Buying Property

Paradise is Not for Sale to Foreigners

Bali Update Editor J.M. Daniels Provides an Overview of

Why Foreign Fools in Search of Indonesian Land Ownership are Often Sadly Soon-Parted from their Money

 

(10/31/2015) In considering the current outlook surrounding foreign property ownership in Bali, the old saying of “It’s always darkest just before it goes pitch black” somehow seems to apply.

Because of past coverage of Bali’s real estate sector on Balidiscovery.com and Bali Update, I am frequently asked to the try to decode the evolving vagaries of Indonesian property law as it pertains to foreign land ownership.

Let me preface any remarks with the proud proclamation that “I am not a lawyer,” meaning my observations are based on an admittedly inexpert reading of the law and many conversations with a range of professionals on the practicalities of property transactions in Bali. As a result, I am free of any latent tendencies to say only what I think my readers want to hear – a woefully dangerous proclivity exhibited by many legal eagles and real estate salesmen in these parts.

And, if the past reactions to my attempts at analysis of Bali’s property sector are reliable indicators of what’s to come, I’m battening down the hatches for threats of violence or worse likely to come from those in Bali who find my straight forward talk on the foibles of foreigners trying to own land in Bali as highly inconvenient to their efforts to separate unwitting expatriates from their money.

High profile property seminars conducted recently on the topic of foreign land ownership have led many to mistakenly conclude that A) change in foreign land ownership rules are somehow imminent, and B) that key Indonesian policymakers in the property sector actually even care what foreigners think about the highly politicized topic of foreign land title.

Moreover, announcements that foreigners will soon be able to buy extremely high-end and high-rise apartments in Indonesia are being promulgated in ways that may, in fact, in their final form, serve to make such ownership less attractive than existing “HGB" (Hak Guna Pakai) title. Reportedly included in the new rules are limitations allowing only the “purchase” of high-rise properties costing a minimum of Rp. 5 billion, an additional requirement for foreign property owners to be a legal resident of Indonesia, and an absolute requirement to relinquish ownership within 12 months when a foreigner ends their Indonesian residency.

It must be noted in this context that the final rules for high-end and high-rise apartments in Indonesia are still incomplete. As they are now presented, however, they are unlikely to have any impact on the freestanding private villa market in Bali. What’s more, any liberalization of the property ownership rules will still have to face face challenges before the Indonesian Constitutional Court where nationalist sentiments have steadfastly ruled the day in the past by declaring the 1945 Constitution expressly forbids foreign land ownership.

The possibly misleading belief that substantive change in ownership rules is currently being considered has also created a “wait and see” attitude in Bali real estate, with realtor complaining actual property transactions are down by 75% when compared to just a one year ago.

Property transactions in Bali are down and uncertainty in the property sector seems to be running at record-high levels. Against this backdrop of uncertainty, lawyers and notaries in Bali continue to fashion elaborate multi-part contracts intended to cede something tantamount to “land ownership” based on long term leases, secured by fictional irreversible loan agreements and irrevocable powers of attorney.

Meanwhile, evidence and unfavorable court decisions are mounting to show that such legal constructs are little more than a flimsy house of cards unlikely to stand up to even the most modest legal challenge. First and foremost, it is generally accepted in all legal jurisdictions that agreements specifically fashioned to circumvent the national law, in this case the absolute prohibition against foreign land ownership in Indonesia, are ipso facto both illegal and invalid. Over the past 1-2 year government officials have publicly warned that nominee arrangements are merely “back door” camouflage for foreign ownership and therefore essentially illegal and subject to legal reversal.

Earlier this year, the Agrarian Affairs Minister, Ferry Mursyidan, warned that efforts were underway to take an inventory of land held "illegally" by foreigners in Bali and Lombok preparatory, it is presumed, to seizing these properties and putting those lands back in the control of Indonesian nationals.

Add to this stewing cauldron the fact that it now appears the “absolute power of attorney” documents regularly issued by nominees at the request of notaries and lawyers in order to prop up shaky ownership structures are, at best, highly suspect. A Ministerial Decree issued in 1982 declared that Powers of Attorney in matters involving landed property may not be granted and are therefore subject to revocation at any time. One legal observer told Bali Update, that such powers of attorney “amount to a signed confession of intent to circumvent higher Indonesian law, including the Constitution and could be used against the Attorney (The “ Grantee”) in Court.”

Efforts to fashion Powers of Attorney that survive their creator and pass responsibilities and obligations onto the heirs of the original Grantor are also not recognized in Indonesia or, for that matter, in most international legal jurisdictions.

Underlining the complicated situation surrounding foreigners who insist on trying to own land in Indonesia, was a tale recently related on the Australian website (www.domain.com.au) identifying a Western Australian woman, Jacki Farrar, who is building a three-bedroom home near Ubud in Central Bali.

The article says Farrar and her husband opted to “buy” the land using a "nominee" legal arrangement, replete with the manifold additional agreements, which are intended to place their Indonesian “nominee” completely under their thumb as regards the use of "their land" in perpetuity.

Admitting that this sort of arrangement is under fundamental legal challenge, the Farrar’s suggest, somewhat naively, that if worse come to worse they will simply set up a lease agreement with their current nominee. That approach could add up to become a can of worms as it would necessitate a new transaction subject to to VAT over an above that supposedly already paid during the nominee purchase process. Inherent in this "go with the flow" mentality is the unproven assumption of obseqious complicity on the part of the nominee who, in fact, “would be within his legal rights” to repudiate the defunct original agreement and ask the Farrar’s to quickly vacate what is, after all in the eyes of Indonesian law, his land.

Such scenarios and the inability of foreigners to effectively enforce their “ownership” are an increasingly harsh and frequent result of nominee legal structures played out in Indonesian courtrooms on a regular basis.

Are foreign land ownership rules evolving in Indonesia? The answer is “yes,” but not necessarily in ways that will necessarily delight foreigners aspiring to own their own corner of Paradise.

The truth of the matter is that little, if anything has changed in the rules and regulations governing foreign land ownership in Indonesia. It still remains expressly against the Indonesian Constitution for foreigners to own land in Indonesia or even enter into agreements designed to circumvent this absolute prohibition.

When it comes to foreigner buying land in Indonesia, now, more than ever, caveat emptor applies.

© Bali Discovery Tours. See the original at www.balidiscovery.com.