Building Construction, Renovation, Maintenance & Advice

Buying Property in Indonesia

"The Law Of The Bungle"

You know that feeling you get when all your internal organs suddenly feel like lead and drop into your bowel, a feeling rather like being about to give birth to an elephant (I have to admit that I have no idea what it would be like to give birth to anything at all never mind an elephant). The sort of feeling Prince Charles would have when he finds his fly open just after his marriage to Diana has been aired to the whole world. Or Bill Gates when watching telly one night remembers that he invested his money with his old chum, a nice friendly man named Madoff.

It is that “not really enjoyable” feeling you get when you have just handed over more money than you ever have in your life before and suddenly you realise that the salesman's smile is more of a smirk and your dream villa in paradise is, in fact, a nightmare villa.

Some say Bali is a jungle complete with wild animals. The dangerous carnivore landus developoribum roams freely and, while the Sumatran tiger is almost extinct, the Bali lion thruiateethatus has a healthy population. This particular big cat can be easily recognised by the repetitious call it uses to attract its prey of “freehold, freehold, freehold”.

It is surprising how many people come to Bali and buy property in a somewhat relaxed manner. They hand over huge amounts of money far more readily than they would back in a western country where systemic checks and balances provide protection. It is the tropical climate you know, it addles the brain

In recent moths we have been hearing a cry from the rooftops, “there will be major changes to land ownership laws in Indonesia”, “the property market is going to go sky high”, “you can all make huge fortunes“, “ all you have to do is buy property from me”, “give me your money.”

We are being told that there will be major changes to the ownership laws in Indonesia and it will become easier for foreigners to own land, do I hear the steady beat of porcine wings?. Those of us who have been here for any length of time know only too well that the Indonesian government making it possible for foreigners to come here and buy unencumbered land is about as likely as a the pope wearing a condom.

We understand that there are to be changes but the details are not yet known. In the legislative process of this country you never know what might suddenly be thrown in at the last minute. Recently, for instance, it was announced that the sales tax would be removed from alcoholic drinks. “Oh goody” everyone said. In the final outcome sales tax was removed but a dramatic increase in excise duty was introduced and the price of drinks went up by around 40%!

The Jakarta Post reports that the proposed changes refer to the right that is already available for foreigners to lease (not buy) land under an arrangement known as Hak Pakai (right to use land) or Hak Bangunan (the right to build on land).

Foreigners cannot own land in Indonesia

Let us clearly state that under Indonesian law foreigners are not allowed to own land in Indonesia, only Indonesian citizens are allowed to have freehold land title (known as Hak Milik).

Foreigners can lease land in Indonesia

Under Hak Pakai foreigners can lease land for a period of 25 years. They have the right to extend this another 25 years and then again for another 20 years. The new proposal was to extend this total 70 years to 90 years. Recently it has been announced that the original proposal has been watered down and is not to extend the term but simply to make it easier to renew the lease so that at the end of the first 25 years it will be possible to carry out both the 25 year and the 20 year extensions at the same time. This is hardly a mind boggling change.

There is also some suggestion that there will be changes for retirees and for people buying apartments for investment. Reports are confused. In the meantime the existing law is very clear and is enshrined in the constitution and the Agrarian law of 1960. Foreigners cannot own land in Indonesia.

As it happens there are many expatriates living on the island that do not want it to become easier for foreigners to buy land. They do not want the right of freehold title (Hak Milik) to be available to foreigners.

The reason is quite simple, they love this island and its people and that is why they chose to live here. They see that the huge influx of people from overseas with large amounts of money that are building and buying villas are unwittingly destroying everything that is attractive about this place. The streetscapes are being overtaken by bland architecture and the beautiful nature of this place and its people are becoming part of the global homogeneity.

The Balinese have construction rules that insist that all new buildings have elements of Balinese design in them. Sadly many new buildings simply do not honour this simple request from our hosts, a little present to an official, a blind eye is turned and the law is flouted.

