Bali’s 2026 property rules: what still works for foreign buyers.

Lawyer, consultant, developer0:00

I’m nervous. I’ve never been in this before. No, no, no. I said to Shanny, you’re a better... He’s a better public speaker than I am. By miles. Okay. Well, it’s not a public there’s no pressure. so so basically welcome Paras if you could just briefly explain who you are and of course your name and what you do. Yeah. Hi guys, my name is Paras. I am 31 years old. I am Indonesian. I’m an Indonesian national third generation. But I am of Indian blood, that’s for sure. And I am the managing partner of Theta Law.

we are the legal arm and part of the Trident Treehouse ecosystem. Perfect. Alberto, welcome. Thanks, Shanny. Thanks for having me. Yeah, I’m Alberto. I’ve been here for nine years now on the island, married to an Indonesian, and I’m the co-founding and managing director of Trident Treehouse Consultancy, which is a one-stop consultancy business. We do immigration, tax, accounting, corporate services. We have our own in-house legal arm, which is Theta Law. And yeah, that’s us. We have an office in Jakarta, Bali. and since the beginning of this year also in Singapore. Great. Warm welcome, both of you. Thank you. we’re basically three friends sitting at the kitchen table.

Yes. We’re discussing Bali real estate compliance and what’s going on, basically. So it’s going to be for both people that property in Bali, but aren’t really familiar and hasn’t kind of drilled into all the nitty-gritty details of how things work. They might follow it particularly. You know, as you can imagine, if you bought your villa and you’re in it and you’ve had it for a few years, They’re just kind of moving along. nothing has changed for these guys.

just a lot of noise. think what we need to talk about today is about what happens to the guys that newly enter into the market and what has changed for them compared to the old guys. Exactly. And I have all kinds of questions also for Paras. Since I’ve been drilling down on this subject quite extensively for months and months and months. I’m finding the certain conclusions that I want to kind of test see if that is, if it’s correct understanding. So I’m thinking of maybe we start with trying to give some background information on what has been Bali real estate. I’m thinking about specifically on the Airbnb rental market, since that is predominantly what most people come here for.

thinking like they buy a villa and when they’re not here, we’re gonna rent it on Airbnb and make a lot of money. People are not particularly targeting like the long-term rental, even though that’s something that I advocate because I’ve run the numbers and I see that, wait a minute, you’re actually making more money the long-term rentals than you’re doing on the short-term rentals, unless you have like an exceptional property in certain locations. So my understanding is that,

The licence most buyers miss3:31

and also to explain to the people listening, Indonesia, doing business in Indonesia is associated with having a business activity license of some sorts, which is not a normal concept in many other countries. You get a company and you just have like a little description, but you’re basically allowed to operate anything in that company. You don’t need a specific license for it. but here you have something called the KBLI.

and one confusion is of course that the KBLI that is called villa in English means house but in Indonesian villa means actually like a small real estate business activity uh actually i’d like to correct that villa is an actually actually it’s an accommodation business

not per se a real estate business because the KBLI codes kind of differentiate that. And I think it’s important to clarify that KBLI codes are not business licenses. They are just an indicator of what business activity that company is doing. we have the 68111, now I think it’s 68112 and 68111 as well in the 2025 KBLI codes. Those are real estate KBLI codes in the sense that those are codes that you use to develop or lease and, you know, lease back kind of.

But the villa KBLI per se, it falls in the same category as a hotel, as an apartment hotel, and all these lower level hotels like Hotel Malati or something they call it in the KBLI codes. But these are accommodation businesses. And I feel like that differentiation

the the inability for someone to determine that difference is where then the confusion lies Yes. So does that mean since they closed the villa accommodation license KBLI 2021, I think, nationwide, so you can’t get it anywhere in Indonesia since then, is correct?

So let me maybe before we, Paras can go into all the details around, because it’s not only that that has changed the last six to nine months.

The laws didn’t change5:56

your first point, Indonesia is a regulated jurisdiction. And yes, you cannot just set up a company and do whatever you want, but that’s actually the same in many other jurisdictions. in Southeast Asia, at Myanmar, if you’re looking at Thailand, if you’re looking at Vietnam, the same principles apply there as well. So there’s nothing new about this. And I think the big change that happened over the last

to nine months in particular is that many of the laws actually haven’t changed. The laws have always been the laws. What has changed is that certain are now enforcing the law and not allowing it to be basically accepted anymore. And we need to talk a little bit later on maybe about technology as well, the new OSS system, the way the tax office is reviewing files, which is not manual anymore. It’s system supported. So you have more difficulties to get away with a loophole because

So I think Bali is open for business and many of the regulations we talk about specifically target a Bali incorporated company. does not apply to Lombok, Sulawesi, Jakarta and so and so forth. So it’s a very specific Bali topic. think there are many good reasons why this was implemented when we look at over tourism, when we look at infrastructure and whatnot. But Bali is still open for business. It’s just that it’s not as easy as it used to be couple of years ago.

The 2026 rule change7:49

what did change this year specifically if we’re talking about Bali real estate Maybe let you I think what changed is the ease of doing the real estate and accommodation business, that’s for sure. Primarily was triggered by the governor’s letter closing all low and medium low risk KBLI codes. So let’s talk about that a little bit. it’s important for all of us to put this into context. Because like I mentioned, KBLI codes are, they are five digit numbers that explain what type of business activity a company is doing. And the KBLI code tells us more than that, actually. It tells us whether or not a certain business activity is even open to foreign investment.

It tells us the risk levels, because business licensing in Indonesia is issued and granted based on risk levels determined by the government. So there are four risk levels, low, medium-low, medium-high, and high. So each risk level entails a separate procedure and requirement to obtain a certain business license for that KBLI code. And risk levels can differ depending on who is doing that business, depending on the scale of the business as well. So what happened in 2026 primarily is that the governor clearly stated that all PMAs, foreign investment companies in Bali per se, sorry, not in Indonesia, this is specific to Bali, everything that is low and medium low risk is no longer applicable for PMAs.

the idea was that new PMAs cannot set up these codes and this what are low and medium low risk right it includes the real estate KBLI code the villa code Pondok Wisata which have always been blocked anyway for foreign investment so now foreign investment if you’re doing an accommodation business you are pushed to do something that’s of a larger scale that is that is what so what’s are hotels with more than 6 ,000 square meters of build-up area, not land area. This restriction coupled with now the Ministry of Tourism requesting OTA platforms to show a valid business license that you are operating the correct accommodation business is what I think happened to Bali in 2026.

And that’s causing all of this confusion. I think the Ministry of Tourism is serious in taking this on because as far as I know, recently, maybe a month or two ago, they published on their official website that they are actually directly working with OTA platforms to create an API whereby information is shared between OTA platforms and the Ministry of Tourism so they can dig deeper into auditing business licenses, verifying that the accommodations that are published on OTA platforms have the correct business permit. Okay, so if we also

The nominee question11:16

throw in the nominee situation in this discussion, my understanding, I would love to hear your comments on it, is basically if we simplify it, the definition of a nominee is the license for whatever business activity you’re conducting is in somebody’s name and the beneficiary of the money is going to somebody else that’s my understanding to make it simple like that’s the nominee situation so in bali we have thousands and thousands of properties and we have thousands and thousands of expats and foreigners who are owning both maybe HGB which is the state kind of rental. We can talk about that later. Or they have a leasehold, either they have it in a PT PMA since before, which is a company, or most of them have it in their private name.

