Are you contemplating an investment in Bali’s real estate market or aiming to become a property developer in Bali? This piece provides a clear overview of key roles, typical mistakes to avoid, and essential legal requirements. We will reveal the strategic services available from Bali’s real estate developers along with attractive locations for your upcoming investment project.
Key Takeaways
- A property developer in Bali and Indonesia is focused on adding value and selling property at a profit, whereas a contractor is responsible for the actual construction;
- A foreign-owned developer (PT PMA) must partner with a local contractor to operate as contractor
- When building a villa in Bali, common mistakes to avoid include selecting an overcrowded location, neglecting legal complexities such as road access agreements and lease terms, and ensuring stringent quality checks on materials.
- Success in real estate development in Bali hinges on legal compliance with Indonesian property laws, deployment of professionals for market studies, and due diligence in aspects such as land ownership, zoning, and tax payments.
Make navigating real estate in Indonesia easy
Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more.
Find more information about our broad range of real estate services, or reach out today for a free consultation.
What is a property developer? Developer versus Contractor
In the realm of real estate, the roles of property developers and contractors often intertwine, but they are distinct in their objectives and functions. A property developer initiates a venture with the aim of adding value to a land acquisition. Whether it’s purchasing land to build a villa, a restaurant, a complex of villas, or any structure that enhances the land’s worth, the developer’s goal is to sell it at a higher price than the acquisition cost.
On the other hand, a contractor is hired to bring the developer’s vision to life. They build and manage the project, translating the developer’s concept into reality. The distinction becomes more significant in the context of a foreign-owned company, also known as a PMA. In Bali and Indonesia, a PMA cannot operate as a contractor without partnering with a local company classified as a contractor.
8 mistakes to avoid while building a villa in Bali
While the process of constructing your dream villa in Bali can be thrilling, it also comes with potential pitfalls. Recognizing these mistakes will help you avoid them and facilitate a seamless journey to property ownership.
Business issues
- One such mistake is buying a villa from an owner and finding yourself boxed in by other villas. This could limit your privacy and potentially reduce the value of your property. It is common to see land owners leasing properties to foreigners and using the cash to build next to the property reducing the attractivity of your development.
- Road access agreement. Legal complexities can also pose significant challenges. For instance, the absence of a road access agreement to the property can lead to logistical issues later on. Some developers or investors had to pay extra fee to access to their property as the road access was not negotiated during the original lease or purchase agreement.
- Choosing the right location that not suits your target market. Lot of developers are developing properties far from the main attraction or active areas. Finding property 20 to 25 minutes from the main restaurant might suits expat looking to live in a residential area. However this type of location will be unlikely attract tourists booking properties for 2 nights.
- Not conducting rigorous quality checks on materials used by the contractor to ensure durability and longevity.
- Trying to cut construction cost and use poor quality materials.
Legal issues
- Weak contracts with the owner or contractor can also spell trouble. If the lease is challenged by the owner after a few years or the contractor disappears, you could find yourself in a precarious situation.
- Lack of Legal Compliance and Transparency. Understanding the legal landscape plays a key role in property development in Bali. Ensuring a developer’s adherence to Indonesian property laws, particularly regarding leasehold or PT PMA structures, is vital for legal compliance in property transactions. Equally important is the zoning law, which ensures that development respects cultural and environmental landscapes. Contracts for off-plan investments should have clauses safeguarding the investor’s interests, such as specifying compensation or options for withdrawal in case of project delays. With the increasing significance of sustainable and environmentally friendly development practices, aligning with legal compliance has never been more critical.
- Not choosing the right partner for the construction might seen your building permit rejected specially if you have ongoing projects. This lack of building permit has consequences for the investor in its ability to rent out its property on Airbnb.
How to succeed as Real Estate Developer in Bali?
Property development in Bali encompasses a wide array of services designed to cater to the varying needs of investors. Developers often partner with property management firms and legal experts, along with executing thorough professional market analyses, ensuring robust support for their clientele.
In exploring these auxiliary entities, we will shed light on how they enhance the process of property development within existing endeavors.
Partnership with a property management company to increase the value of the project
A real estate company in Bali can significantly bolster the worth of a project through collaboration with a property management firm. The expertise of such a company is vital for adeptly overseeing the daily aspects of commercial properties, including upkeep, repairs, and fostering positive tenant relationships.
