Published on and written by Cyril Jarnias
Investing in a villa or land in Bali is a dream for many foreigners. But behind the photos of infinity pools and promises of 20% returns, the Balinese market has become one of the riskiest in the region for ill-informed investors. The numbers speak for themselves: the Indonesian Association of Real Estate Agents (AREBI) recorded over 180 formal complaints for real estate fraud in 2024 alone, up 30% from 2021. A survey by the developers’ association (REI) indicates that 65% of properties owned by foreigners face legal issues, and land registry data (BPN) shows that one in two foreign investors faces a real risk of litigation or sanctions.
A mistake can lead to total loss of investment, demolition of the villa, or an accumulation of tax debt. This article reviews the pitfalls to avoid before investing in Bali, based on law, data, and on-the-ground feedback.
Not Understanding Rule Number One: What You Can (Really) Own
The first mistake, and arguably the most consequential, is believing that a foreigner can become a “freehold” owner like in their home country. In Indonesia, the framework is completely different.
Land law is governed by the Basic Agrarian Law (Law No. 5 of 1960). Its key articles are unambiguous: only an Indonesian citizen can hold the strongest title, called Hak Milik (often mistranslated as “freehold” for foreigners). Any attempt to directly or indirectly transfer a Hak Milik to a foreigner is legally void, and any funds paid are non-refundable.
Confusing Hak Milik, HGB, Hak Pakai, and Leasehold: The Highway to Trouble
Much confusion stems from vocabulary. To avoid the trap, you need to clearly distinguish the main types of rights:
| Type of Right | Who Can Hold It? | Typical Duration | Primary Use |
|---|---|---|---|
| Hak Milik | Indonesian citizens only | Unlimited | Full ownership |
| HGB (Hak Guna Bangunan) | Indonesian companies, especially PT PMA | Up to 80 years (30 + 20 + 30) | Right to build/operate |
| Hak Pakai | Foreigners with stay permits, Indonesian citizens | Up to 80 years (30 + 20 + 30) | Residential use (and sometimes mixed) |
| Hak Sewa (leasehold) | Any foreigner (via rental contract) | 20–30 years, sometimes up to 99 years | Temporary use, investment |
The common error is to view a leasehold (Hak Sewa) as a perpetual pseudo-ownership or to believe that a “freehold” offered to a foreigner is legal. In practice, behind a “freehold for foreigners,” there is almost always a prohibited arrangement: the infamous “nominee.”
The Nominee Trap: An Illegal Setup Disguised as a Local Trick
The “nominee” is presented as a magic solution: a trusted Indonesian (friend, spouse, partner, etc.) holds the Hak Milik in their name, but signs a series of private contracts (fictitious loan, power of attorney, promise of sale, etc.) stating they act “on behalf of” the foreigner.
Although reassuring on paper, these setups are expressly prohibited by Government Regulation PP No. 103/2015 and a 2026 Balinese regulation. Indonesian courts have ruled that only the Indonesian nominee is the owner, and the foreigner has no enforceable rights.
The risks are severe: if the relationship sours or the nominee’s family claims the land, the foreigner has little recourse. In some cases, the land can be confiscated by the state, and the investment is lost without compensation. Despite an official ban on these structures since 2021, around 35% of foreign investors have used them, resulting in serial confiscations and litigation.
Ignoring Zoning: Buying a “Dream” Villa… in a Forbidden Zone
Second major mistake: only looking at the villa and the view, without checking the zoning map. In Bali, spatial planning (RTRW) and the provincial regulation (Perda No. 3/2020, updated in 2023) divide the island into strictly defined zones.
Understanding the Colors: Green, Yellow, Red, Purple…
The authorities notably distinguish:
| Zone | Approx. % of Bali’s Area | Main Allowed Use |
|---|---|---|
| Green zone (agriculture / conservation) | ~40% | Agriculture, rice farming, conservation, no villas |
| Yellow zone (residential) | ~30% | Residential, small local homestays (Pondok Wisata) |
| Tourism / Red / Purple zone | ~20% | Hotels, resorts, rental villas, restaurants |
| Mixed zones | Variable | Mix of residential / small business / tourism |
The temptation is strong to buy land or a villa with “rice field views” on the outskirts of Canggu or Tabanan. Yet much of this landscape is classified as green zone or Lahan Sawah Dilindungi (protected rice field areas). However:
Building a villa in a green zone is illegal, there is no longer an individual conversion procedure to regularize such construction retroactively, and no tourist rental is allowed there, even if ‘everyone does it.’