So that means that at some point when they built this villa, the landowner applied for a KKPR, which is a spatula approval. Then they applied for a PBG, then they applied for an SLF, and then they handed the whole thing over to another company, a management company that has nothing to do with any of who is marketing it out on the market, listing it on Airbnb, and the money goes to John. So in the context of what we now just described, wouldn’t that actually be a nominee?

So let me answer the question and give you also an update here on legislation in Bali. A nominee structure was never permissible under civil law. And what Bali introduced in 2026 was explicitly to say like this is now criminal. is criminal on the side of the ultimate beneficial owner, as well as the nominee itself, which is the local person, as well as any party involved in creating that structure. yeah Yeah. that’s news, Yeah. And I’ll let Paras elaborate on that a little bit more. But it is, you’re right, that’s something that has been market practice for a long time. And now they’re just cracking down on it.

So again, to my point before, it’s not something new. It’s just something that is now more strictly So, there’s two lanes here, as I see them. Please comment on this as well. As I see, there’s the passive income part, where you, as a private person, would hand it over to a management company. And let’s just say that that management company or an agent rents it out on a yearly basis. That means that you’re not really involved in hospitality as such. just kind of leasing it out long term. That’s one version that, as far as I understand, is the one that is still kind of tolerated and considered to be compliant in the sense that it’s not a business as such.

You’re a private individual. You use it six months. You rent it out for a year. It’s fine. You pay your taxes and everything is fine. But my question is then, where is the definition here? If I hand that to a management company and the management company puts it on Airbnb, which is all of a sudden a business activity, licensing is in the landowner’s name. The management company has its own license for conducting property management services or whatever it might be. And then the money goes to the individual person. Wouldn’t that actually have been then a nominee situation since many, many, many years?

conservatively in my view yes uh it can be argued to be a nominee structure that’s been going on for years um i think i think there is also uh the situ one of the situations that we’re dealing with is that there is also a small gap in in understanding between what a property manager does or a management company does and who is the actual accommodation owner so management company a lot of people say you can oh i can just lease i can just sorry i can just hand over my property to a management company and they will arrange it for me but actually uh the interest one of the things that KBLI codes tell us is that what is the revenue generating aspect of this business right for management companies it’s management fees

The management company myth15:48

but management are never the owner of the accommodation. You could build a hotel with a 6 ,000 square meter build in today’s regulation, and you could appoint Marriott, for example, to manage that property for you. Does that make Marriott the owner of the hotel? Exactly. It’s the same thing with villas, right? You could have the leasehold or the HGB on that property and pass it on to a management company, but that doesn’t mean that the management company is an accommodation business. just a property management business. So as the owner of the property receiving revenue or income from a nightly or short-term rental, from an accommodation business, you should have the proper KBLI codes that allow you to run this accommodation business.

you should also be the person then actually receipt of the money that holds the licensing, right? Otherwise, back in the nominee situation again. I think an interesting

Renting it out while you travel16:48

one here is to talk about is permissible and not permissible for an individual. think that’s the elephant in the room, I right? think so. a foreigner, and we can talk about it, so let me be the devil’s advocate, As a foreigner, I can obtain a visa in Bali.

I can rent a villa and live in that villa for my own residence. There’s no problem with that. BKPM, which is the Ministry of Investment, says, if you’re conducting business activities, you need to set up a PT PMA with the KBLI codes, and then you can conduct whatever business you conduct, depending on regulations and permits and all of that. So KBLI then leads to a business license, NIB and so on and so forth. And then you’re also okay to do that. So the question I have Paras is, if I own a villa

I’m going on a world trip, I’m going to travel the world, you know, around the world in 80 days, so I’m not going to live my primary residence two years? Am I allowed to do that even if I receive rental income, even though I don’t have a PT PMA? Okay, so I think there are two views that we need to look at here. I think a legal view is one that you’ve already mentioned, right? It’s not the BKPM regulations. It’s actually the investment law that mandates that every foreign capital investment needs to have a vehicle, and that vehicle is a limited liability company, a PT.

So from a legal perspective, I would argue conservatively that you are doing a business activity in Indonesia without the proper vehicle. But also, interestingly enough, there are tax rules and regulations that allow for offshore transfers to be made to a foreign individual just at a higher tax bracket. So I feel like, and this is a common thing that occurs in Indonesia’s regulatory system, right? Different departments regulate things differently, and sometimes they clash. And I think this is an example of one of those clashes, right? So in my view, it depends on whether we’re talking from a legal or tax perspective. But with my background, legally speaking, I would argue that that is a business activity.

Even though they rent it out two years, if they were rented out to one and the same tenant for the entire two-year period, it’s just a sublease, basically, 24 months, there’s no services connected to it, would it still be considered, you think, a business activity under the law? conservatively yes but practically maybe no practically it happens anyway and and and as we’ve seen so far there has been no enforcement you know against that And if we switch to daily rentals, what would be the difference then of a two-year contract or handing it to a management company that puts it on Airbnb? let me maybe add the tax view on this.

Earning income in Indonesia is considered a business activity. Whether you do it on a daily basis, a monthly basis, a yearly basis, you have a asset or provide a service in this country that is paid for in this country for the service or the asset that you provide. You generate income on that. income generating piece that, according to tax law, is triggering the definition of you’re conducting a business.

yeah the revenue piece is also defined in in the in in the BKPM regulations uh and it’s tied to what KBLI codes you’re doing so KBLI codes are identifying what is the revenue stream where is the revenue stream coming from so yeah So the bit of the same language there i think

The passive income theory21:16

that which included myself until about two seconds ago, because what I have of I’ve used it AI basically to drill down in every single piece of Indonesian legislation and policy I can find. the conclusion I kind of came to after a few months was that there is a differentiation between having passive income, which is not considered a business activity, and a business, basically. And it could argue that the passive income route would be typically when you have a property and you rent it out to somebody. you’re not engaged in marketing or advertising or anything like that. You’re just the beneficiary of the money for that lease.

That, according to Indonesian law, is classified as passive income and doesn’t require a business license. if you would add on services, marketing, and any basic kind of business tasks to it, it immediately is a business. and therefore, it should be conducted under a company. i think i think that’s something that i would like to look into further because as far as as my experience goes i’ve never seen that differentiation

Yeah, in terms of foreign investment it’s always been in my view very straightforward right The procedure has always been and and this is including all of my years of experience of helping foreign investors in other industries outside of bali the procedure has always been that prior to setting up your company you make sure you know what your KBLI codes are what are the foreign investment limitations tied to that, and what are the business permits required for that. Once that is set, is then we proceed to formation of a limited liability company. And then you obtain all of the business licenses, you conduct the activities, you get an office, and so on and so forth.

So this active and passive income differentiation is not something that I’ve come across written in regulation. But if your research tells you that, think it would be interesting it would be something that that Yeah, I’m happy to send it to you with the citations where I found it. I don’t know if it’s applicable or not. It makes sense from the perspective of where I come from, Sweden, where we have that kind of system. As a private individual, you have capital. gains. It’s not a business. You don’t need a PT. your house or whatever you’re getting taxed on the gains but it doesn’t require a vehicle for it.

