Labuan Bajo has become one of Indonesia’s most closely watched emerging destinations for tourism and property investment. Once primarily known as the gateway to Komodo National Park, the town has developed into an increasingly important tourism hub in eastern Indonesia.
For investors, this creates an attractive opportunity. Land and property in Labuan Bajo may offer potential for hospitality, accommodation, commercial and other tourism-related projects. However, Labuan Bajo property investment is not simply a matter of finding land, signing an agreement and building a villa or hotel.
Foreign investors in particular need to understand how Indonesian land law, foreign investment rules, spatial planning, business licensing and tourism regulations work together.
Before entering the Labuan Bajo property market, investors should therefore look beyond the property’s location and asking price. The legal structure behind the investment can have a significant impact on whether a project can actually be developed and operated as planned.
Why Are Investors Looking at Labuan Bajo Property?
Labuan Bajo’s growing tourism profile is one of the main reasons investors are considering the area.
The government has designated Labuan Bajo and the surrounding Flores region as a strategic tourism area, and the Badan Otorita Pengelola Kawasan Pariwisata Labuan Bajo Flores was established under Presidential Regulation No. 32 of 2018.
This wider development has encouraged investment in accommodation, hospitality, restaurants, tourism facilities and supporting businesses.
For property investors, the attraction is relatively straightforward: increasing tourism activity can create demand for accommodation and commercial property.
However, investment potential should not be confused with guaranteed returns.
Labuan Bajo remains a developing market. Infrastructure, accessibility, land availability, local regulations and the characteristics of individual locations can differ considerably. A property that looks attractive from an investment perspective may not necessarily be suitable for the intended business.
This is why property due diligence should come before the investment decision, not after the purchase.
Can Foreigners Buy Property in Labuan Bajo?
This is one of the first questions foreign investors should clarify.
Foreigners generally cannot acquire Indonesian land under the same Hak Milik (Right of Ownership) structure available to Indonesian citizens.
Indonesian land law provides different types of land rights, and the appropriate structure depends on the investor, the property and the intended use.
Government Regulation No. 18 of 2021 is particularly important because it regulates land rights, management rights, apartment units and land registration, including provisions relating to rights that may be held by foreign individuals and foreign-investment companies.
For a foreign investor, possible structures may include rights such as Hak Pakai or Hak Guna Bangunan (HGB) where the relevant legal requirements are satisfied. A foreign-investment company, commonly known as a PT PMA, may hold certain land rights for business purposes.
The correct structure therefore depends on whether the investor is purchasing a residence, developing a commercial property, operating accommodation or establishing another business.
Property structure matters
| Investment objective | Structure that may be relevant | Key consideration |
| Personal residence | Hak Pakai or another permitted structure | Eligibility and residential requirements |
| Commercial property development | PT PMA with appropriate land rights | Business activity, investment and licensing requirements |
| Hotel or accommodation business | PT PMA or appropriate Indonesian business entity | Tourism licensing and operational compliance |
| Long-term land use | Lease arrangement | Lease terms, land status and permitted use |
| Property development | Appropriate land right + business structure | Zoning, construction and business licensing |
The table is a general guide rather than a recommendation for a particular transaction. The appropriate structure should be confirmed after reviewing the property and intended activity.
Investors should also be cautious of arrangements designed to make foreign ownership appear simpler than it legally is. A nominee arrangement, where an Indonesian individual is used as the registered owner for the benefit of a foreign investor, can create significant legal and commercial risks.
The Land Title Is Only the Starting Point
A certificate showing that land exists does not automatically mean that the land can be developed for the investor’s intended purpose.
Before acquiring land in Labuan Bajo, investors should verify the land certificate, ownership history, boundaries, encumbrances, access and permitted use.
This becomes particularly important in an emerging tourism destination where land may have different spatial-planning classifications.
A buyer may find a beautiful piece of land with an attractive sea view, for example, but later discover that the proposed villa, hotel or commercial development does not comply with the applicable spatial plan.
The question should therefore not simply be:
“Can I buy this land?”
It should also be:
“Can I legally use this land for the business I intend to operate?”
Check Zoning Before Buying
Zoning and spatial planning should be one of the earliest checks in any Labuan Bajo property investment.
Indonesia’s licensing system requires businesses to satisfy applicable basic requirements, including spatial planning and other requirements depending on the project.
For tourism and property projects, investors may need to consider the applicable spatial plan, permitted land use, building requirements, environmental considerations and access infrastructure.
The wider Flores region is also subject to marine and spatial planning frameworks. Presidential Regulation No. 29 of 2023 establishes the inter-regional zoning plan for the Flores Sea, illustrating why location-specific planning considerations can be important for projects connected with coastal or marine areas.
For this reason, investors should conduct a zoning and land-use review before paying a substantial deposit or signing an unconditional purchase agreement.
Investing in Property and Running a Business Are Different
Another common misunderstanding is assuming that owning or controlling a property automatically gives an investor the right to operate a business from it. It does not.
If an investor plans to develop a villa, hotel, resort, restaurant or other commercial operation, the business activity itself needs to be examined.
Indonesia uses the Indonesian Standard Industrial Classification (KBLI) to classify business activities. Investors should check the applicable KBLI 2025 classification because the selected business activity affects foreign investment eligibility, licensing requirements and other regulatory obligations. The OSS system, for example, distinguishes real estate activities from tourism accommodation and other business activities.
The correct KBLI should therefore be selected based on what the business will actually do.
For example, an investor planning to develop property and an investor planning to operate short-term tourist accommodation may have different licensing requirements.