If the destruction of Balinese culture in the daily life of the island is not bad enough a far more serious threat is insinuating itself on these people.

Land prices have increased rapidly

The cost of land is spiralling out of control. Of course the capitalist system dictates that prices find their own level, if people are willing to pay then prices will increase. But, in an ever increasingly globalised world, what of the local people? They are suddenly having to compete with foreigners who think nothing of spending $300,000 on a house sitting on three or four are of land (an are is 100 square metres). Just to put this into perspective $300,000 is around Rp2,850,000,000 which to an Indonesian earning Rp2 million a month represents their full pay for a trifling 118 years!

The price of land is now getting beyond the reach of most Balinese. Sadly the high prices tempt them to sell their land not realising that they will probably never be able to buy it back. In Balinese culture land belongs to the family and is passed on from generation to generation. Each generation are only the custodians of land.

If the present trend continues the Balinese will be progressively disowned of their land bringing social problems and, we can only expect, serious tensions between the Balinese and their new neighbours. The long term ramifications don’t bear thinking about.

So let us quickly look at the current price of land and the cost of building on this island. Before we start I know there will be those who have different experiences from my own and there may well be others who, for their own reasons, will disagree with the figures I am quoting. I once knew a man who had completed a 3 year degree course in land valuation and I asked him “Ted, how do you determine the value of land?” He smiled, sucked his finger and lifted it enquiringly into the wind.

Land Prices

Naturally freehold land prices vary according to where the land is but as a rule of thumb prices that people may expect to pay at the moment are as follows:
In some outlying village areas land can still be bought for around Rp35 million an are (around US$3,700 for 100 square metres).
In developing areas of Canggu, and the bukit around 120 to 140 million an are (US$12,500 to US$15,000 per hundred square metres).
Sanur tends to be more expensive at 140 million on the West side of the bypass to 180 million on the Eastern side while Jimbaran tends to be cheaper probably around 100 million per are.
At Candi Dasa residents advise me that land costs around 90 million an are.
As soon as you get near the beach or have sea views prices increase markedly rising to Rp200 or Rp300 million an are.

Note that these are freehold land prices and obviously 25 year leases should cost a lot less.

Building Costs

Builders use a rule of thumb to roughly estimate building costs. It all depends on the standard of building and the square meterage of floor area.

Costs start at around 2.5 million per square metre for a basic standard of building. This would be a building with a white tiled floor, concrete walls, low quality wooden window frames, plywood doors, plywood ceilings and a low quality clay tiled roof. Bathrooms and kitchens would be fully functional but may have concrete benches and low quality fittings and equipment. Electrical, plumbing, septic and water systems are included.

At the other end of the scale the highest standard of building is probably around 6 or even 7 million rupiah a square metre. At this price you would expect to have the highest quality marble or teak wooden floors, walls with stone cladding and high quality interior finishes, wood shingle or high quality tiled roofs, high quality wooden window frames and wood panelled doors. Kitchens and bathrooms would be professionally built with the best fittings available and bedrooms would have built in wardrobes and sophisticated lighting designs.

As an example let us consider a medium quality house in a ricefield in Canggu. The land is a 4 are block and the house is 10 metres by 10 metres with two floors.
The land cost is 4 are x Rp130 million = 520 million
The house has 2 floors each 10 x 10 which is 200 square metres at a cost of 4.5 million per square metre = Rp900 million.

Total estimated cost is 1,420 million or around US$150,000.

It should be noted that costs have increased dramatically in the past few years. As recently as 2007 land cost Rp50 to Rp80 million an are in many areas and building costs were 1.5 to 5 million per square metre.

It has to be said that these increases are mostly due to peoples willingness to pay, a situation often fuelled by people selling property who have a vested interest in pushing up the prices and who are usually dealing with people from overseas who have little understanding of the real estate market here in Bali.

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

12 July 2017 Copyright © Mr Fixit,
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