Buying land in Indonesia: A practical guide for foreign investors.
Purchasing land in a foreign country can be a daunting experience, particularly when the laws and systems within that country are not always straight-forward or easy to navigate. Many potential investors are initially attracted to the idea of owning their own piece of Indonesian paradise, but become put off by the complicated land title structures and frequent uncertainty surrounding land ownership that abounds in Indonesia.
After 7 years of experience buying land in Lombok, we have learned a number of crucial lessons. In fact, it initially took the Selong Selo team three years of research, intensive due diligence and certification of the legal process before we began on-selling land, and where we felt confident in offering 100% guarantees on all of our land titles.
There are certainly many ‘horror stories’ about foreigners being duped on Indonesian land or property purchases, or investing in developments that never got off the ground.
However, if you do your homework correctly and ask the right questions from the start, all of these potential pitfalls are completely avoidable.
Here are the things we believe you should know and ask:
- Question the Developer and Meet the Team:
We strongly recommend doing your homework on the developer when first setting out to buy land or construct a villa in Indonesia. Please try to visit the site and see what is already underway. Meet the team of people who are going to make it all happen for you, and ask them a lot of questions. Shop around and compare what others are doing/offering in the area.
Remember, proof of concept is very important. Many so-called ‘developers’ are great sales people with lovely websites, renowned for selling land with a lot of promises attached – but who have yet to actually deliver anything tangible. This is often where buyers are later left stuck with unimproved land that they cannot sell once the developer fails to deliver on promised infrastructure, access or construction. We know from experience that infrastructure is expensive, and not easy to implement in a developing island such as Lombok. Find out what they provide and how they expect to fund and maintain it.
Seeing a lovely conceptual image on a glossy-looking website can be inspiring and sells ‘the dream’, but standing on the actual land and seeing for yourself (and meeting the team-on-the-ground) is always the best way to get a proper sense of the reality of the development you are buying into.
Furthermore, it is important to protect yourself when it comes to legal issues surrounding title and potential land claims or encumbrances.
Here is a handy checklist of due-diligence questions we suggest you ask the developer when investigating different land options, to help you avoid potential problems down the track:
LAND SECURITY DUE DILIGENCE CHECKLIST:
- Have the developers themselves settled on the land they are on-selling to you?
- Can they provide proof of ownership?
- Can they provide proof of irrevocable road access legal agreements?
- Can they provide legal verification of land boundaries?
- Do they have all of their environmental licenses already in place?
- Have they secured building permits for the land?
- Are there any known land disputes relating to the land they are selling?
- Can they provide legally binding signed settlement statements from the original land owners stating that they have been paid in full for the land, to prevent future claims?
- Do they offer a full guarantee on your title?
In addition to the above, it’s also a good idea to understand how your villa (and any associated facilities within the development) will be built and managed.
PRODUCT DUE DILIGENCE CHECKLIST:
- How is the developer planning to design and build your villa?
- Do they have a reputable construction team with a successful track record? If not, who do they plan on using to construct?
- Have they already built anything in Lombok (or Indonesia)?
- Where do they source their building materials and supplies?
- How do they plan to source and supply furniture for your villa?
- What infrastructure will they supply to your land? Is this included in the purchase price?
- How do they plan to fund (and maintain) promised infrastructure?
- What other facilities/services will they supply? Are any of these already in place?
- How do they plan on managing and maintaining your villa and grounds when you are not in the villa?
- How do they plan to market and rent out your villa?
- Do they have a proven track record of villa rental management?
This list of questions is by no means exhaustive and you should add as many others as you can think of. The more information you know about your investment, the less chance you have of encountering unexpected problems down the track.
It might seem a bit strange that as a company that develops land in Lombok, we would recommend that you shop around and speak with other developers. However, it is often the process of seeing what others are offering in the area (or more specifically aren’t offering) that highlights our significant points of difference and ultimately leads clients back to us. Too often we see people who have bought cheap, basic land with no facilities or infrastructure in other developments, that later come to us cap-in-hand asking for help with their construction or infrastructure. Comparing different sites early on will not only give you a better understanding of what is available in the area, but also help to make sense of variations in price and value between developments from the start so you can avoid expensive mistakes in the future.
Understand the Ownership Structures and Ensure Titles are sound:
This is the point where it often becomes confusing for foreigners purchasing land in Indonesia. Under Indonesian law a foreigner/non-citizen is unable to own a freehold title of land in Indonesia, but can obtain beneficial control of the land and own certain land property rights, via a number of ownership structures. Choosing which structure to use will depend largely on your own personal circumstances. For all of Selong Selo projects we have undertaken extensive due diligence and can offer various options to meet individual investors needs and ensure the highest level of security/protection. Once our NDA has been signed our in-house legal team and managers can discuss these options with you. You can also find a basic description of the various forms of land title and ownership structures on our website here.
At Selong Selo we refuse to sell any land that hasn’t undergone the strictest legal due diligence process to ensure clear title and certainty of boundaries. We currently work hand-in-hand with two of Indonesia’s most reputable international law firms who are extremely well-versed in Indonesian property law. In addition, we employ our own in-house Indonesian legal and notarial team to liaise with government departments and provide an additional layer of stringent fact-checking and due diligence. If we uncover any doubt about any aspect of a land certificate, we won’t touch it.
Navigating the minefield of information can be overwhelming, however our team has worked hard to simplify the sometimes daunting process of purchasing land in Indonesia. We invite you to contact one of our sales team members who can guide you through the process. Chances are we have a sales representative in the city you live!