The difference can affect the required business structure, licensing, investment requirements and operational obligations.
What About a PT PMA?
For many foreign investors planning a commercial property project, a PT PMA (foreign investment company) may be relevant.
Current investment regulations provide for minimum issued and paid-up capital of IDR 2.5 billion per PT PMA, unless another regulation provides otherwise. This should not be confused with the separate minimum investment value requirements applicable to foreign investment activities.
The investment requirement is also not simply a fixed “price of setting up a PT PMA.” It needs to be considered together with the company’s selected business activities and applicable sectoral rules.
This is particularly important for investors considering hotels, accommodation, tourism facilities or property development.
Before establishing a company, investors should therefore confirm:
- whether the intended KBLI is open to foreign investment;
- whether any foreign ownership restrictions apply;
- the applicable minimum investment requirements;
- the required business licences; and
- whether the proposed property and business location satisfy spatial and other basic requirements.
Building a Villa or Hotel in Labuan Bajo
If the investment involves construction, purchasing land is only the beginning.
A development may require approval and compliance relating to building construction, environmental matters, spatial planning and business operations.
The Indonesian licensing system has increasingly moved toward risk-based business licensing. Government Regulation No. 28 of 2025 and Minister of Investment/BKPM Regulation No. 5 of 2025 further strengthened the implementation and supervision of risk-based business licensing.
Investors should therefore avoid treating construction as a purely architectural or contractor issue.
A legally compliant development should consider the relationship between:
land → zoning → building → environment → business activity → operational licence.
A legally compliant development should consider the relationship between land rights, spatial planning, building approval, environmental requirements, business licensing and operational requirements.
If one part of this chain does not match the others, the project can face delays, additional costs or restrictions on operation.
Labuan Bajo Property Investment and Tourism
The tourism sector is a major part of Labuan Bajo’s investment story.
However, tourism businesses can involve additional requirements beyond ordinary property ownership.
For example, an investor intending to operate tourist accommodation should not assume that a property marketed as a “villa” can automatically be rented to tourists on a short-term basis.
The actual business model matters.
A long-term residential rental, serviced accommodation, villa operation, hotel and other tourism activities can fall under different business classifications and regulatory requirements.
This is particularly important for investors considering Airbnb or short-term villa rental in Labuan Bajo.
The question should not only be whether tourists are willing to rent the property. Investors should first establish whether the property, location, company and business activity are legally structured to provide that service.
Taxes and Transaction Costs
Labuan Bajo property investment also needs to be evaluated from a tax perspective.
The costs associated with a property transaction can include taxes and other transaction-related charges, depending on the structure of the transaction and the parties involved.
The tax treatment may also differ depending on whether an investor is:
- purchasing property for personal use;
- acquiring property through a company;
- developing and selling property; or
- operating an income-generating property business.
Investors should therefore calculate the tax and transaction costs before assessing the expected return on investment.
A project that appears profitable based only on the purchase price and projected rental income may produce a very different result once acquisition costs, construction, licensing, taxes, management, maintenance and financing are included.
What Should Investors Check Before Entering the Labuan Bajo Market?
A proper Labuan Bajo property due diligence should bring together legal, commercial and practical considerations.
| Due diligence area | What investors should verify |
| Land | Certificate, ownership, boundaries, encumbrances and land history |
| Zoning | Permitted use and consistency with the applicable spatial plan |
| Access | Legal road access and physical accessibility |
| Development | Building and environmental requirements |
| Business | KBLI, foreign investment eligibility and licensing |
| Ownership structure | Individual, lease or PT PMA structure |
| Commercial model | Rental, hospitality, development or other use |
| Taxes | Acquisition, ownership, income and transaction taxes |
| Investment return | Demand, operating costs, development costs and exit strategy |
This process is especially important in emerging markets because land documentation and commercial assumptions should never be treated separately.
Labuan Bajo vs Bali: Is It a Better Investment?
Labuan Bajo and Bali should not necessarily be viewed as competing property markets.
They represent different stages and characteristics of tourism development.
| Factor | Bali | Labuan Bajo |
| Tourism maturity | Highly established | Developing |
| Property market | More mature and competitive | Emerging |
| Investor interest | Very high | Increasing |
| Infrastructure | More developed overall | Developing rapidly |
| Competition | Strong | Generally less mature |
| Opportunity | Established demand | Growth-oriented opportunity |
| Risk | Competition and regulation | Market development and location-specific risk |
For an investor, the most important question is not whether Labuan Bajo is “better” than Bali.
It is whether the specific property, location, legal structure and business model make sense for the investor’s objectives and risk tolerance.
Is Labuan Bajo Property Investment Right for You?
Labuan Bajo can offer interesting opportunities for investors looking beyond Bali, particularly in tourism, hospitality and property-related businesses.
But entering an emerging property market requires more than identifying an attractive location.
Foreign investors should understand the land rights available to them, verify zoning before committing capital, establish the correct investment structure, select the appropriate business activity and obtain the licences required for the intended operation.
Most importantly, investors should avoid assuming that a property can automatically be developed or rented simply because it is located in a tourism destination.
The legal structure should support the investment strategy from the beginning.
For investors considering Labuan Bajo real estate, a legal and commercial due diligence review before acquisition can help identify land, zoning, ownership, licensing and tax issues before they become expensive problems.
Planning a Labuan Bajo Property Investment?
Before purchasing land or committing to a development, ILA Global Consulting can assist investors in reviewing the legal and business structure of the proposed investment, including property due diligence, foreign investment structuring, land rights, business licensing and regulatory compliance.