Not only does this facilitate seamless operations within these properties, but it also heightens their attractiveness to prospective tenants or purchasers. This enhancement in appeal directly contributes to elevating the market value of these estates. Professional actors such as Bukit Vista ensure serious and professional advice. A professional third party with an expertise in property management can offer solutions to the investors. Property management company can establish a strategy to reach the 15 to 30% ROI promoted. Investors can feel reinsure on how to manage the property after the acquisition,
Maintaining and optimizing investments in property requires comprehensive management and maintenance services. These encompass a broad range of responsibilities, including:
- Consistent upkeep and repair work
- Management of tenant interactions
- Handling finances
- Expert-level housekeeping
- Around-the-clock services for guests
For property owners to have a worry-free experience, the delivery of superior quality within these aspects is crucial components of proficient property management.
Partnership with a legal consultant to reinsure your client about the legality of your project
Working with legal advisors is essential for bolstering the client’s trust in the project’s legal fulness. These experts guarantee compliance with all legal norms and protocols throughout every stage of property development, from its inception to its culmination in Bali. They offer specialized counsel and direction to skillfully maneuver through the intricate judicial terrain associated with developing a property. As a property developer, having a strong relation with a notary or a legal consultant who can talk to your client is crucial to maintain confidence and trust with your clients.
Clients are usually coming from countries were law and rules are reinforced and easily understandable. Investing in Bali and Indonesia might be stressful and a risk that need to be discuss properly with investors. Clients feel reinsure to be guided through the process and understand the risk and legality pre and post acquisition.
Read also: Things To Know Before Investing in a Property in Bali
Provide a market study from a third party to prove the return on investment you promote
Bali real estate developers deliver an essential service by conducting thorough market analyses, showcasing the prospective returns on investment for a particular project. Such an in-depth study provides investors with information about current market trends, property values, and competition within the industry.
This analysis provides a transparent overview of the Bali property landscape to potential investors, equipping them with the necessary data to make educated decisions regarding their investments.
It is common to see around Bali and Indonesia, property developer promising high return on investment between 15 to 30%. However, buyers and serious investors might be septic on a property development rarely offering this return by renting their new villa especially if they invest in Bali for the first time.
Read also: Bali Property Market Trend 2023 – 2024
Provide Land Acquisition and Due Diligence report
Acquiring land, which typically entails the choice to purchase land as a critical part of any property investment journey. In Bali, real estate developers streamline the entire process through their deep knowledge of the local property market and strict observance of legal protocols. They assist in confirming that a developer is compliant with various aspects such as:
- Holding rightful ownership of the land
- Adherence to zoning regulations
- Proper tax remittances
- Absence of ongoing litigations
This diligence assures investors tranquility regarding their investments. Having a third party writing a report can reinsure the investors of the legitimacy of the acquisition. Notaries usually provide a report only on land and do not integrate business perspective that can be useful for investors. Clients understand that some notaries may have interest in the success of the transaction by having commission on it. Clients can feel more comfortable to have a third and independent overview.
Architectural Design and Construction
Working alongside proficient architects and construction crews is essential for achieving outstanding architectural designs and building works. In Bali, developers act as a bridge to these experts, making certain that every phase of construction adheres to global quality benchmarks. They offer guidance through the intricate legal processes required in securing building permits and aligning with local zoning as well as construction regulations.
Architects are the key for a successful property development. A certified architect in Indonesia are the only one able to provide drawing to apply for the building permit PBG. Foreign architect or designers will need to partner with a local architect to make sure their drawing will be accepted.
Financing Options for Your Clients
Property investors looking into the Bali real estate market can benefit from developer financing options that offer increased flexibility. Developers in Bali might present property buyers with reduced down payments and adjustable payment plans tailored to meet specific investor needs, thus simplifying entry into the lucrative Bali property scene.
The developers have been creative to develop different source of financing to attract clients to acquire their dream home and handle the whole process of new project.
Historically the off plan project were the first way for developers to get their source of income. After purchasing the land, the client was completing the payment on several due date until the completion of the project or the villas. While the first 30% were usually paid, the developer had enough cash to complete at least 70% of the construction. They could finalize the delivery when another 40% was paid. However this business doesn’t offer solution to people who cannot complete the rest of the payment. Some investors are looking for different financing solutions.
Management and profit payment
Another way to sell villas or projects is also to offer a final payment in the future by taking revenue on 2 ways:
- Management fee
- Income from the daily rental on Airbnb
This source of financing with a strong contract is attractive for the clients as it allows them to complete the payment of their investment and invest in Bali if they are short in cash or do not want to invest all the cash. It also a way to share profit between the developer and the investor and deliver the property once the completion of the payment is done entirely.
Fractional investment
Since the property price have increased the last few years and some investors are skeptic to invest all their saving in one investment, some developers are offering fractional investment to try to reach another type of investors. The purpose of this offer is to divide one or several property developments through several investors. Instead of having 1 villas or apartment, the investors will own a part or fraction of the property.
This type of investment can be legally done thought the incorporation of a company by owning shares of a company owning itself different assets. It is also possible to offer different class of shares while the company will buy land and develop property on it.