A 2023 report by the provincial government identified 120 properties in violation in the Bingin and Uluwatu areas. In these cases, authorities no longer hesitate to seal buildings or even order forced demolition at the owner’s expense.
Not Checking the ITR: A Often Irreversible Mistake
The procedure is actually clear, but 40% of foreign investors admit they do not check zoning before buying. Yet zoning is the one element that is truly “non-correctable” after the fact.
The minimal verification process should include: document evaluation, information confirmation, and analysis of results.
To check if a plot can obtain a Sertifikat Standar or a Pondok Wisata license, you need to: get the exact GPS coordinates of the plot, query official spatial databases (BATARA / GISTARU), request an Informasi Tata Ruang (ITR) document from the local DPMPTSP, and then ask in black and white: “Can I obtain a Sertifikat Standar or Pondok Wisata license for this plot?”
If the seller provides no zoning documents, or responds with a vague “it’s a tourism zone, everyone rents here,” that’s a red flag. In several audits, around 60% of inspected properties had some form of zoning irregularity, and nearly 80% of villas in certain Canggu areas would be in sectors ineligible for short-term rental.
Building or Operating Without Permits: The “Ghost Villa” Syndrome
Even land in a suitable zone can turn into a trap if permits are not obtained correctly. Bali now applies a digital system that is much stricter.
PBG: Without a Building Permit, Your Villa Doesn’t Exist
The Persetujuan Bangunan Gedung (PBG) is the building permit that replaced the old IMB. It must be obtained before any construction begins. Building without a PBG is an offense under Government Regulation No. 16/2021. A building without a PBG is, legally, a ghost structure.
The official figures are worrying:
– In 30% of inspected properties, no valid PBG/IMB was found;
– Half of recently demolished villas had no PBG;
– Around 60% of PBG applications are rejected for non-compliance (incomplete plans, non-compliance with zoning, lack of structural or environmental studies, etc.).
Obtaining a PBG requires detailed plans, structural calculations, and an environmental report signed by a licensed Indonesian professional, then submission on the OSS portal. Processing takes an average of 4 to 8 months.
Buying a villa without a guaranteed building permit exposes you to a work stoppage order or demolition, as many foreign projects relied on a now-gone administrative laxity.
SLF: The Permit That Conditions Commercial Operation
The Sertifikat Laik Fungsi (SLF) is the certificate of conformity and habitability. For a villa intended for tourist rental, it is essential: without an SLF, you face a major risk of illegal operation.
A 2024 survey by the Bali Tourism Office indicates that only 35% of villas have a valid SLF. Common reasons for rejection include:
– non-compliance with the required Balinese architectural style on the facade;
– inconsistency between the declared use (residential) and actual use (tourist rental);
– property located in a yellow zone, while the applicant is a foreign company (PT PMA) not entitled to operate a tourism business in that zone.
Some developers bypass the overall building permit (PBG) to directly obtain a function housing status (SLF) or operate without regularization, exposing the operation to immediate shutdown during an inspection. Moreover, insurance often becomes void without PBG and SLF, increasing financial risk.
Business Licenses: NIB, Sertifikat Standar, Pondok Wisata
To legally operate a rental, five elements must coexist:
1. land in an authorized zone (tourism or mixed); 2. a valid PBG; 3. a valid SLF; 4. a business identification number (NIB); 5. a Sertifikat Standar (tourism license) or a Pondok Wisata license (small accommodation managed by an individual, depending on the kabupaten).
In practice, shortcomings are massive:
– 45% of inspected properties had no NIB;
– villas and restaurants operate without Sertifikat Standar or Pondok Wisata;
– foreign companies (PMA) operate villas in yellow zones, where the law does not allow them to engage in tourist rentals.