I think I would also like to add that the reason I have a conservative view that, you know, this renting out for two years is considered a business activity is because I also feel like if the government were to discover you know, these things the way tax authorities treat income also are very conservative. So I think on that basis

I think if we read the laws and regulation, it’s clear, right? Are you generating revenue from this asset or whatever it is? And if you are, then you are deemed to be commercializing or doing business. And therefore, you need the correct vehicles and KBLI codes and so on and so forth. I

to your point, I go to your point first. There is legislation in Indonesian tax law that does separate active versus passive income. And that is, for example, the case when we’re looking at CFC rules and deemed dividend rules. So, other words, are a resident for tax purposes in Indonesia, and you have a holding company that is not trading in Hong Kong, and you have more than 50 % of the share capital. That company, by default, is considered a controlled foreign company.

that means any profit it generates would be taxable in Indonesia unless you reinvest it into Indonesia. only applies for passive income. So royalties or dividends that you receive because it’s a holding company. However, if your company that you still control 51 % in Hong Kong actually has substance and is actually conducting trading activities, actually providing a real service, that is exempt. different, though, to what we talk about here, is about if you’re in Indonesia and conducting or earning an income. nothing in the legislation and that’s a typical Indonesian case right it has holes it leaves room for interpretation and that’s why we have all these discussions because ambiguous

there is a conflict between this law and that law so I agree with Paras if you want to be safe and on the conservative side the active passive active as in I do daily rentals and I’m posting stuff on social media and do all of that whether you do that yourself or you outsource it to a third party doesn’t matter the way versus have a villa not using it because I’m moving back to Sweden for the next three years I rent it out you’re still earning income in Indonesia so in case of a tax audit there’s nothing that protects you office not challenging the fact that you have earned income with an asset in Indonesia and you have commercialized it, even though the management of it, you outsource to a third party, but you have received the benefit.

that’s a conservative view. Yes.

The market nobody licensed27:34

But of course how the market operates right now is that they pay their 20 % tax because They’re not tax it’s tolerated so far without enforcement. We haven’t seen any enforcement where people are cracking down on private individuals having a home.

So that actually means, elephant in the room again, should we say, 75 % of the market has been collecting revenue without a business license? The last forever? it ever been compliant? stats because as a company we try to push all our clients into a legal structure right and the rest is probably not our client I think there is a large and fair portion now whether it’s 75 percent or 50 percent I don’t know but it’s definitely significant that has been operating as you just described. Let’s go back to what you started talking about, Paras. The Ministry of Tourism is doing the API connection the OTAs.

So we kind of concluded that there’s a certain percentage, whatever it might be, that’s been running Airbnbs on this island for years and years and years. It’s been changing ownership in the form of usually hak sewa, the leasehold. and forth, it’s been extended with landowners and so on. So there’s a whole big market out there. all of those licenses is with the original landowner in most cases so that’s the normal case right so the landowner is sitting on a business so he owns the business he owns the land the the leaseholder basically owns the building for whatever period it is but and has the right to use the land so in that scenario there is really no way as i see it how would they ever get the license they can’t get a license right conduct to continue conduct this airbnb business No, yeah, for short term rental accommodation, I think it’s been clear since, I think it’s 2021 or 2023 when the government closed down or

restricted the, you know, the villa and Pondok Wisata. Those are the two main KBLI codes that are used in Bali creating a villa, this one floor building or two floor building with a pool and so on and so forth. So I think that has always been restricted by regulation. Like I mentioned before, KBLI codes tell us whether a business activity has any foreign ownership limitations. Villa and Pondok Wisata are fully restricted for foreign investment. So, exactly. And so those Villa and Pondo KBLIs, or the NIB, as the NIB, will be in the landowner’s name one way or the other. because the foreign entity the PMA cannot obtain get it Exactly.

So now we have the landowners over here. They have the NIB. They have the license. everything. But the whole market is still operating. Not the whole, but very big portion of still operating on Airbnb. So when this API connection then comes into force, is the idea here that they will... Because they will find an NIB, right? They will find it in the name of the original landowner. So there is no deplatforming happening there unless it connects somehow to the beneficiary of the money, I suppose. Well, I don’t know exactly what the enforcement mechanism of Ministry of Tourism will be through this API or even if there will be some extreme form of enforcement.

Let’s talk about that. My view is at this stage, it’s kind of a fact-finding mission to see whether the numbers that they initially in the government letter, it kind of explained that a certain percentage of properties were unlicensed and they’re not paying the regional taxes and so on and so forth. So I think this API integration is more so fact-finding mission and then whatever policy needs to be created out of that is what I’m expecting personally, a new policy, not some sort of extreme enforcement. Because I think,

you know, if we look at it, the Badung Regency per se, I think, has benefited a lot from foreign investment. We cannot deny that, right? So I think it would be, I think it would be reasonable that the government, you know, issues a new policy that kind of accommodates all of this and provides a solution on what what could be better for foreign investment in bali Basically opening a route for these villas Okay, yeah. I mean, everyone that lives here or been to Bali knows how many tourists there are coming, and they’re coming predominantly for the villas. Yes. yeah

Crackdown or fairy dust32:48

hypothetically, what could happen, right? You have a local has obtained the licenses on behalf of foreigner who does not have a PT PMA. There is many angles in the case how this could up right and it wouldn’t end up nicely It’s a nominee structure that could be argued has the local pay taxes the next one and if we’re looking at the ministry of finance in and in indonesia is still running at a fiscal deficit, right, of around 2 .5 % to GDP,

trying to collect more taxes for all the right reasons, right? In particular, I believe, sorry to say it on camera, but the biggest sinners are probably the locals and not the foreigners. And so there is a budget deficit, and it needs to be filled at some point. And that’s why the tax office has invested a lot into Coretax to try to close these gaps. So as much as I would hope that the government would take a position like Paras described of coming up with something that makes sense and is reasonable and aligns all the different departments in the government, whether it’s tourism or tax and spatial planning and so and so forth, I very much doubt that that’s actually what’s going to happen.

So I think it’s a binary outcome. Either they go hardball and then it might end up not so nice might happen, which is also the case very often in this country. They announce something and suddenly nobody is talking about it anymore. just disappears. It evaporates like fairy dust. It’s just gone.

be seen. is there any are there any dates or any far as like that. I look up the link where the Ministry of Tourism kind of published this information. Okay. It’s a classic, right? Indonesia, let’s look at OSS. Blocking the KBLI codes in Bali. I’m not mistaken, that happened you technically could no longer basically apply for a KBLI 70209, the consulting falls in this big list of what the governor in January, I believe, has basically sent to the central government. So on the 23rd of May, 20th something, it was no longer possible. The official statement of the government came out one month later. So unfortunately, very often in this country, things are implemented.

There is no socialization. There is no grace period. There is no consultation with industry experts, which what we would expect in countries where you and I come from and says like we’re going to introduce a new law on the 1st of January in 2028 and here is what you need to do to comply. And then there is workshops and then guys like ourselves have time to prepare our clients. None of this happens in Indonesia not for as long as I’ve been here. And I don’t think it’s going to change I’m afraid.

I think we need to live a little bit with that ambiguity forward. there is always a way. Because it’s not synced, is always a way to get it done. It’s just more complicated. I’m still very optimistic with regards to Indonesia because the fundamentals still make a lot of sense. Largest economy in Southeast Asia, growing at 5%. Young consumer market. mean, all of that is something that the West is dreaming of in many ways. You know, debt to GDP ratio is not like in Japan, 200 percent foreign debt sits at around a third. so it’s not all that bad. it still makes a lot of sense to come to Indonesia, come to Bali, invest in Bali, and your yields are still interesting.

Even in an oversupplied high single-digit numbers. Forget about the 20%. That’s wishful thinking if we’re talking net yields. But that’s still better than what you would get in France, Germany, or Italy. Yeah. Okay. Let’s jump into another topic.

