What Are the Risks of Investing in Bali Real Estate? A Legal Guide for Foreign Buyers in 2025
Bali’s charm continues to attract property investors from around the world. With its tropical climate, booming tourism industry, and vibrant culture, it seems like the perfect destination for real estate investment. Whether you’re interested in purchasing a villa, leasing commercial land, or developing hospitality infrastructure, Bali offers endless possibilities.
However, investing in real estate in Bali as a foreigner is not as straightforward as it may seem. Indonesia has unique property laws that can pose legal and financial risks if not properly understood. Before making any commitment, it is crucial to assess the legal framework, ownership limitations, and practical realities that govern real estate transactions in Bali.
In this comprehensive guide, we will explain the most common legal and financial risks foreign investors face when investing in Bali real estate—and how to avoid them.
1. Foreign Ownership Restrictions in Indonesia
One of the biggest challenges foreign investors face is the restriction on direct land ownership. Under Indonesian law, foreigners are not permitted to own freehold land (Hak Milik) in their own name. This limitation can be confusing and often leads to risky alternatives if not properly navigated.
The common legal alternatives include:
Hak Pakai (Right to Use): This allows foreigners to legally use land or property for residential purposes for a specified term.
Hak Guna Bangunan (Right to Build): Often used by foreign-owned companies (PT PMA) to construct and operate buildings.
Leasing (Hak Sewa): A leasehold arrangement between the landowner and the foreign party, usually lasting 25–30 years, with options to extend.
Foreigners attempting to bypass these legal mechanisms by placing property under a local nominee’s name risk losing their investment entirely if the relationship goes sour or if the nominee defaults or passes away.
2. The Risk of Using Nominee Agreements
Many foreigners are tempted to purchase land using a local Indonesian citizen (nominee) to hold the property on their behalf. This may appear to be a practical workaround, but it’s extremely risky and legally vulnerable.
Why nominee agreements are problematic:
Not legally recognized under Indonesian law for foreign ownership.
No enforceable legal protection if the nominee refuses to honor the agreement.
The property is technically and legally owned by the nominee, not the foreign investor.
Potential for dispute or government enforcement actions.
This method exposes foreign buyers to fraud, disputes, and financial loss. Instead of relying on nominee structures, work with a licensed law firm to explore legal options tailored to your situation.
3. Unclear Land Titles and Ownership History
Land due diligence in Bali is critical. Unfortunately, many properties do not have clear or updated land titles. Issues like overlapping ownership claims, forged documents, or land disputes are not uncommon, especially in rural or rapidly developing areas.
Before proceeding with any transaction, a thorough land title investigation should include:
Checking for encumbrances or mortgages.
Verifying the legal identity of the landowner.
Confirming the land use designation (zoning).
Ensuring the property has proper land certificates (SHM, SHGB, etc.).
Buying land without verifying these details can result in legal battles, loss of property, or inability to proceed with construction or development.
4. Zoning and Land Use Regulations
Indonesia has strict zoning and land use regulations. Depending on the location and zoning status of a parcel, it may be designated for residential, tourism, commercial, agricultural, or green space.
Key issues include:
Building a villa on land designated for agriculture may result in penalties or demolition orders.
Not obtaining proper licenses and building permits may result in fines or closure.
Some areas prohibit foreign ownership even through leaseholds or PT PMA structures.
Before buying or leasing property, confirm the zoning classification with the local authorities (BPN, Dinas Tata Ruang) and obtain all required permits such as the PBG (Building Approval) and SLF (Certificate of Feasibility).
5. Unregistered or Unlicensed Real Estate Agents
Many real estate agents in Bali operate informally without proper licenses. While some are experienced, others may misrepresent property legality, inflate prices, or fail to perform proper due diligence.
Risks of using unlicensed agents:
Misleading information about ownership and documentation.
Involvement in land disputes or illegal sales.
No legal accountability if a problem arises.
Always work with legally registered agents or, preferably, a trusted law firm that specializes in property law to handle all aspects of the transaction.
6. PT PMA Company Ownership Risks
A popular route for foreigners to invest in Bali real estate is to establish a PT PMA (foreign-owned company). This legal entity can acquire property under the Hak Guna Bangunan title for commercial use.
However, risks still apply:
The company must comply with ongoing reporting and tax obligations.
The investment must align with the approved business classification.
Improper setup or misuse can lead to revocation of licenses or loss of property rights.
Without professional legal guidance, setting up and operating a PT PMA can become complicated and costly.
7. Tax and Reporting Requirements
Foreign property investors in Indonesia are subject to various taxes, including:
Income tax on rental income.
Land and building tax (PBB).
Capital gains tax upon sale or transfer.
Failure to understand or meet tax obligations can lead to penalties or future problems with your investment. Proper legal and financial planning is essential to remain compliant.
8. Contractual Risks in Lease and Purchase Agreements
Poorly drafted contracts often lead to disputes. Many lease or purchase agreements in Bali are created without legal oversight, exposing foreign buyers to unclear terms, automatic renewal confusion, or unenforceable clauses.
A strong legal agreement should include:
Clear duration, renewal options, and payment terms.
Defined obligations for both parties.
Proper notarization and registration where required.
Clauses protecting your interests in case of default or disputes.
Never sign any agreement without having it reviewed by a legal expert in Indonesian property law.
9. Property Development Risks
Developing land in Bali can be profitable but comes with regulatory hurdles. Risks include:
Failing to obtain PBG and SLF certificates before starting or using a building.
Construction violations resulting in fines or stoppage.
Hiring unlicensed contractors who do not follow legal standards.
Always confirm development compliance with local laws and building codes before breaking ground.
10. Inheritance and Succession Challenges
What happens to your Bali property if you pass away? Indonesian inheritance law does not automatically favor foreign heirs. If your property is under lease or company ownership, clear legal structures must be in place to manage succession.
Without a legal will or nominee agreement recognized by Indonesian law, your investment may be tied up in court or seized by the state. Proper estate planning is crucial for long-term security.
11. Changing Legal Environment and Enforcement
Laws and policies around foreign investment, property ownership, and land use in Indonesia are subject to change. What may be acceptable today could become illegal or heavily regulated tomorrow.
Having local legal support ensures that:
Your investment remains compliant with updates.
You’re informed about any legal risks or changes.
You can act quickly if your rights are challenged.
Invest Wisely and Legally in Bali Real Estate
While Bali presents incredible opportunities for real estate investors, it also requires a strong understanding of Indonesia’s legal system. Without careful planning, professional legal assistance, and adherence to the law, your dream investment can quickly become a financial and legal nightmare.
At The Bali Lawyer, we specialize in helping foreigners invest in Bali real estate safely and legally. Our experienced legal team will guide you through due diligence, contracts, permits, company formation, and dispute resolution to protect your rights and investment.