Bali Real Estate: The Twists and Turns to Paradise

Though famous among certain travel circles, most people – especially those living in North America – have never heard of the Indonesian island of Bali. Save for the …

Though famous among certain travel circles, most people – especially those living in North America – have never heard of the Indonesian island of Bali. Save for the 2002 and 2005 terrorist bombings, news coverage of the quiet island is scarce. For Americans, a nation that could hardly take a couple weeks off a year from work, Bali is simply too far to even be considered. As a result, visitors from USA make up less than 4 percent of tourists while hoards of Japanese and Australians descend on the island and immerse themselves in the infectious laid-back nature of Bali.

Still, the number of Americans Bali attracts is growing. Many visit often after having fallen in love with the place during their first encounter. Some brave ones have even gone as far as setting up a business or a home on the island. It is not hard to see why foreigners are mesmerized by the island. Bali is incredibly beautiful – think fields after fields of rice paddies, coffee plantations, lush vegetation, volcanic mountains, lakes, and warm Indian Ocean beaches.

An American couple Danielle and Richard Foss moved to Bali after having visited the island repeatedly for over a decade. They finally decided to build a retirement home and settle in Bali a couple of years ago. “This is the island of the Gods,” said Mrs. Foss. “I love it; I am really happy here.” That the Fosses are smitten with the life they have made for themselves in Bali comes as no surprise. They own a gorgeous Balinese style semi-open air home amid rice fields with high, exposed rafter ceilings and intricately carved wooden doors. They have made good friends. They keep themselves busy and give back to the island by volunteering to work on village water projects through the local Rotary Club.

It helps that the Balinese have a friendly demeanor and are happy to interact with visitors from all walks of life especially ones with children. The island’s colorful and vibrant culture is engaging. It is exotic and totally foreign to most visitors’ eyes but it is also accessible enough to stir the curiosity of even the most disinterested, jaded traveler. Scrumptious food, top of the line accommodations and plenty of entertainment opportunities all come at a reasonable price. And spas – there are spas on every street corner offering every conceivable treatment.

Bali at a Glance

Bali is one of 33 Indonesian provinces and is located between the islands of Java and Lombok. Its tallest mountain, Agung stands at slightly over 9,400 feet and is home to an active volcano. It last erupted in 1963 killing and displacing thousands of people and still belches smoke and ash once in a while. Mount Batur, the islands other active volcano, lies approximately 5,600 feet above sea level. Denpasar, Bali’s capital, is the largest city in the province.

Over 90 percent of the island’s 3.5 million people practice a local version of Hinduism. This sets the island apart from the rest of Indonesia which is overwhelmingly Muslim. The Balinese culture values artistic expression and this is reflected in shops all over the island overflowing with paintings, carvings, batiks, and jewelry. Outside of beach destinations such as Sanur and Kuta, the town of Ubud – located at the center of the island – is considered Bali’s cultural capital. For those who want to get off the beaten path, there are strings of small stops along the eastern coast boasting miles of pristine black sand beaches, lone temples, interesting towns and villages. Visitors branching out inland are likely to net themselves experiences that would have otherwise been unlikely in the more popular parts of the island.

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While agriculture still employs an overwhelming majority of Bali’s population, tourism has emerged as the number one industry and has made the island one of the most economically advanced in the whole of Indonesia. The tourism sector has managed to revive itself even after the 2002 and 2005 terrorist bombings and seems to be barely scathed by the global financial crisis. Bali also produces coffee including the famed civet cat coffee, Kopi Luwak.

Real Estate in Bali

Real estate in Bali is a growing business. From international investors to retirees, people come to the island looking for their piece of paradise. The coastal areas are still the most popular but the center of the island provides better value. “Paradise is living inland and being surrounded by nice people,” said Ramon Genz who owns his own agency – Ubud Property. In the town of Ubud, the closer a property is to the center of the city the more expensive and sought after. Ubud is also unique because it is the only non-coastal town that has a sophisticated infrastructure that includes an array of restaurants, bars, museums, performance arts venues and shops.

For the last seven years, property values have gone up by an average of 22 percent a year and inflation by 9 percent, according to Genz from Ubud Property. This translates to a 13 percent gain in value. The potential returns in the sector are quiet attractive to many.

Balinese measure land by are – which is the size of 100 square meters or approximately 1,076 square feet. Land alone costs about $15,000 per acre in urban areas and an average of $5,000 per acre in areas out of town, according to Ubud Property. The farther a property is from a major urban center and the coast, the cheaper the prices become. “Good standard building quality” can cost upwards of $400 per square meter. There is no capital gains tax on the sale of property in Indonesia.

Buying Real Estate in Bali

“Foreigners can’t outright purchase land but they can control land and they can use it,” said Genz. To acquire land international buyers must partner up with an Indonesian. “You have to have a silent partner under whose name you register the land you purchase,” explained Mr. Foss.

Foreigners interested in purchasing land in Bali draw three contracts, according to Ubud Property. First, parties must make a statement that indicates the Indonesian partner is lending his name for the purpose of purchasing land. Parties must also prepare a power of attorney document that hands over the right to use the land to the foreign investor. The third document states the Indonesian partner owes the entire value of the property to the investor.

“These documents are legally enforceable and work effectively,” said Genz. The three mentioned contracts are what most people use to secure their properties, according to him. However, some go further and either put a lien on the property or lease the property from the Indonesian partner for a specified time but do not pay anything because all financials are settled during the initial purchase process. “Since the contractual process became standardized five years ago, I have not personally heard of problems,” said Genz. There no longer exist any loopholes, he explained.

The Fosses own their home but the land it is built on is under a contractual lease. “Our lease is renewable every 20 years for the same terms plus inflation,” he explained. In Bali, instead of lawyers, it is crucial to have a reputable notary to oversee the writing and signing of the contract. Notaries on the island are considered more important than lawyers. In fact, “they are required to become lawyers before they are allowed to be notaries,” said Mr. Foss.

Most retirees end up building their own homes instead of purchasing already existing ones. This is because the quality of existing homes varies greatly. Crucial aspects such as electrical and plumbing needs aren’t up to international standards. Of course building a home in a foreign country where cultural and language barriers abound brings its own challenges.

“Sometimes no one showed up for work for two or three days because they are busy attending religious ceremonies,” said Mrs. Foss. Builders are paid a daily wage. “You just pay them their daily fee and they will do what you want,” said Mr. Foss. “If they make a mistake, it is not their problem. You have to pay them another day’s wage to come back and fix it.” For the Fosses the joys brought by their Bali adventure far outstrips whatever frustrations they faced in building their now beloved home. “It has been a delightful experience,” said Mrs. Foss. Sitting back on her front porch and looking out onto rice fields, it is hard to think how it could be anything else.

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