What agents won’t tell you37:50

Real estate agents in Bali. not talking about myself. I’m a real estate agent, but I have contact with real I’m talking normal property agents that are selling property What does the law say in terms of being, giving accurate information to the clients? Because what they are saying today, most of them, is the first question is, are you buying a property to live in or are you buying it as a business? this think that’s start i think that’s right and then they say well I’m actually going to have it as a holiday home and then I’m going to rent on Airbnb ah beautiful then we have these six for you and here is our notary he will do the due diligence no one will ever tell these guys or families or whatever that they’re just they’re buying a property for the purpose of renting it on Airbnb and it’s illegal you’re not allowed to do that and they run through the manager, the sales manager of

the agent, two, three different agents, one notary. They manage to go through this entire process without one single word of warning by anybody that they’re just buying into something that they legally cannot operate. So what kind responsibility does an agent actually have in parts of the world other parts of the world you go to prison right that’s it you’re getting jail time for this and so that’s another elephant I would love have your view on because that’s that’s how the market operates I’m not I’m not entirely sure what the laws and regulation says about information provided by property brokers or agents I know there is a regulation that governs it and you know it talks about even the commissions and so on and so forth but have any information right now exactly what it says about providing the right information.

But from my perspective, as a legal practitioner, as a lawyer for like 10 years now almost, is I think that every investor should have their own initiative to make sure that the information that they’re getting is correct.

we can put the legal requirements and what are the implications aside for a moment and just look at this from a business perspective they’re just doing business property agents they want to get it done fast they want to make their money and move on to the next project so I also feel like that practical understanding needs to sit with every investor that’s trying to invest into Bali and they need to protect themselves and tell themselves, look, I’m coming into a country which I’m not familiar with. What’s the first thing I should do? Is to make sure that I get correct legal and tax advice, for example.

So I feel like we can talk about those legal implications, but also we need to look at this from a practical perspective that everyone’s just trying to do their job or trying to do their business. That’s it. And I want to about, you brought it up, right? Here is my notary. He’s doing the due diligence. So you have the

The seller’s notary41:23

sell side with a sell side agent using a sell side notary. Now, that’s not going to be neutral. not going to be neutral. And I want to maybe Paras can talk a little bit more about due diligence. And maybe also what is maybe before we go there, talk about is actually a notary? Like, what is their mandate? Like, where do they sit, right? In the whole chain between government and legal and so and so forth. Why do we have a notary? Because I can tell you, I can sign with you a lease agreement, and we agree on it, and it’s legally binding, and I don’t need a notary.

So where do they come in? What is their mandate? Where does it start and where does it stop? So maybe that’s one for you to talk about think simply put notaries are an extension of the government to some aspect. The reason we have notarial deeds in Bali is because notarial deeds are the highest form of evidence in court and there are certain documentation that must be notarized. For example if you are mortgaging your encumbering it against a loan, then all of the processes to ensure that the land certificate states that this land is being encumbered to so and so third party is a notarial job.

So there are fixed jobs that they do. Setting up a company is a notarial job. We’ve seen that all the time. But coming back to Albi’s point, notaries are kind of an extension of the government. Not everything needs to be notarized. there are certain documents that must.

So I feel like a notary’s job, specifically in Bali, especially in this lease context of leasing property, is now the customary practice. And I think it’s simply because, first, like I mentioned, notary deeds are the highest form of evidence. And you would love to have the highest form of evidence for the next 30 years with 25 years of extension and so on and so forth. It’s basically a lifetime. What you don’t like is that you don’t have the highest form of evidence and then you go and 25 years later someone comes to you and says, hey man, this is my plot of land. It did never belong to this person.

Due diligence, done properly43:56

Yeah. And that’s the due diligence aspect comes in, right? you need to check at least whether or not the land certificate presented to you matches the records of the land office. That also only a notary can do, or what we like to call a land deed officer, a PPAT. So if you see the notary signs, you’ll see notary and PPAT. PPAT means they are the officials that can take matters of land-related deeds, sale and purchase, encumbrance, so on and so forth. Then you also need to check the zoning. Zoning is important because the zoning tells you what you can and cannot do, what KBLI codes are available in that area, and that’s where KBLI codes come in again.

And the other thing that is normally checked are land and building taxes, which are nominal, usually nominal value. If it’s not been paid, it’s very easy to get that part sorted. But I think that’s the degree of due diligence that most notaries provide in Bali. What we do at Theta Law and at Trident is we provide a more extensive due diligence. We look at those three. but we also visit the site we also highly recommend to get the site remeasured because land boundary issues are common and it happens a lot and then you know it happens sometimes when you there is a miscommunication with your contractor on the drawings and you know things are already built and have already overlapped other people’s plot.

And also we visit the Kepala Desa, the head of the village, the Banjar, to have communications with them because we feel like the customary laws and practices of Bali are very strong still in many areas. And having them involved helps you to some degree. don’t want the local village or the local banjar to not have been informed and then they have maybe some personal interest tied to that land or something. There’s always something that comes out of these discussions and we always try to have a conversation with them and we tell them, okay, you know, let’s collaborate. Maybe we can employ some of the people to help in the villa, to do this and that.

So that’s the degree of the due diligence we take because we see in practice, regardless of you having these three, that can come into play. And I’ve seen it personally myself several times. you want to maybe talk about

is Indonesia there is laws that apply in Indonesia and then there is Bali specific sort of and regulations around temples for example, right? And why to your point it is so important even though it is not written in a national law we’re looking at these local specific circumstances. That’s number one. And the other one is have a plot of land. that’s wonderful. about access roads? I think is underestimated at times. Because if you don’t get the access right, you’re not getting to your land in essence, yes, and we’ve seen it happening. and then post-mortem, you’ve got to figure out, I thought there was a row, it’s not mine, I cannot use it because it’s private.

And then you need to negotiate with the neighbors.

The rules AI can’t find47:45

so on the laws that are specific to Bali Bali is just one of the provinces that has this kind of thing actually there are many provinces that have their own customary law. Like, for example, the local village and I would say the Desa Adat, they have actually what is called an awig-awig. Yeah, it’s called an Awik Awik. It’s basically like their local kind of customary regulation. It’s drafted on paper. Sometimes they don’t have it and they’ll say, okay, we will draft it. But many of the Desa Adat, they have it. written down and they say that if you are if you are building near a pura you need to have a safety distance of 10 meters or 15 meters and all of these regulations and notarial due diligence will never cover this it’s only when you go and visit them and tell them hey look I have a client they want to build this and that do you have any local regulations that we should comply to

who should we notify how capture it. Indonesia has roughly, roughly 30 ,000 to 40 ,000, God knows how many, but that’s the extent of a regulatory legal framework. Everybody can and national laws. will capture that.

specific regulations that Paras alluded to in Gianyar. customary regulations, customary law. exactly. Then you have other regulations. You have river setbacks, have coastal moratoriums for protection of rice fields and cliffs and land and erosion. There’s all kinds of different other layers that come into play most of this that you mentioned are normative, means they’re already regulated in our modern law. But the customary law aspect is something that you, writing. You need to go there and tell them, I want to see what it says. And can you help us with this or that? So I feel like, you know, the common practice of a notarial due diligence, people say, oh, yeah, you know, I can get due diligence done in 14 days.

For me, that’s, I don’t operate that way, because I think it does not make sense that you complete a full land DD in 14 days. You could probably get those first three items that I mentioned earlier. but to do a proper due diligence to understand the boundaries, to go to the BPN and maybe you need to recheck it or re-measure it, which I always advise. And then you speak to the local village heads. You ask for the awig-awig to understand what are the restrictions that they have. That will never take 14 days.

