Foreign Ownership and Mortgage Limitations
In 2024, the Indonesian legal framework still restricts foreign nationals from directly owning land and real estate in Bali. Consequently, traditional mortgages secured against property are inaccessible to foreigners. Without full ownership rights, foreign investors cannot secure loans to purchase real estate.
Alternative Financing Solutions
To address the limitations faced by foreign investors, property developers in Bali have introduced installment plans. These developer financing options make it easier for foreigners to invest by offering flexible payment schedules during the construction phase.
Historical Context and Policy Rationale
Indonesia’s restrictive policies on foreign property ownership are rooted in its colonial history and economic policy aimed at protecting national interests. During the colonial era, much of Indonesia’s land was owned by foreigners, leading to significant economic and social disparities. Post-independence in 1945, the government prioritized private land ownership for its citizens, aiming to correct these historical imbalances.
Legal Framework Governing Mortgages in Bali
The primary legal barrier to foreign property ownership and mortgage access is the Basic Agrarian Law (Law No. 5 of 1960), which grants full land ownership rights exclusively to Indonesian citizens and legal entities. While foreigners can lease land on a long-term basis, full ownership (freehold) remains off-limits. Law UU Nomor 4 Tahun 1996 outlines mortgage regulations (Hak Tanggungan) in Indonesia, stipulating that foreign individuals or entities can engage in mortgage agreements only for construction purposes.
Developer Installment Plans: A Viable Alternative
In response to these legal constraints, Indonesian developers promote installment plans as a practical alternative to mortgages. These plans allow foreigners to bypass bureaucratic hurdles, offering clear and favorable terms for property purchases. Installment periods, interest rates, payment sizes, and schedules are negotiated directly with the developers, often providing interest-free options over several months or years.
Typical Installment Payment Structure
A common installment plan in Bali might include:
• 30-50% Initial down payment
• 40-60% Payments during the construction phase
• 10% Final payment upon property completion
Recommendations for Foreign Property Buyers in Bali
The process for foreign investors to purchase real estate in Bali has been streamlined:
1. Documentation: Investors need a valid passport with at least six months remaining validity.
2. Remote Transactions: The entire transaction can be conducted remotely with the assistance of local experts.
3. Contract Finalization: Once agreements are reached, the investor and developer sign a contract detailing each party’s obligations, the transfer mechanics, and the payment schedule.
4. Property Management Services: Many developers offer property management services, governed by separate agreements, for investors planning to lease their properties.
Completing the Purchase
For leasehold (long-term lease) arrangements, the final stage involves completing all payments according to the installment plan. Once fully paid, the purchase agreement is notarized, and the new owner’s rights are registered in the local property registry for the leasehold duration.
Necessary Documentation for Installment Plans
When purchasing property from a developer on an installment basis, the initial step often involves reserving a specific unit by paying an Expression of Interest (EOI) deposit. The following documents are typically required:
• Valid passport with at least six months of validity
• Capital for the initial down payment (30-50% of the property’s total value)
Before finalizing the purchase, investors should request a comprehensive document package from the developer to ensure legal compliance, including:
• Building construction permit (Persetujuan Bangunan Gedung)
• Land ownership certificate
• Land tax payment receipt (PBB)
• Indonesian bank account and tax identification number
Conclusion
Despite the legal restrictions on foreign property ownership in Bali, developer installment plans offer a practical and attractive alternative to traditional mortgages. By navigating these options, foreign investors can successfully invest in Bali’s real estate market while adhering to local regulations. For detailed assistance and remote property selection, contact our experts today.
