Building Construction, Renovation, Maintenance & Advice

Signing a Building Contract In Bali

"Giraffe Futures"

I went to see a financial advisor the other day for some advice. I told him that probably the gas oven is a better choice rather than razor blades, razor blades have a tendency to hurt and leaves rather a mess that can stain marble floors and may in fact reduce the resale value of your property.
“Thank you” he said, grateful for some real advice for a change.

What a mess, it seems that half the world has lost two thirds of their wealth and, as we all know, it all started with some over zealous salespeople selling houses to people with no money. Then some even smarter salespeople then sold their poor quality debts to respected (but gullible) financiers all across the globe.

Bad housing loans are probably only the tip of the iceberg in a financial world where enterprising people spend their days dreaming up yet another scheme to make money by shuffling figures on computer screens and where integrity appears to have vanished long ago.

It all comes down to integrity and another factor - quality control. If a few extremely highly paid financial high fliers had bothered to take a look at the loans and the quality of the debt burden they were buying perhaps millions of people's money might still be in safe hands.

Mind you if you are sitting on your yacht in Monte Carlo, the champagne is on ice, the executive secretary is slipping into something more comfortable and you are starting to get a tad tetchy because the butler is having trouble slicing the end off a 2 inch diameter Havana, you are hardly likely to go flying off to Minnesota to knock on the door of Henry Mitzelburger Junior who has collected nearly a full set of bubblegum cards and wants to buy a rather nice cardboard box complete with linoleum roof being sold to him by a gentleman with fat fingers and signet rings who last week was released from Alcatraz and just got a job with Fanny Mae.

“I have minions to do that” you'd say remembering what a good idea it was to reduce the payroll costs by staffing your merchant bank with government assisted applicants provided by the work for the dole scheme. Little do you realise, as you sit waiting for the champagne to chill, that those hard working dedicated staff are busy trying to sell half a million tons of Chinese milk powder they bought at a “really good” price to a company that makes unbreakable camping plates.

There are times when it is prudent to do a bit of checking and, since property is probably the most expensive item on your lifetime shopping list, it is a wise move if you are building or buying your home in paradise. By taking appropriate steps at the start you can save a huge amount of heartache further down the track.

Many people come to Bali and suddenly have this burning desire to buy a property. They talk to a real estate company, a developer or a builder. They talk to a lawyer who may, or may not, be also representing the developer in the same deal (a conflict of interest that is illegal in other countries). The enthusiasm takes over and all too easily they sign a contract.

But what have they signed? As time progresses they may well find that things are not as rosy as the picture painted by their very persuasive salesman. There are, of course, many reputable developers on the island but there are others that have a distinct lack of savouryness. For some the dream will turn into a nightmare and our new home buyers may suddenly find that they are at the mercy of developers, builders and subcontractors who have a burning desire to ward off poverty. Every bag of cement and steel bar represents money that can be saved.

Before you sign a building contract

If you plan to build or buy a property here are some important factors that should be considered:

  1. Who are you dealing with? Take the time to make sure you find out about the people you are trusting. The builder must be from an established company with a license to carry out construction. Do not simply take their word at face value.
  2. Get a good Notaris and make sure they are not representing any other parties in the arrangement.
  3. Don't sign anything until you understand the contract and make sure you read the small print.
  4. Check that the contract documents include a clear specification of what you are getting? You need to have a full set of drawings, a bill of quantities and a complete list of any inclusions such as furniture and fittings.
  5. Check that the contract documents state reasonable maintenance periods The guidelines are 5 years guarantee on the structure and foundations, 3 years on the roof (3 wet seasons) and 12 months for all the other items. The guarantee should start from the date of official handover when all the initial faults have been identified and sorted out. Many contracts in Bali do not provide these lengths of cover. I came across a couple who were given a maintenance period of 30 days from the day they moved into a very expensive house, this is hardly time for faults to show and faults will show, they always do on new buildings.
  6. The payment schedule should provide a reasonable retention amount to be held back on handover so that if faults occur then you have safeguards to make sure the maintenance agreement is honoured. 10% is the general standard for retention.
  7. Make sure that you see a land certificate and that your lawyer has fully investigated its ownership before you pay any money to anyone. Remember – there is no such thing as freehold title for foreigners in Bali, foreigners cannot own land. There are, however, provisions in the Agrarian Law that covers land title issues that allow foreigners to lease land.
  8. Make sure that the project has an IMB (a building permit) BEFORE construction starts.
  9. Make sure you have a qualified structural engineer designing the building and checking the construction regularly. You should also note that an architect is not a structural engineer.

This is only the starting point for building a property in Bali. As numerous people have found out there are many pitfalls and once construction starts you may feel you need eyes in the back of your head. I recently met a man who has retired and bought a villa in Bali after spending decades working in a very tough industry in South East Asia. He reports that his 18 month battle with a developer in Bali was far worse than any of his dealings with the hard cases he met in South East Asian construction industries.

It is a good idea to get some good independent advice and help from someone who you know is representing your interests. This can save you a lot of time and stress but make sure this is not a person on a work for the dole scheme or who has a mysteriously detailed knowledge of the drainage system of Alcatraz.

In the meantime if you are looking for a good investment I met a very knowledgeable man on the beach the other day who generously took time away from his busy watch selling business to give me some excellent advice.
“Giraffe futures” he whispered.
“Giraffe futures?” I said.
“Shhhhh, don't let everyone know” he breathed. “Yes giraffe futures. I can do you a special deal on 500 tons of the 2052 production of the very best Tegallalang giraffes.”

Copyright © Phil Wilson 2009
This article or any part of it cannot be copied or reproduced without permission from the copyright owner.

8 February 2017 Copyright © Mr Fixit,
Jl Bypass Ngurah Rai, Gg Penyu No 1, Sanur, Bali 80228, Indonesia
Telephone: +62-361-288-789, Fax:+62-361-284-180