With regulatory tightening, especially the compliance requirement around 2026, these gaps are no longer a detail. Platforms like Airbnb and Booking.com have already started requiring proof of a valid NIB and license to maintain listings, and a large number of the roughly 39,000 active listings in Bali simply cannot be regularized due to zoning.
Underestimating Title and Leasehold Risks: The Land May Not Belong to You
Another minefield concerns property titles and long-term leases (leasehold). Again, the numbers illustrate the scale of the problem.
Land Titles: Fake Certificates, Double Owners, and Unfinished Successions
The central document is the Sertifikat Tanah (land certificate), which specifies the type of right (SHM, HGB, Hak Pakai), the parcel number, area, and holder. Forging these certificates has become a business, but most fraud relies on photocopies or outdated, poorly updated documents.
Common pitfalls include:
– outdated certificates never updated after a death;
– multiple heirs who never registered the inheritance deed;
– parcels sold while encumbered by a mortgage (Hak Tanggungan);
– “duplicate” certificates, i.e., two titles for overlapping parcels.
75% of long-term leases are not properly registered with BPN, making them vulnerable to disputes.
Leasehold: Believing in Guaranteed Extensions… That Don’t Exist
Leasehold (a 25–30 year lease, often renewable twice) is, in theory, the simplest path for a foreigner. In practice, it concentrates a maximum of misunderstandings. A 2024 audit by the Ministry of Tourism identified over 200 lease contracts that had expired or were legally inoperative, never registered or poorly drafted.
The classic trap scenario:
– you are promised a 25-year lease with a “guaranteed extension” for another 25 years at a fixed price;
– the extension clause is vague, or does not specify the price or calculation method;
– the contract is not properly registered with a PPAT, or only signed “privately.”
Result: at the time of extension, the heir or owner demands a price aligned with the market surge, 5 to 10 times higher than expected. If you refuse, you lose the villa and any improvements built. An analysis of about twenty projects showed that, for the same villa, the extra cost of a “freehold via HGB” version compared to leasehold was around +20%, or nearly 28,000 USD median. Not factoring this differential or the real cost of a future extension into your return on investment calculations is a dangerous gamble.
Falling for Unrealistic Return Promises
Another massive pitfall: believing in “guaranteed” returns of 15–25% per year. Market studies show a much more sober reality.
How Developers Inflate the Numbers
Developers often use the same recipe:
– high-season rates ($300–400/night) applied year-round;
– fanciful occupancy rates of 80–90%, ignoring the low season;
– systematic omission of costs (management, platforms, maintenance, taxes, compliance upgrades, etc.).
Yet, when you adjust for seasonality and costs:
Revenue and occupancy analysis by season and discounts in Canggu
Represents about 28% of annual revenue, with high prices but a limited part of the year.
Prices drop to around $120–180/night, reflecting more moderate demand.
Villas with 15–20% discounts reach ~68% occupancy; those aligned with developer rates cap at 45%.
Ultimately, many recently built villas show a real ROI of around 4–6%, far from the 15–20% advertised. Many investors who bought at the peak of the 2022–2023 wave find themselves with declining equity and eroded rental profits.
The Real Cost of Short-Term Rentals
Short-term rental is not a “passive” income. On a typical villa generating $20,000 in gross annual revenue, a realistic breakdown often looks like this:
| Cost Item | Indicative Range (as % of Gross Revenue) |
|---|---|
| Platform commissions (OTA) | ~15% |
| Management / property management | 15–20% |
| Compliance & licensing | 8–12% |
| Operations (staff, linen, utilities, maintenance) | 25–35% |
In total, between 63 and 90% of gross income can be absorbed by costs and taxes, leaving a net return that often looks much more like a simple long-term lease, but with far more work, regulatory risk, and volatility.
Neglecting Taxes: The Bill Can Rise to +600%
Indonesian taxation on real estate and rental income is complex, and the arrival of the Coretax system in 2026 has greatly strengthened oversight. The “we’ll see later” attitude now comes at a high price.