So that’s the degree of the due diligence that I feel should be done in Bali that the customary practice is very strong in this island. So why do you ignore it on those aspects as well, right? And under the new regulations nobody might, if they don’t have the correct advisor, they might not also know that when they go in to purchase this land, it’s also connected to the following permits, meaning that they need to set up the PT PMA, they need to get the KBLI, they sign the land in the right PT PMA for whatever operation licensing they will get down the road. So you need to kind of plan and structure all of these things before you buy or pay anything, right?

Yes. that’s where the due diligence falls short many times is that on the business side you can buy the land but then you can’t run the business so that happens a lot here

Why smart buyers switch off51:39

this strange phenomena that are coming into Indonesia, and usually if we’re talking about Westerners, but even Japanese or Singaporeans, you name it, they’re coming from a very regulated jurisdiction. as soon as they land in Indonesia, suddenly they think it’s going to be cheap, quick, and I don’t need to follow the laws. you’ve probably seen that in your daily life as well, right? It puzzles me that there’s this weird... Actually, I cannot explain it, why it is. But what do you think? Why think it’s a kind of a emotional mass psychosis that happens. I think Bali has such a strong appeal to a certain particular kind of person.

I also think that people coming here are longing enormously of a new chapter in life. They’ve been, wherever they’re coming from, not particularly content with their life situation. and they’ve been longing to move somewhere and do something else. So they kind of get blinded by the enthusiasm of opening a beach club and opening a hotel and doing this and doing that on one hand. On the other hand, there’s a lot of bad advice out there. There’s a tradition and a culture in certain circuits where the answer is always, yes, you can do that. There’s thousands and thousands of people in this market walking around in two pair of shoes, saying, yes, you can do that, which is absolutely 100 % incorrect.

You cannot do that legally. But there’s, which is a strange phenomenon, because I haven’t seen that anywhere else. In other places in the world, I haven’t encountered the kind of wrong advice on the that you actually get here. And after being here for many, many years, I’m starting to understand why that is. when you come here as a new person

you’re very naive very very naive and there’s a lot of sellers out there selling stuff and of course they don’t want to kill any deals so they don’t make any waves and so the answer is yes you can do that when you really can’t and unfortunately not enough people are reaching out to people like us to ask what is the actual situation what can’t I do myself when I came here. It took me, I think it was first when I met you guys that I started to get some decent answers actually. Before that I spoke to a lot of different legal advisors about a lot of things.

All of that advice has been No problem It turned out every single advice I got was wrong. All of it. yeah, can build a hotel here on Yellow Zone, no problem. You can, here’s Green Zone land, LSD, farmland, no problem at all. You can build 20%. You can get a, get a business license you can bullshit why I set up the company in the first place. Yeah? Because I had never had the plan do what I do today. But then I had one coffee and I got asked these questions, right? I have this PT, PMA, and I’m told this. And I said, okay, fine. And then the week after, I have another meeting about the same topic and told something else.

And so after two, three times, I said, like, how is it possible that people are coming to me the same situation and each one of them has been advised differently when the laws and regulations for all of them apply equally. that’s why we started Trident Treehouse, funny enough,

make sense I’m not used to that, right? No. I don’t think anyone is. it kind of boils down to what people do you associate yourself with. There’s a vast difference between advice and advice here. I think that’s probably the biggest mistake people do. that if you go to some advisor, we’re very naive in that sense as Europeans. It’s very regulated. And it’s usually correct. Could be nuances, like small interpretations. But generally, it’s like, can I do this as a business? you get the answer from a legal office, like, yes, you can. And it turns out that it’s actually quite opposite. It’s completely illegal. That doesn’t really happen on the databases.

But it does actually happen here. So to answer your question, I think it’s those two things combined. people are just eager to to get going and open businesses and to do things and they have the absolutely wrong advisors and they get the they get that information that yeah It’s possible I think the other issue is that the market practice allows for it.

So you could get the wrong advice, but if nothing’s happening, and let’s say you get the wrong advice, you take it anyway, and then nothing happens, you are bound to tell other people, oh, it worked for me. Why shouldn’t it work for you? So this lack of enforcement, I would say, on what’s happening in the market is also a contributing factor

get away with it it What another elephant?

Build first, permit later57:17

SLF. Let’s go into the strangest mechanism have ever encountered in real estate anywhere in the world. whereby this is... this is kind of my conclusion of all of this. We have foreign investors coming here. Locals are also coming here from all over Indonesia to capitalize on the tourism, develop real estate. Same thing, they go to an advisor and they say, I want to buy this piece of land. What do I need to do? No, no, you don’t need to do anything. You can just start building. Here’s Here’s Ketut. will will take care of the SLF procedure which is the certificate of building worthiness so you don’t need a PBG god that has that is out there now right so i think there is no one in development anymore that don’t know what a PBG is but that SLF door is still open meaning that you can buy land you can build on it and you will get the building permit and the certificate of worthiness

retroactively even though you just build something illegal. I think that’s very, very difficult for people to understand. How can that be? So you gave SLF an English translation just now, right? A certificate of building worthiness is you said. So I think from a policy perspective, what I understood in one of my discussions with a government officer is that actually the SLF from a policy perspective was introduced to exactly that, to provide a worthiness check on a building that maybe has been built X number of years ago prior to building regulations being in place. So how do we certify that this building is worthy, is suitable for its use when let’s say it was built in like, you know, 1990, for example, and now someone wants to use it in 2026.

So you cannot go down the PBG route or the IMB route, which is a pre-construction permit, pre-construction building permit. So you need the mechanism to certify that this building, and I think it’s still safe. And I think that’s the idea around an SLF. Building permits per se, again, conservatively, I’ve always been of the view that you need to get a building permit to start and the SLF after. To start is what we call a building approval, and the common term used is PBG. But I think that’s where this SLF policy kind of came out from and was taken advantage of, that allowed people to say, just build it first and then we’ll get an SLF after.

But how do you see it today? because my view is that though not so long ago, three, four years ago, that was common practice and was, again, tolerated. Even though already back then you were supposed to get the PBG first and after that the SLF and then you have to renew it every five years, I believe, right? I think that sort of like shortcut has become increasingly difficult to actually execute. When we’re talking about 2026, What’s your view My view is I still see it happen in practice today.

You know, there are some clients that we’re trying to help because they haven’t received their permits in so many years, one or two years, and they’re asking us to see if they can help us. And with the building already established, you can’t really get a PBG. right? you cannot get a pre-construction permit. So what they do is you go the SLF route, and when they issue the SLF, the government also issues the PBG with it. It’s still, in my view, it’s still happening in practice today. for new builds Even for new builds, right. it’s still tolerated. to Shanny’s point, right? You buy a plot of land, you’re developing a five-story building, because you’re allowed to, it’s in the right zoning, fine.

So building restrictions have been respected, no permit, you saying that you will still go, if you go down the SLF route and not the PBG route, SLF will still be granted?

What really drives land prices1:01:50

And there’s another twist to this, since I’m also a developer. code in Bali, the maximum footprint, the number of floors you can build, regulations around, which is completely normal development zoning and spatial rules, there’s strange about it. When you follow those you get X amount of square meters out of a particular piece of land. When you don’t follow them, you get three or four times more, maybe five or six times more square meters of the same piece of land. So what has happened is the reason people are paying 40 million per are, 50 million per are, 60 million per are, and all these absolutely insane land prices, which can’t be sustained if you follow the building code.

It’s impossible to make that a profitable business. You will lose your shirt. But it’s been since the SLF route is there, the cowboy developers will go and pay the land price based on maximizing the density on that land, Which is pushing up the land prices all over Bali. So all of a sudden, we’ve pegged the land prices to illegal constructions because the legal constructions can’t compete. Because they only get like one-fourth of the square meter. That is a very interesting way to look at it. I’ve never thought about it that way before. I’m thinking about it all the time because I’m doing due diligences and I’m calculating.

