which you shouldn’t.
Be sceptical about fast solutions when investing for the long term
Registering a company and acquiring land in the company name takes longer and costs more than making a set of void nominee agreements. But, like often in life – what you give is what you get.
Trust the basic principles and do your research. For example, do not follow the advice you have heard from someone while spending time in a beach club. Instead, look into the legal matters and potential risks. Getting the land at a low cost may end up as unplanned and expensive holiday spending.
Avoiding due diligence in Bali
Most of the people doing land transactions are in a hurry. It feels as if the agreements had to be signed yesterday. Being in a hurry sometimes means skipping due diligence to save time.
Countless stories end up as the hot topics of Facebook communities. Many things can go wrong when you avoid due diligence.
Buying a pig in a poke
In Indonesia, there is no central system for notaries. Thus, the standard due diligence by the notary might not give you a complete overview of the property. There could be other agreements in place already.
Or, you could be buying land which, based on the certificate, is under commercial or residential zoning. Once you start building or want to change the land certificate, it appears to be in a green zone.
Again, you can keep it for picnics only. And not even for company outings, as you cannot transfer the land in a green zone into your company name.
Conduct research before proceeding with the transaction
Most people don’t spend enough time on research. For instance, a land certificate can be 60 years old, or more. As generations have passed, you should start by finding out who is the actual owner. Do that before transferring any money. Some sellers may ask you to send money to a random person. Involving people that are not related to the land is just an added risk factor.
Also, if the land taxes have been unpaid for 30 years, this may increase the costs of land acquisition. Perhaps this may occur when you start building or want to register your business at the property.
Learn how to avoid monkey business
Buying property in Bali is not that different from the monkey business I’ve seen in the cliff resorts. A monkey steals a pair of designer sunglasses only to trade them for a banana or other treats from the kitchen.
The outcome is mostly that the fractured sunglasses find their way back to the owner. That is, if the monkey drops them to the right side of the cliff, after getting his banana. But real estate is more valuable than designer glasses.
Bali will treat you to some of the greatest, most memorable holiday adventures! And the land here is breathtaking. But prepare, take time, and be considerate about the long-term investments – no monkey business!
Triin Tigane is the Branch Manager of Emerhub Bali. She has been assisting people with starting their business in Bali for nearly 3 years. Having a legal background in M&A, commercial and corporate law, restructuring and insolvency as a lawyer, Triin has experience working with companies all around the world. She knows which challenges starting and expanding companies face, and which standard of communication and services are expected by international clients expanding to emerging markets. Triin Tigane holds a masters degree from the University of Tartu, Estonia, and has studied law also in France and Austria. Feel free to drop her an email: [email protected]
We’d love to hear back from you – please do not hesitate to reach out to Triin Tigane via email [email protected]
Image: Artyom PJ on Unsplash