Hidden costs and rules for investing in real estate in Bali

Bali — costs and important rules of real estate investment

Bali is a popular resort with stunning nature that welcomes millions of tourists every year. However, few people think about the hidden costs and legal intricacies faced by investors who buy real estate on this paradise island. Let's look behind the scenes and understand all the nuances of owning a home in Indonesia.

• Property management in Indonesia is expensive. Most owners hire professional property management companies to effectively rent out the property. Their services are certainly necessary, but they are expensive. The usual commission for long-term rentals is 15% of net income after taxes. If you plan to rent out your apartment for daily rent, get ready to give the management company from 20 to 30% of the revenue.
• In an effort to attract maximum tenants, management companies actively use popular booking services such as Airbnb, Vrbo and others. However, these aggregators charge their own commission of 4-9% of each transaction. Thus, a significant part of your income will be “eaten” by additional fees. In addition to commissions, property owners in Indonesia are subject to mandatory tax deductions. The main one is the annual tax on land and construction (Pajak Bumi dan Bangunan), which is paid by all homeowners.
• If you are a non-resident of Indonesia and earn income from renting out your property, the government withholds 20% of your gross profit as income tax (PPh). This rate can be reduced if there is a double tax treaty between Indonesia and your country of citizenship. In addition, buyers are charged a lump sum tax of 5% of the transaction amount when purchasing a 25-year leasehold right. And if you plan to rent out your home, prepare to pay VAT of 11% on the amount earned plus other local levies.

Legal peculiarities of ownership

It's important to realize that under Indonesian law, foreigners cannot own land outright. Instead, long-term lease options are available. The most common option is the “Right of Use” (Hak Pakai), which gives foreigners the right to lease property for up to 25 years, with the option to renew for an additional 20 years. The second option is the “Right to Build” (Hak Guna Bangunan), which allows you to lease land for construction for up to 80 years.
When buying, you should carefully review all the terms of the lease agreement and make sure that the deal is legitimate. Hiring an experienced lawyer familiar with Indonesian law can save a lot of hassle in the future.

High Risk — High Return

Despite all these hidden costs and legal peculiarities, investing in Bali real estate still remains attractive. The key factors are:

1. Steadily high demand for rental properties from tourists
2. Steady growth in real estate prices in recent years
3. Well-developed tourism infrastructure and a steady influx of vacationers
4. Indonesia's overall economic growth

The average return on investment in residential real estate in Bali fluctuates around 6-8% per annum after all fees. With a competent approach and a long-term perspective, such investments can bring a solid profit.

In conclusion, it should be noted that the purchase of real estate in Bali — a tempting idea for many investors. However, before making a decision, it is extremely important to weigh the pros and cons, to assess the hidden costs and legal nuances. Only a detailed study of the market and consultations with professionals will help you make a balanced decision and protect your investment. After all, the paradise island holds not only temptations, but also pitfalls for unwary home buyers.