And I’m like, there’s red numbers here. I can’t make the numbers work because I’m only allowed to build, let’s just say, 800 square meters. If I don’t go for the PBG, I don’t follow the code, I’m getting 2 ,500 square meters. All of a sudden, I’m making some money. that’s an issue I have no clue how that is going to be handled, but it has enormous consequences on the land price.

It’s a very good point. I think you’re right. Yeah. think the prices have gone think you’re spot on in what you’re saying. if you do the financial modeling and you’re looking to get a return on capital Yes,

you’re looking at how do you commercialize this and you can only build X, Y, Z according to the code but if you go down the other route then suddenly it makes sense and you get the yields that justify your investment. think that’s potentially exactly what has and maybe still happens today. I believe though that

debt become more and more difficult. And I think, Paras, we had cases where we know of clients where issuance of permits has become a very difficult task. Yeah, I think with the enforcement of these 2026 Bali regulations, I think just to make this easy. We have experienced

Stuck with a valid permit1:04:59

one very particular case, which for me is very odd, is that a developer had already obtained a PBG prior to his construction. Construction has just completed like maybe two months ago, and he cannot obtain an SLF, even with an active PBG. and the reason being is that the government no longer wants to process all of the KBLI codes that have been blocked, including the 68111 real estate developer code. So the Bali regulations are definitely, while they say something in writing, in practice the way it’s implemented, it’s not written anywhere. For example, for PMAs that have already been set up, the view is that they should get grandfathered from these type of new restrictions being put in place.

And while their business permits that they have obtained already and still continue to be valid, they’re unable to get permits for new locations in their development. So that’s something that we’ve seen in practice as well. Another thing that we’ve seen in practice with the Bali regulations the building permit process is actually for one of our clients who is a local company. No foreign investment restrictions. During the licensing process, the technical consultant asks us to adjust the KBLI codes from the 2020 KBLI codes to the 2025 KBLI codes so they can process the environmental permits, the AMDAL. But as soon as we did that, the KKPR on the OSS system is getting blocked.

And so we did a consultation to the Ministry of Investment Agency here, DPMPTSP in Renon. They asked us to go visit PUPR to see what’s going on. And PUPR basically said that because all of the zoning regulations are to some degree tied to KBLI codes and because there are new KBLI codes in place, we need to adjust this now and make sure that the zoning reflects 2025 KBLI codes. And so there is a change in the system, in their technology to identify zoning and so on and so forth. And they said that, you know, we’re only probably going to be done with this at the end of the year.

we are stuck because of practical issues, not so much legal issues, but like this example particularly is for local company, not a PMA, right? So practical limitations and the tolerance in the market is what’s causing these issues that we are facing, I feel like. On that subject, I understand it, if we just quickly just free,

The freehold myth1:07:54

there is no freehold for foreigners. Let’s just clarify that. hak milik, which is a title that locals can own. There is no freehold in Indonesia for foreigners, but there is something that sloppily is kind of called freehold, which it really isn’t. that’s called HGB, which Right to

Exactly. So the market is kind of advertising this as freehold, which it’s absolutely not. What I have heard is that in order for the HGB title to be granted to a limited liability company, the procedure is this. The owner of the freehold kind of releases the land to the state, and the state kind of reissues this right 30 years at first, and then you need to do it again for another 20, and then do it again for another 30. So you’re actually, you don’t control all the 80 years. You control 30 years with the option to kind of get 20 and 30 years more, but people are selling it as an 80-year lease on top of it.

They’re selling 80 years, but they just have 30, think entering into a 99-year lease would be the easier route Exactly, because lease, and that’s it. And maybe that’s one of the things we also can clarify is,

are used to 20, 25, 30 year lease, and then renewable, there is nothing in legislation that could not say, I’m leasing your land for 499 years. As long as we agree on the terms, that’s a possibility. And Paras can also talk about HGB, actually, is two types of HGB. Yes, please do that. And before you do that, just to finish my question there about the HGB, I understand that in order for the PT PMA to get the HGB license, they’re going to have to have a Nib they’re going to have to have a KKPR. The problem is just that this Dutch guy who bought a piece of land in November and paid the landowner $800 ,000, applied for the permits after all of this has happened, doesn’t have the right KBLI and can’t get the NIB for the business activity that he is going to do.

He can’t get his money back. He can’t get the title. And he’s just kind of stuck in no man’s land $800 ,000 short all of a sudden. So I would really like to hear your thoughts about HGB as so-called freehold, which it is not, compared to leasehold and what is actually the safer route for people to do.

So I would like to term HGB, it’s something that I say this to my clients as well, just for ease of explanation. as a corporate freehold. And the reason I still have the freehold term in my explanation is because actually in a HGB compared to versus a lease, you actually get a certificate under your company’s name. In a lease, you don’t. The certificate is still under the landowner’s name. So you actually have an asset for 30 years on which you have priority rights to extend for another 20 years

30 years. So that’s where the 80 year period comes in. So that’s the term that I like to use. So it’s basically like a freehold certificate owned by a company, i .e. a corporate freehold. all... What after the 80 years? Just to... It goes back to the state. And then if I’m correct, you have the priority rights to reissue the HGB under that company again. I’ll need to double check that. But there is two types of HGB. Yeah, but I’m just talking about this in principle first, right? And then, so in HGB, you get a land certificate that is issued under your company’s name. And then now in terms of the procedure to obtain the HGB, you are right at a high level.

There is a release and a granting to the company. But with the Bali regulations, actually this procedure has changed as well, whereby the land office now requires a KKPR validation which you mentioned already, which basically they want to make sure that the party asking for this land, the PT PMA,

is going to utilize this land for a business and whether the zoning matches that business activity. And actually now the land office also asks you to prepare a business proposal, a five-page business proposal explaining what you are going to do on this land, what are you going to build on it so on and so forth it’s very simple it’s like a five page document but they ask of it now and I think it’s because of these tighter regulations being put in place is the reason why Mr. Dutch guy has you know his money in the ether now

it’s because in that process he may have purchased a land in the wrong zoning, so the KKPR validation does not come out. And then also the business does not match the zoning of that land.

the business KBLI has been closed. So when he bought the land, it was open. When he applied, it was closed. So now he cannot no longer obtain KBLI that he needs, and therefore it’s So this is the same impact that the Bali regulation has permit which I explained earlier right you a client has obtained a PBG permit prior to these regulations being being put in place constructed it in accordance with the applicable laws and regulations and suddenly now because of the change he cannot process his SLF so it’s definitely like I mentioned right in writing it says one thing but in practice it’s affecting many other sectors and then coming back to Albi’s explanation on the different type of HGBs, it’s very simple.

Essentially, you can be granted an HGB on the state-owned land, or you can be granted an HGB on a hak milik. So it sits on top of a hak milik, a freehold land, and at the expiry of its terms, it goes back to the landowner. But you still get the HGB certificate with your company name on it. And what’s the value of that compared to a leasehold? You can go to the bank and say, I have a Hage Bay. Can I mortgage it against a loan? Can I encumber it against a loan? So that’s probably one of the values of having a HGB certificate under your company name.

Yeah. Do you have any examples where they have granted loans under HGB? Yes. Yes. Depends on banking. It depends more on the bank policy opposed to law. but there are many banks that are granting mortgages on HGB land. Yes. Which is more difficult to obtain on lease, increasingly we see that as well as a possibility. that’s interesting still need the involvement of the landowner. okay you need some form of uh Because the owner is the name on the certificate,

is a private commercial agreement. You don’t really own the land. Okay.

