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Signing a Building Contract In Bali

Signing A Building Contract

Signing a contract to buy or build your home is probably the largest transaction you will make in your life. These days there are many pitfalls but there are steps you can take to reduce the risks. Here we look at some of the risks and steps you can take to protect yourself.

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Unfinished house

Integrity and the Housing Market

The Financial Crisis of 2008 was triggered by the housing market in America. It seems that half the world 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.

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 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 some 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 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.

Precautions when signing 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.

Get Some Independent Advice

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.

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Copyright © Phil Wilson March 2009
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