Purchase Taxes: A Real Cost of 7–12% Beyond the Price
For a purchase via a company (PT PMA) with an HGB or Hak Pakai title, the typical cost structure is as follows:
| Type of Charge | Indicative Rate / Order of Magnitude |
|---|---|
| BPHTB (acquisition duty) | 5% of value (above an exemption of IDR 60–80 million) |
| Seller’s tax (PPh) | 2.5% of sale price |
| Notary / PPAT | 1–2.5% of price |
| VAT (PPN) on new (if developer is liable) | 12% |
| Other (processing fees, stamps, translations, etc.) | Fixed or proportional amounts |
On a new project, the cumulative bill (closing costs and taxes) easily reaches 7 to 12% of the price, or even more with VAT. Many buyers only budget for the “marketing” price of the villa and discover later a series of additional costs that can add 20–30% to the final bill (furnishings, permits to regularize, electrical upgrades, lease extensions, etc.).
Taxation on Rent: The Calculation Error That Explodes Penalties
The most common tax trap concerns the base for calculating rental income taxes. In 90% of PBJT reassessment cases (local accommodation tax) observed, the error comes from owners calculating their taxes on net income (after Airbnb, Booking commissions, etc.) instead of gross revenue.
In reality:
Person or entity
– the “hotel/restaurant” type tax (PHR or PBJT) is typically 10% of gross accommodation revenue;
– in total, a non-resident owner can therefore face 30% taxation on gross revenue, not profit.
With Coretax, these discrepancies are automatically detected.
General Tax Law (UU KUP)
– an interest penalty of 2% per month on the evaded tax, up to 48 months;
– a 50% surcharge for negligence;
– and, in cases of proven fraud, a criminal surcharge of 100 to 400% of the amount due.
Combining interest and penalties, the bill can soar up to 600% of the initially evaded tax. Additionally, if the activity is officially classified as residential but actually functions as tourist accommodation, the administration can go back several years, demand compliance, and impose a cessation of operations.
Trusting the Wrong People: Fake Agents, Fake Notaries, Fake Permits
In a saturated and highly lucrative market, scams thrive. AREBI recorded over 180 complaints for real estate fraud in 2024, and the national police (INP) are handling dozens of cases involving fake permits, falsified notarial documents, or deposit fraud.
The Most Common Scams
Among the most frequent scenarios:
Major frauds include the nominee trap, false permits and zoning, forged or encumbered titles, phantom villas and ghost listings, as well as fake notaries or fake agents.
The “classic” scheme recounted by local lawyers is always the same: an agent shows you a stunning villa in a sought-after area, explains that “technically foreigners can’t own freehold but everyone uses a nominee.” A supposedly “trusted” notary prepares contracts, the investor pays a large deposit, and a few months later the villa turns out to be unsellable, burdened by litigation or claimed by the “local” owner’s family.
How to Recognize Warning Signs
The red flags are similar in most cases:
Be wary of pressure to pay a deposit quickly claiming another buyer is interested, refusal to provide original certificates or allow verification by an independent notary at BPN, promises of guaranteed returns above 15-25% per year, requests for cash or crypto payment to a personal account, as well as contracts written only in Indonesian without translation or being forbidden from choosing your own notary.
As soon as a seller discourages you from checking a certificate at BPN or a PBG in the SIMBG system, it is prudent to consider the transaction one to run from.
Bungling Due Diligence: Believing the Notary Will Check “Everything”
Many investors think: “There’s a notary, so it’s safe.” In Indonesia, the PPAT has a central role in drafting the sale deed (AJB) and registration with BPN, but their work primarily concerns form and the documents provided. It does not replace a full legal audit or on-the-ground investigation.
Complete due diligence must cover three pillars:
1. Land rights and ownership history Verify the certificate (Hak Milik, HGB, Hak Pakai, Hak Sewa), the seller’s identity (KTP), inheritance deeds if applicable, mortgages (Hak Tanggungan), transfer history, any ongoing litigation in courts.
Confirm RTRW and RDTR status via BATARA/GISTARU, obtain an ITR and validate with the Dinas Tata Ruang that the intended use (villa, tourism, commercial) is allowed. Ideally, get written confirmation if a Pondok Wisata license or Sertifikat Standar can be issued.
3. Building permits, technical compliance, and operation Verify PBG and SLF via SIMBG, ensure no major environmental constraints (erosion risk, landslides, sacred zone), commission an independent technical inspection (structure, waterproofing, electricity, plumbing), and check accessibility (public road, registered easement).