The routes still open1:15:40

Yeah. So let’s talk about compliant routes, because there are a few of those still out there. For example, you mentioned, Paras, that large-scale hotels, about 6 ,000 square meters. I think that apartment hotels are also allowed. Apartment hotel doesn’t have, as I understand, the 6 ,000 square meter restriction, but there are other things to comply with. So people buying, let’s talk about how to set up the hotel business, how that needs to be structured for it to be compliant. and also the aspect of where, as far as I understand, the only route open, but it’s a little bit questionable, is that they buy the HGB land, for example.

They have all the licenses, AMDAL, Environmental, the PBGs, all of those licenses. and they construct the compound and then they actually lease part of it. Let’s just say they have 50 villas and then they have some apartments and then they have a hotel section. So they actually sell units and they sell villas on leasehold and then they have an agreement whereby it’s kind of a night release agreement so when they don’t use their units, they’re releasing it back to the hotel pool manages it markets it it takes the rental income and so on and there’s some form of split on

I think we need to distinguish between how you finance the project and how you operate and set up the project. financing the project could be through equity, through debt, or essentially leasing out units you get that capital and then you build the project. is separate from or not correlated to, can I actually build and operate and obtain the licenses? think that’s a separate discussion. And to your point, of course it is possible that you can even do fractional lease. That’s permissible by law. that’s the finance side of the balance sheet. It’s how do I get the money to build this hotel? that’s separate from how do I operate it you want to talk a little bit about Yeah, I mean, if you’re talking about, again, setting up a PT PMA in Bali in the accommodation sector, the only two open KBLI codes right now are the large-scale hotels with more than 6 ,000 square meters built up area.

and that’s allowed for, I believe it’s two to five star hotels. Anything below that is not open for PMAs. And also the apartment hotels. But the apartment hotel is also kind of, there’s still a lot of gray area around that because apartments actually have their own law and it kind of regulates what type of land that an apartment building can sit on, what type of governance it has internally from the unit owners. And as far as I know, when you are setting up an apartment, when you sell those units, it actually should be, you issue a unit certificate for it, like an actual land certificate.

And I believe that the Bali provincial governor at the provincial level, they have that same view, that if it’s an apartment, strata title kind of certificates issued for that so the apartment so but it’s open on OSS like for foreign investment but i feel like its implementation is still in a very gray area and as for me right now i still don’t advise that to potential clients because i know that there might be some changes in its implementation or things maybe that i don’t know myself from a practical perspective. But the hotel one is very clear and the restrictions on everything else, accommodation, villas, Pondok Wisata is also very clear.

So I would say setting up a PT PMA in Bali in this industry, in the real estate accommodation industry, you are basically limited to one KBLI code. And if you want to do something else, maybe you should go outside of Bali. You want talk about quickly quickly and explain you are a foreigner,

you developing an apart hotel. right with all its bells and whistles and reception and shared gym and whatever comes with it to give it the not only apartment but also the hotel aspect to it. And there a list of what you need to do to qualify.

apartment a PT PMA? Can you do it or can you not do it? so that that that is what i was kind of touching on in respect to saying that there are things in the gray area right because there is an apartment law. It governs many aspects on how this building should be regulated, on what type of land it’s built on, and so on and so forth. But I also feel like that because it’s open in OSS, people can use that as a business permit, even if they’re operating on a leasehold land. So I don’t really have an answer to that question right now. It’s still, for me, in a discovery phase.

and I also feel like there is no clear practical implementation guidelines on how this should work. But I know from discussions with other consultants and other lawyers that the view of the Bali provincial governor is that if you’re operating an apartment, then it needs to have a strata title certificate. let me ask you this then.

Buying into a hotel project1:21:59

There’s a lot of projects being marketed and sold in Bali that are basically apartment units inside hotel-style complexes. I’ve done a few checks on a few of them, and what I’ve found so far is that many times it’s not compliant in the sense that not really set up, whereby the developing company will also be the company that is going to run the actual business.

So it’s kind of, they haven’t thought it through at an early stage. So they basically have kind of a development setup, which the permits are running in. then the other company that is supposed to actually run the hotel, the operating doesn’t have any licenses at all. because they’re sitting in the development leg, to And it then safe for somebody to buy a unit? I mean, you don’t own a portion of the land as such. Is it, what are the risks for someone buying in an apartment, let’s just say, or a hotel room in hotel development? And what should they kind of ask for and check in order to understand if this is actually safe?

in my view all of these transactions are it all boils down to what is the private agreement that you guys agreed to on paper like what are what are your rights and obligations I feel it all boils down to that but any investor investing in an apartment unit whether the developers have the correct KBLI codes it’s all part of the DD it’s all part of the due diligence because while you’re just getting a unit on top of a unit in a building that sits on top of maybe a leasehold land it affects you if that leasehold land is

you know, enters into a dispute with the third party. So I feel like the initial land DD is necessary. A certain extent of corporate DD is necessary as well. But coming back to your point on whether the management doesn’t have its own entity or its own KBLI codes, I feel like that’s the management’s problem and not really the lessee’s problem. but again the idea of this is that you are right if you’re making a management fee then you need to have the correct KBLI code that allow you to do that yeah And so what do you, so in that in sense, I mean, if you do a hak sewa, a leasehold over a villa, you have a map of the land you coordinates you have it specified in the deed that this land is now yours to use for 30 years or 25 years so if the developer disappears or goes bust down the road you still have provisions if you have a proper contract that

that piece of land is still yours to use

When the developer goes bust1:25:11

So what happens when a developer goes bust and you have an apartment on the fourth floor and you don’t have any land, actually. There is no specific defined piece of land connected that which I understand is case. You basically have a contract with a company. What happens when that company disappears or goes bust? Ideally, then you enter into a termination phase, right? Depending on what your agreement says on termination and how that termination is arrived upon, maybe through bankruptcy. But if it’s a bankruptcy process, then it’s best to get yourself in as a creditor because you have provided money. let the the legal process roll and see if there are any assets that could be sold to repay you as one of the creditors right but i mean that that’s also part of the dd right it’s not it’s not just looking at the land and the corporate structure it’s the agreements that you’re signing as well how do they protect you because you’re coming in as

a unit holder on a on a potentially a leasehold land. Yeah. Does that mean that you would then lose access to your unit? Well, if it’s seized because of a bankruptcy process, I would say so, yes.

in line see if something comes out, happens in a bankruptcy process as well, because bankruptcy is kind of a it’s kind of a destination that you get to after you fulfill certain procedures, And a bankruptcy process is you hand the person in debt, hands over the assets to what we call a curator, and the curator usually tries to make the business still operate. A going concern is what it’s called. it’s still so that it continues to generate... chapter It’s like a 11 in the US, prior to a chapter 7. So chapter 11 would be restructuring, and I in Indonesia it’s 270 days. They’re trying to renegotiate terms and raise capital and still get going.

After the 270 days has lapsed, and there is no success and no going concern, at that point you would chapter into liquidation, which then is process where the curator starts you know selling whatever Yeah, because there’s a lot of, not a lot would say, but there are certain agencies, for example, that explicitly don’t touch apartments because there’s some

whether or not you actually own something that, yeah you i feel that uncertainty too which is what i mentioned earlier right still i feel like in a gray area this apartment hotel thing it’s very attractive from the OSS perspective because there is no area size limitations and so on like you have with the hotel and the thing I wanted to add on earlier was that even when you do pick these KBLI codes I’m not sure about apartment hotel but for hotels specifically the Ministry of Tourism regulates what are the standards, norms, practices to apply to this KBLI code. So actually, every KBLI code is attached to a specific sector.

