Foreigners eligible for Land Title for up to 90 years

Foreigners eligible for Land Title for up to 90 years

Real estate demand and prices in Bali are about to increase dramatically thanks to changes in the law governing land sales, according to a real estate columnist for a Bali newspaper.

The columnist, Lawrence Bellefontaine, says that the changes became apparent recently with the successful completion of a land title for a foreign buyer of real estate in Bali.

Lawrence said the changes coincided with the news that one of the regions major overseas banks was now prepared to lend money to Indonesians, and probably eventually to foreigners for Bali home and land purchases.

The source of information on the foreign title is one of Bali's leading property legal firms. The firm says it has completed transferring a Bali land title to a foreign national without utilizing the nominee program, thereby eliminating complicated documents and reliance on an Indonesian nominee. A representative of the firm told Lawrence that foreigners were now eligible for Hak Pakai Title, which provides for the right to use the land from the government with a set term and renewal for up to 90 years, providing the foreign buyer meets certain requirements.

These requirements stipulate that the prospective foreign buyer must be seen as a contributor to national development, i.e. have economic interests in Indonesia through investments. Ownership of houses or land is limited to one house erected on one plot of land.

The land agreement provides for fixed terms for renewal of the agreement within the 90-year period and the foreigner must apply for these renewals a maximum of two years before the expiry date of each of the terms. Lawrence recommends payment three years ahead of time, to be safe. There are unconfirmed reports, however, that it is possible to prepay the extensions for 90 years. The foreigner must then pay a small fee for renewal. The steps to obtain a Hak Pakai are as follows:

* Set up a "Jual-Beli (Sales)" transaction with a notary.

* Pay a buyer tax -- 5 percent of the transaction value (which is normal with any land sale in Indonesia).

* Pay a formal fee (government fee) of Rp 10,000,000 (for less than 100 m2) and Rp 15,000,000 (more than 100 m2).

* Pay set-up fees of approximately 2 percent of purchase price, including notary fee.

* The Hak Pakai certificate in the foreign buyer's name should be issued within four to six months.

In laymen's terms this means foreigners can now have the right to use the land without an Indonesian partner for up to 90 years.

At any time the foreign purchaser can convert back to a Hak Milik and sell to an Indonesian at the current market price. Therefore the new owner will be enjoying appreciation similar to Hak Milik properties. Lawrence estimates that 90 percent of potential Bali real estate buyers have not bought property in the past because they could not enjoy benefits similar to outright ownership. Now they can. Lawrence stresses that although his information is from a very reliable source, anyone wishing to purchase property under this title should seek out an attorney who is knowledgeable about this law and who will review the terms and conditions of the Hak Pakai (Right of Use) land title with them.

Lawrence says that a recent change in the lending policies of a major international bank is also enormously encouraging to the average buyer. Using other people's money is the most exciting and most profitable way of buying real estate. The bank's new approach will come as heaven-sent news to Bali real estate investors who have already been earning extremely handsome returns through full cash purchases.

He says that the bank in question has already begun lending money to purchase properties in Jakarta and is now starting to lend money in Bali.

The interest rates are substantially higher than in most countries primarily because the bank faces substantially more risk, especially since the loans are made and repaid in rupiah. The bank hopes to have euro and US dollar loans "in the near future". The loans offered by the bank include; * Housing loans (first mortgage with installment payment scheme and home refinancing (second mortgage). * Home refinancing (second mortgage with installment/revolving/overdraft) * Currency: Rupiah * Maximum loan amount: Rp 2 billion Loan amounts up to 80 percent of the house value, 70 percent of apartment and 70 percent for house-shop-office. * Terms include: House 1 - 20 years, Apartment 1 - 10 years, House-Shop-Office 1 - 10 years.

Lawrence plugged the high interest rates and terms of the loans into a cash flow scenario model for a typical three bedroom luxury freehold beachfront villa complex in Bali that he has just started developing.

He took as an example a borrower seeking to purchase a large beachfront luxurious villa worth $421,000. Now he or she would only have to invest $221,000 instead of $421,000. The balance would be financed by the bank for 15 years.

If the villa appreciated at an average of 8 percent per annum (a conservative figure at present), after deducting all expenses the owner would walk away with an average net return of 37.8 percent per year while enjoying the villa for 50 percent of the time. Lawrence says that when foreigners realize that they can purchase Bali properties for as much as 70 percent less than similar properties in their own countries and now do not need a nominee with bank financing, the sky is the limit on demand and prices. He will be lecturing on these developments and on the Balinese real estate market at a series of seminars in Asia and Australia over the next few months.

One of the free seminars will be held at the Jogjakarta Hyatt Hotel, Yogyakarta, on Sept. 23 from 6:30 p.m. to 7:30 p.m., and on Sept. 24 from 10 a.m. to 11 a.m. -- PT BALI real estate agent