Buying Property in Bali: Know the Difference Between SHM and HGB – The Complete Legal Guide by The Bali Lawyer

Bali has become one of the most sought-after destinations in the world for property investment. Its natural beauty, cultural richness, and thriving tourism industry attract investors, expatriates, and retirees alike who wish to own land, build villas, or develop businesses on the island. However, before purchasing property in Bali, it is essential to understand the different types of land ownership rights available under Indonesian law.

Two of the most common and important land titles in Indonesia are SHM (Sertifikat Hak Milik) and HGB (Hak Guna Bangunan). Knowing the difference between SHM and HGB will help you make informed, legal, and secure property investments in Bali.

At The Bali Lawyer, a trusted law service based in Bali, we assist clients in navigating the legal complexities of Indonesian property ownership. This comprehensive guide explains the meaning, legal implications, and differences between SHM and HGB, so you can confidently invest in Bali’s real estate market.

Understanding Property Ownership in Indonesia

Indonesia’s Basic Agrarian Law (UUPA) of 1960 defines various types of land rights, each with its own conditions, duration, and ownership eligibility. These laws are designed to protect Indonesian citizens’ land rights while allowing foreigners and companies to invest legally under specific conditions.

The two most common forms of land titles are:

1. SHM (Sertifikat Hak Milik) – The highest form of land ownership, exclusive to Indonesian citizens.

2. HGB (Hak Guna Bangunan) – The Right to Build, which can be owned by Indonesian citizens or legal entities, including foreign-owned companies (PT PMA).

Before investing in property, it’s important to understand which type of title suits your status and investment goals.

What Is SHM (Sertifikat Hak Milik)?

SHM, or Sertifikat Hak Milik, translates to Certificate of Ownership and represents the strongest and most complete form of land ownership available in Indonesia. It grants the holder full ownership rights over the land indefinitely.

Key Characteristics of SHM:

• Ownership: Only available to Indonesian citizens or entities fully owned by Indonesian nationals.

• Duration: Ownership is permanent with no expiration date.

• Transferability: Can be freely sold, gifted, or inherited to other Indonesian citizens.

• Usage: The owner can use the land for residential, agricultural, or commercial purposes, depending on zoning regulations.

Because it represents full ownership, SHM land is the most valuable and secure type of property title in Indonesia. However, foreigners are not allowed to hold SHM directly under Indonesian law.

What Is HGB (Hak Guna Bangunan)?

HGB, or Hak Guna Bangunan, translates to Right to Build. This title allows the holder to build and own structures on land that is owned by the state or another legal entity. It is one of the most common ownership forms for foreign investors through a PT PMA (foreign-owned company).

Key Characteristics of HGB:

• Ownership: Can be held by Indonesian citizens or legal entities, including foreign-owned companies (PT PMA).

• Duration: Initially valid for 30 years and extendable for another 20 and 30 years, making it possible to hold property for up to 80 years.

• Transferability: Can be sold, transferred, or mortgaged within the duration of the HGB title.

• Usage: Typically used for commercial, residential, or industrial developments.

With HGB, you do not own the land itself, but you own the building or structure built on it, and have full rights to use and profit from the property during the HGB period.

The Main Differences Between SHM and HGB

Understanding the difference between SHM and HGB is crucial for anyone planning to purchase property in Bali. Below is a breakdown of their key distinctions:

These differences are essential when deciding which type of property ownership suits your purpose—personal residence, investment, or business.

Can Foreigners Own SHM Property in Bali?

Foreigners cannot legally own SHM property in Indonesia. The Basic Agrarian Law restricts full ownership rights (Hak Milik) to Indonesian citizens only. However, there are legal alternatives that allow foreigners to hold property rights securely, such as:

• Leasehold (Hak Sewa) – A long-term lease agreement with the landowner, usually lasting 25–30 years with the option to extend.

• Hak Pakai (Right to Use) – Allows foreigners with valid stay permits (KITAS/KITAP) to use land for residential purposes.

• PT PMA Ownership – A foreign-owned company can purchase land under HGB (Right to Build) for business purposes.

At The Bali Lawyer, we guide foreign investors through these legal pathways to ensure that every transaction is fully compliant with Indonesian property law.