In parallel, a financial review (unpaid taxes, operating costs, mortgages) and a check of income flows (rent roll, income statements) are essential to test the investment’s viability.
Underestimating Ancillary Costs and Recurring Fees
Focusing only on the villa price is another common mistake. Between acquisition taxes, notary fees, furnishings, compliance upgrades, and annual maintenance, it is not uncommon for the real cost to exceed the initial budget by 20 to 30%.
A Heavier Cost Structure Than It Appears
A summary table helps visualize what many buyers discover too late:
| Expense Item | Order of Magnitude (Indicative) |
|---|---|
| Notary / PPAT fees | 0.5–2.5% of price |
| BPHTB (acquisition) | 5% (excluding simple leasehold) |
| VAT (new, liable developer) | 11–12% |
| Furnishings for 3-bedroom | ~IDR 300 million (~$20,000) |
| Retroactive PBG/SLF permits (if applicable) | IDR 30–50 million and up (depending on situation) |
| Maintenance & staff (per month) | $150–500 or 5–10% of rental income |
| Annual land tax (PBB) | 0.1–0.5% of NJOP value (often $60–300) |
| Property management | 10–25% of gross income |
Add to this:
The cost of acquiring real estate in Indonesia includes administrative compliance costs (licenses, NPWP, accounting), foreign exchange and international transfer fees, as well as fees for lawyers, tax experts, surveyors, or engineers.
A practical rule is to budget 5 to 10% of the purchase price for transaction costs and at least 2 to 4% per year for operations and maintenance.
Underestimating the “Business” Dimension of Your Investment
Many buyers envision their Bali villa as a second home that “will be rented a little on Airbnb to cover costs.” That is rarely how things turn out. In Indonesian law, short-term rental is a tourism activity, subject to a specific regime of permits, declarations, and taxation.
If the villa is held by a company (PT PMA), you must add:
Compliance costs for an active structure are often between $3,000 and $8,000 per year.
Many owners end up discovering that, for average annual rental income around $20,000 (a frequently observed figure in Bali), the net margin, once all these elements are factored in, is far lower than hoped, especially if the villa is not in a highly sought-after tourism zone with an occupancy rate above 70%.
How to Genuinely Reduce Risk Before Investing
Faced with this picture, should you give up on any real estate project in Bali? No, but it must be approached as a structured investment project, not a heart-driven purchase.
Some basic principles, directly from best practices observed in the field:
Never pay more than 30% deposit and tie all subsequent payments to verified milestones (PBG obtained, structure completed, delivery, SLF issuance). Verify each claim yourself or through an independent advisor: title at BPN, zoning via BATARA/ITR, permits via SIMBG, actual possibility of obtaining the targeted rental license. Choose your own notary/PPAT recommended by a law firm or experienced investors, not imposed by the seller. Refuse any nominee arrangement, even if “reassured” by a compliant lawyer: it is illegal, uninsurable, and unenforceable. Request a full legal and tax audit before signing, with estimates of acquisition, operation, compliance, and exit costs (resale, end of lease). Document every step: bilingual contracts, payment receipts, correspondence, inspection reports, issued certificates.
At the same time, it is valuable to step out of the commercial bubble: talk to other owners, listen to negative experiences as much as success stories, and consult professionals not tied to the project being offered.
Conclusion: The Dream Is Possible, But It No Longer Forgives Amateurism
Zoning pitfalls, unpermitted villas, illegal arrangements, inflated returns, underestimated taxes: the Bali real estate market today concentrates a cocktail of risks rarely matched in comparable tourist destinations. Official data is clear: more than one in two foreigners encounters legal problems with their property, and authorities—whether BPN, the Ministry of Tourism, tax services, or local administrations—have initiated a crackdown.
Thousands of legal and profitable transactions take place every year. To build lasting wealth, respect authorized legal structures, verify every document at the source, integrate zoning and permit constraints from the start, treat rental as a real business, and consider thorough due diligence as life insurance for your investment.
In Bali more than anywhere, investing without falling into traps starts with one discipline: never let the dream override the law.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