There is also possibilities to develop this kind of investment by securing contracts.
How to finance your new project or first project as property developer in Bali Indonesia?
In terms of creativity property developers can succeed to offer projects without having to buy or lease a land in Bali.
Partnership with a landowner
One of the first option is to establish a Partnership with land owner instead of to buy land. For property developer not having enough cash to purchase the land or willing to focus on the commercial aspect, this solution offers a way of development. It is necessary to secure a strong contract with the owner who will accept to provide management and development of its land for a certain period of time. The benefits for the owner will be assets that the owner can sell or keep.
- Offer to the owner to develop some villas and offering some to the owner in return
- Offer to the owner to sell the villas and to profit sharing on the sales
Investor Switch
This technic is more complex and requires to have a strong network of investors or a good marketing strategy to switch investors.
The purpose is to attract the first investors and having the second range of investors paying the capital gain of the first range of investors. Basically the first investors take the full project and get financed by splitting the properties to a second range of investors. The time frame and a clear calculated ROI are crucial to attract the first range of investors. This technic is risky and need a strong agreement on the legal matters. Investors are usually looking for a quick cash out and need a strong contract to protect their investment.
Navigating Legal Matters in Bali Property Investments
It is essential to grasp the complexities of Bali’s legal structure, especially with regards to property investment. Comprehending regulations surrounding foreign ownership, differences between leasehold and freehold properties, as well as the significance of engaging a proficient legal team are all vital components that contribute significantly to safeguarding your real estate investments in Bali’s market and guaranteeing their financial success.
How to become a property developer in Bali?
Foreigners can operate and open a company as property developer in Bali and Indonesia. The type of company is called PT PMA and allows 100% foreign ownership. The PT PMA needs to have 2 shareholders minimum (individual or corporation). Having a company help the property developer on several aspect:
- Legit business to promote on social media or to present to clients and investors
- Allow to acquire freehold and split properties to clients
- Get a KITAS (limited stay permit) and work legally in Indonesia
- Optimize tax in Indonesia
The paid up capital of a PT PMA is 10 Billion IDR. The land and acquisition can be injected as capital if the activity of the company is related to the real estate. Companies need to report each quarter their investment through a report called LKPM report.
Foreign Ownership Regulations
In Bali, property ownership for foreigners is governed by the Basic Agrarian Law No 5 of 1960 and its related regulations, which specify different land titles such as ‘Hak Milik’ (freehold), ‘Hak Guna Bangunan’ (right to build) and ‘Hak Pakai’ (right to use). While Indonesian citizens have naturally exclusive rights to freehold ownership, foreign individuals can acquire property in Bali through several options. A lease agreement or a HGB and Hak Pakai,
Leasehold vs. Freehold
Foreign investors interested in Bali must understand the distinct concepts of leasehold and freehold. Leasehold signifies a long-term rental contract, whereas freehold denotes complete ownership over property. Foreign investors can acquire freehold property under HGB and Hak Pakai. HGB can be applicable for land under a PT PMA while Hak Pakai need to be related to an apartment or a villa already built. The Indonesian regulation defines a minimum of investment for Hak Pakai in Bali at 5 Billion IDR or 2 Billion for an apartment. Investor KITAS can have a second home visa and acquire a property in Indonesia.
Working with a Legal Team
Securing a skilled legal team is crucial to adhere to all the necessary legal protocols and norms. This team will:
- Advocate for your rights
- Confirm that thorough due diligence is conducted prior to finalizing any property contracts
- Aid in reducing potential legal hazards
- Offer assurance throughout the investment journey.
Frequently Asked Questions
How much does it cost to build a property in Bali?
When planning the construction of a villa in Bali, it is crucial to allocate funds appropriately according to the quality level one aims for. Property costs can vary widely, starting at 500 USD per square meter for villas of standard quality and escalating up to 1500 USD per square meter or higher for luxury villas.
Can foreigners build a house in Bali?
Yes foreigners can build house in Bali and having the right to build by setting up a corporation. It is important to define all the conditions and the rights and obligations during the acquisition of a leasehold. Owners can revoke the lease if there is any breach related to the contract.
How long does it take to establish a PT PMA as a property developer?
The timeline is between 3 days to 1.5 week.
Is Bali a good place to invest in real estate?
Indeed, Bali represents an attractive location for real estate investment because of its solid market and significant returns, which average at 15% annually not even accounting for the escalation in housing costs.
What is the difference between a property developer and a contractor in Bali?
In Bali, the distinct role of a property developer lies in commencing projects to enhance the value of land, whereas a contractor is tasked with carrying out and overseeing the construction phase of said project.
Contact us if you plan to become a property developer or are buying property from a developer.