And each sector has their regulation on what are these standards and norms that should apply to each and every KBLI code. And I feel like this specific regulation is not talked about enough. also on the low-medium KBLIs, right? Let’s say take the classic consulting one, right? 70209 the old codes. You get issued an NIB without having to submit any other additional information. But many of the medium-high-risk KBLIs, in order to operate them and get the license issued, take, for example, I think we can talk about

I cannot have a KBLI code and act as an architect just because I put it in the deed. I need to actually provide additional information that I’m qualified. Think about a doctor, dentist. You want to at least see that they’re actually qualified as a doctor or a dentist before they start operating. And so the same thing happens in these higher risk KBLIs which are open. Let’s talk about hotel. But there is actually quite a long of requirements that need to be fulfilled. Yeah, Yeah, so it’s this regulation where we hear all sorts of information that, oh, if you’re operating a hotel, it needs to have a lobby.

It needs to have fire exits or emergency exits. It needs to have a ramp for handicapped people, all of these things. It’s in these regulations where it’s specifically regulated. And a lot of people say, well,

Why a villa isn’t a hotel1:30:24

why can’t I just, you know, have my villa, get a hotel KBLI code and just operate a short-term rental? The answer is that your property does not fulfill these standards. So I feel like it’s very difficult now. And maybe this is what’s different from Bali today and maybe Bali 10 or 15 years ago. It’s very difficult now to abuse these kind of KBLI codes or regulations or maybe just do away with it, you know, because maybe at that time there was actually not much enforcement at all. And that’s why people got away with it, and that’s why the market practice was built that way.

But now everything is very narrowed down. There are specifics around everything. There are these nuances that you spoke about earlier as well, changing the shape of the market and the way you do things. I think, though, it’s for the better. Yeah, for sure. I mean, the whole cowboy rock and roll, just go and build whatever you want, no permits and all of that them it has no benefits for anybody

And so I think the big winners are going to be those who appreciate the fact that there are rules and regulations follow the rules or regulations, they will be the winners, and everybody who’s not will basically leave the market. So we’re going to end up eventually with a healthier market. I feel like also

Good intent, rushed rollout1:31:58

that’s the intention of this Bali regulation, you know, what the governor is doing right now. I feel like the intention is good. Maybe the way it was implemented, not so much. But I feel like for me personally, the takeaway is, for me, it’s a counterintuitive action, given the global market, if you look at it, where a lot of people in different countries are trying to get their money out, Bali should be a destination for this capital. But now the government has put this into place and applied this blanket regulation instead of viewing it and seeing, okay, how can we grab the opportunity from both aspects of this?

Last year, we had this discussion of a moratorium as well. Again, sending out negative signals outside. This year, the same. I feel like if the Bali governor really intend to develop other parts of Bali, North Bali, which was the main topic last year, then I feel like the policies can be restrictive to South Bali, but you incentivize for North Bali. Something like that. I feel like this was not taken into consideration when the policy was implemented. and I feel like that’s why it’s counterintuitive, given the way things stand globally at the moment. So what are the politicians saying? Is there any information there where you can kind of get the firm understanding of what they actually have as objectives going forward?

in any politics, right, you hear and see in the media and the official statements is one thing. What happens behind the curtain is another. agree with Paras that I think intentionally and directionally it’s a good thing. but that’s strategy. but then it all comes down to implementation. And I think that’s where things are

synced, maybe are not thought through, maybe are even rushed. So they just want to do something show we’re doing something. Because a lot of the that the Bali governor and the government has also come from their constituency. Because they’re priced out of the market. Congestion is picking up. And it was the locals primarily who said, like, this is not our home anymore. And I think they’re right. But then how do you live in a place like Bali, which is multicultural, where there is a symbiosis between local values, but also appreciating the fact that because of tourism and because of foreigners, we have higher incomes than in other provinces and so on and so forth.

How do you balance that? And having work groups where policymakers join maybe industry groups and brainstorm that, I think that’s missing and that’s something that should be implemented going forward. Whether it’s about tourism, whether it’s about industry, whether it’s about sustainability, whatever it might be, I think that’s lacking at the moment. And if they do that, I think the next regulations will probably be a little bit more balanced. Yeah. Are there... know that there is some associations. I met one guy, I think he’s the head of the Bali Villa Association. He’s speaking to politicians about this Airbnb ban situation

how should we navigate this? Because I think everyone is on board with that. They still want the visitors to come. entire economy is reliant on that. So these new regulations are a little bit too blunt.

Basically, right? They’re kind of, they’re doing registration rules get to nominees and the nominees are not registered. So the ones that are registered all of a sudden get caught in the web instead of the nominees. So it’s just a little bit contradictory. Are there any other of those associations out there trying to discuss and meet with politicians and get some clarity on

think there is a lot of those groups that informally, through network strength and whatever it might be, have these discussions at different levels. but But there is no formalized process. And I think that’s what we need to put in place. And who is talking to

guys? Who basically has a vote? Like how does that process work, right? what we’re lacking a little bit that needs to be more structured would say yeah my last question then

Advice for buyers this year1:37:13

is kind of a recap in your words and in your words. So if someone wants to buy a property in Bali this year, want to live in it. And they might, of course, at some point, whether it’s short term or it’s long term, rent it out when they’re not using it. What would be your advice to them? We will assess it on a case-by-case basis. I that answer

need a lawyer to answer No, seriously, what would be your advice? Paras? practically speaking, I think it’s doable that you acquire the property. If in the future you indeed, for whatever reason, no longer need it because you’re not living in it anymore, only for six months a year, we can probably long term lease it. going to be taxed at 20%. Depends a little bit on your residency status as well, right? assume they’re not residents in % withholding tax, which is final on the Indonesian side. same time, you know,

can’t shut down the rental market either. That’s impossible. really is impossible. I mean, how many expats we have right here? 200 ,000 maybe? They need to live somewhere. So that means that they can’t all buy. And I also, I want to add that regardless of the legal structure, it all again comes down to the investor’s risk appetite, given everything that’s going on in Bali. So that’s why I said it’s on a case-by-case basis. You cannot give a one-size-fits-all to every investor. And I think it’s important that at the start for the investor to know what is the current situation in Bali, what are the potential risks of doing this, and then allow them to make the decision that feels suitable for them.

So, I mean, it’s definitely not as straightforward as it used to be. That’s one thing that we can say. Yeah. Guys? like a private banker. What’s your risk-return profile? Are you okay to lose 100 % of your investment? Okay, derivatives are fine. I mean, just simply put,

The yield reality check1:39:47

legal structures involving more layers obviously involve more costs and therefore reduce the net that you take out. So that’s I think that’s an important one, right? almost like 1968 San Francisco hippie style movement even you go today to San Francisco you can still feel it right but the 20 % yields it’s just not happening it It’s delusional if you look at full cost structural cost, taxes all of it

you do double digit You’re doing very well. would say 5 to 10 is probably where the market sits at the moment especially in course you still have villas and depending on what you compare it to if I built a villa 10 years ago compared to today Yeah. basically my cost of acquisition is at that level course I still make good returns in good locations know, but If you come into the market today at current costs and price levels with current occupancy rates, given the complexity we talked about and the increasing compliance requirements, if you make

8 % net, I think you’ve done exceptionally well. supply and demand, right? Five years ago, 10 years ago, there was more demand than supply. And I think it has swung in the other direction

a buyer’s market so you see ADRs compressed You see occupancy compressed it alrighty you so much. we got it. Right? We’re done. We’re Good job guys. All right. That was Yes.