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Australians look at Bali ownership
Australians look at Bali ownership

Australian investors in Balinese property are increasingly buying properties as freehold owners instead of leasing the land, according to a leading real estate broker.

Jason Vershaw, director of Saville Rowe Property Group in Seminyak, said freehold ownership was now the more popular investment vehicle because Australians were increasingly satisfied that it properly protected their interests.

The matter will be among the issues discussed later this month at an Australian Property Institute conference called Bali - Perth's northern-most suburb.

The conference coincides with growing interest in Balinese real estate, following a 15 per cent increase in land value in 2011, according to a Knight Frank report.

Mr Vershaw, who specialises in expatriate investment in Bali, said Indonesian law prohibited foreigners from directly buying land on the tourist island. To get around the law, Australian investors have long purchased property by leasing the land for a set period, currently restricted to a maximum 45 years on the original purchase document.

Under this option, investors can top up the lease by purchasing extra time from the Indonesian landowner, at the new market rate, potentially holding the property for up to 90 years.

He said most investors usually sought to avoid complications of an expiring lease by selling the property to another investor as soon as they made a decent profit, which was usually within five to 10 years.

The next owner would then top up the lease, by as little as two years and as much as 45 years.

Mr Vershaw said he was not aware of any cases where the land lease had expired before the property was sold to a new investor.

It was therefore uncertain whether the Indonesian landowner would automatically inherit the building for free when the land lease expired.

Concerns over what would happen when the lease expired had driven investors to investigate buying properties on a freehold basis, using a local nominee or company on the deed title.

Until recent years, investors had been scared to use this option because of a perception that investor's were not properly protected from unscrupulous Indonesian agents and nominees.

Mr Vershaw said many of the cowboys who previously duped investors were no longer in business and investors had become increasingly confident about using nominees.

He said investors generally preferred this freehold option because it provided permanent ownership, allowing investors to pass on the property to their children.

"The local person's name is put on the deed and they are paid a gratuity for that service," Mr Vershaw said.

"But there are protections for the foreigner, as the local does not have the power to sell the property without the foreign owner's permission, and there are many documents and witnesses to protect the foreigner."

Mr Vershaw said another option was to set up a PMA company to buy property through a trust. This is not a common vehicle for mum and dad investors, because set-up costs are about $10,000.

"This is the strongest form of legal rights that a foreigner can obtain, as there is no Indonesian involvement on the ownership papers."

Mr Vershaw conceded some Australian investors had been burnt in Bali, but he considered it was now a safe place to do business provided it was conducted through proper channels. "There are reputable agents who abide by a code of ethics and who help expats to buy safely.

"But there are many misperceptions about Bali. Some people still think it's all about yobbos in Bintang T-shirts who frequent Kuta.

"There are places like Seminyak and Jimbaran where affluent families come on holiday."

Despite the improved protections, a small number of investors have lost out in Balinese property investment after a rezoning in 2011 which prohibited greenfield development in some areas, including Canggu, Prerenan, Tanah Lot and UluWatu. The investors, including one who bought for $US3 million, are now stuck with land they cannot sell and can not develop.

The costs involved in buying a property vary according to the agent, but typically include a payment worth one to 2 per cent of the property to the notary. Local Indonesians or companies which are named as nominees are paid typically one to 3 per cent of the property's value.

Another 10 per cent of the property's value must be paid in tax to the Indonesian Government, with the cost split between the buyer and seller.

WA president of the Australian Property Institute Dennis Volk said the upcoming conference, on at the Grand Hyatt in Nusa Dua, was designed to boost awareness about Indonesia's legal system and different property ownership rules.

"There is clearly potential in the Balinese property market but buyers have to go in with their eyes open and with the right kinds of advice," he said.

Some people still think it's all about yobbos in Bintang T-shirts who frequent Kuta.

"Jason Vershaw