How Foreigners Can Legally Acquire Property in Bali

While foreigners cannot hold SHM directly, they can invest safely through the following structures:

1. Leasehold (Hak Sewa)

Foreigners can lease property from Indonesian owners for a long-term period (usually 25–30 years), with renewal options. Leasehold gives the foreigner full usage rights during the lease period.

2. Right to Use (Hak Pakai)

If you hold a valid stay permit (KITAS/KITAP), you can apply for a Hak Pakai title on certain properties, allowing you to legally live or operate a business on the land for up to 80 years (including extensions).

3. PT PMA (Foreign-Owned Company)

By setting up a foreign-owned company (PT PMA), you can legally purchase and hold land under an HGB title. The company, as a legal entity, can acquire land for commercial or investment purposes.

The Bali Lawyer assists with PT PMA establishment, property due diligence, and registration to ensure full legal compliance.

Why Understanding SHM and HGB Matters

Knowing the difference between SHM and HGB helps you:

• Avoid illegal ownership structures such as nominee arrangements

• Choose the right legal title for your investment type

• Understand ownership duration, transfer rights, and renewal options

• Ensure your investment is compliant with Indonesian law

• Protect your rights in case of disputes or changes in regulations

Many foreigners have lost money by purchasing SHM property under a nominee’s name—an arrangement that is illegal and not recognized by Indonesian law. Understanding the legal framework from the start protects your investment.

Legal Verification Before Buying Property

Before purchasing property in Bali, always conduct legal due diligence to verify ownership and ensure the land title is authentic. The process typically includes:

• Verifying land ownership with the National Land Agency (BPN)

• Checking zoning regulations and building permits

• Confirming there are no encumbrances or disputes on the property

• Reviewing all contracts in both English and Bahasa Indonesia

At The Bali Lawyer, we offer complete due diligence and verification services, ensuring every document and permit is genuine and legally valid.

Converting HGB to SHM and Vice Versa

Only Indonesian citizens can convert HGB land to SHM. This conversion is possible if the land is located in a residential zone and meets all legal requirements.

Conversely, SHM land can be converted to HGB if it will be used for commercial purposes or registered under a company. The conversion process involves official approval from the National Land Agency.

The Bali Lawyer helps clients manage all aspects of land title conversion, ensuring smooth and lawful transitions based on the property’s intended use.

Common Mistakes When Buying Property in Bali

Many investors fall into avoidable traps due to lack of legal knowledge. Common mistakes include:

• Buying property through illegal nominee structures

• Skipping due diligence before purchasing

• Not verifying land certificates or zoning status

• Assuming foreigners can own SHM directly

• Failing to use bilingual, notarized agreements

These mistakes can lead to loss of ownership rights or legal disputes. Working with a professional law firm like The Bali Lawyer ensures your property purchase follows all regulations.

Why Choose The Bali Lawyer

At The Bali Lawyer, we specialize in property law, investment, and immigration services in Bali. Our team provides end-to-end assistance for clients—both locals and foreigners—seeking to buy, lease, or invest in property.

Our services include:

• Legal consultation and document verification

• Land title checks and due diligence

• Assistance with PT PMA setup and HGB acquisition

• Drafting and reviewing lease or purchase agreements

• Handling title conversions and land registration

With deep knowledge of Indonesian property law, we help you navigate every step of the legal process safely and efficiently.

Secure Your Investment in Bali with The Bali Lawyer

Bali offers incredible opportunities for property investors, but understanding the legal framework is crucial to protecting your investment. Whether you are an Indonesian citizen eligible for SHM ownership or a foreign investor looking to acquire HGB property, knowing the differences between these titles ensures that your purchase is legitimate and secure.

At The Bali Lawyer, we provide trusted legal guidance for all aspects of property acquisition in Bali—from ownership verification to title registration. Let our team handle the complexities of Indonesian property law so you can focus on your investment goals with confidence.

Contact The Bali Lawyer

If you are planning to buy or invest in property in Bali, contact The Bali Lawyer today for expert legal consultation. We’ll help you understand the legal differences between SHM and HGB, verify property ownership, and ensure your investment complies with Indonesian law.

The Bali Lawyer
Your trusted legal partner for property, business, and investment in Bali.