For anyone planning to follow the Bali villas rental business model, we hope you are aware that there is a lot more to getting started than simply obtaining a dream luxury villa and then renting it out to tourists. Unfortunately, the law which pertains to Bali, which is Indonesian law, can be a bit of a minefield when it comes to foreigners buying property or starting a business.
If you have not done any research on Indonesian law relating to property and business, then we suggest you do so quickly. Better still, we highly recommend that you acquire the services of lawyers who practice in these areas of the Indonesian legal system. The truth is if you are going to run a business within the Ball villas rental model, you must do so legally, and in full knowledge of the applicable regulations. Otherwise, you may make one of several legal mistakes outlined below.
The simple fact is Indonesian law forbids foreigners from owning property outright, which means if you were to purchase a property freehold you would be participating in an illegal transaction. To operate a Ball villas business, you must either lease the land or lease the villa, and even with these transactions, it is essential that use a reputable estate agent or notary to ensure that everything is being done lawfully.
Purchasing A Property That Has Zoning Restrictions
Regulations in Bali and under Indonesian law will state what uses land and property can be used for. These are distinguished by the zone in which the property is in, and within that zone, there will be restrictions relating to what any property within that zone can be used for. One example is a ‘green’ zone which prevents anything from being built on land so if you have bought land in that zone, you cannot build on it.
Not Checking Access Before Purchasing
For any Bali villa to be able to be used as a rental property, logically, anyone renting will need to have access, such as them hiring a car and wishing to drive it to the villa. However, if the villa in question is located where someone else has the access rights, then you have a huge problem. They may say you cannot use the road or insist that you pay them for a share in that land for your guests to have access, which can require a significant financial investment.
Not Being Aware Of Tax Regulations Relating To Real Estate In Bali
Taxes exist in every part of the world, and Bali is no different. Indonesian tax laws apply to sales and purchases of property, and it means that both the seller and buyer are liable to pay them. At the time of writing the buyer has to pay 5% of the land value and the seller pays 2.5%. Do not be tempted to undervalue the land you are purchasing to reduce your tax liability. Indonesian authorities are thorough and if they suspect anything untoward, they can deny clearance for the transaction.
Not Conducting Due Diligence
You would rightly carry out due diligence if buying a property or land at home, so it beggars belief why so many people fail to do so for property transactions in Bali. Examples of due diligence include:
What potential does the villa have for business?
Are the property documents accurate and complete?
Do any potential issues or risks exist?
What is the land history of the property?
Are there any undisclosed conditions?
