The post-COVID-19 surge in international tourism to Bali has brought some unintended consequences. Bali, often known as the Island of the Gods, has evolved beyond a tourist destination to become a significant investment hub for foreign entrepreneurs.
High occupancy rates in accommodations like hotels and villas have driven up demand in Bali’s property and real estate markets.
While Bali’s rapid economic growth, frequently exceeding the national average, is a positive outcome, it has come at a cost. Increased development has led to a decline in agricultural land, illegal construction projects, and a rise in land disputes, all of which impact the business environment.
Many businesses now face legal battles and the risk of losing their investments. The question is, how can we prevent these issues from recurring?
Battle for Land Rights
In Karangasem, thousands of residents from the Bugbug indigenous village have taken legal steps to reclaim customary land leased to a Czech entrepreneur for villa development. They argue the lease was made without their consent, contrary to local rules prohibiting the sale or lease of customary land.
However, the head of the Bugbug indigenous village, Jro Nyoman Purwa Ngurah Arsana, asserts that the leasing process followed existing rules and received approval from the village elders, the ultimate decision-makers in Bugbug.
“The process is the same as prior land leases and has the endorsement of village elders,” Arsana said on Thursday (10/10/2024). He added that those protesting are resisting the village’s potential progress in tourism.
At the same time, another example of a land dispute case has pitted the residents of the Pererenan indigenous village against the Badung Regency Government in court. The villagers argue that the Badung Regency Government has violated the law and good governance principles by granting a lease to investors in the Lima Beach area.
According to the villagers, they are the ones who should have the rights because the land is customary land that they have managed for generations. However, the Badung Regency Government argues that the land is state-owned.
Risks of Nominee Agreements
Land disputes are increasingly common in regions with strong customary land protections like Bali. However, only after the transactions were completed did it become apparent that several plots of land were involved in legal disputes. Those 2Â cases prove that property investment needs to be done very carefully and cautiously.Â
Even investors in Lima Beach who have received official permits from the local government may not have expected that there would be a legal case that would affect their business. These transactions are often viewed as violations of the community’s rights, sparking conflicts that investors may not have anticipated.
Another common factor fueling land disputes is the use of nominee agreements, where foreigners use Indonesian citizens (often spouses or local partners) as nominal owners of properties. While Indonesia restricts foreign property ownership, nominee agreements have become a popular workaround for those wishing to secure real estate assets.
However, a nominee agreement is an illegal arrangement. For foreign investors, nominee agreements may seem like a straightforward way to own property in Bali. Yet, the reality is more complex. These arrangements often lead to unintended entanglements in local land conflicts, leaving investors with uncertain legal footing because it can result in legal disputes, community backlash, and the potential for substantial financial loss.
Ensuring Compliance and Safeguarding Investments
For businesses involved in Bali’s property sector, compliance with local laws is critical to avoid disputes and protect investments. Nominee agreements, while often used by foreign investors to navigate Indonesia’s strict property ownership laws, come with their own set of legal risks, especially when customary or indigenous land is involved.
Given these complexities, conducting thorough due diligence before finalizing any property transaction is not just advisable, it’s essential. Investigating the land’s legal status, ownership history, and potential disputes can greatly reduce risks and enable investors to make well-informed decisions.
To navigate this process, Seven Stones Indonesia’s real estate and legal team offers the expertise needed to ensure your investment is secure from the very start. From finding you the right listings, conducting due diligence, to securing all legal documentation, we provide comprehensive assistance in property transactions.
If you’re looking for more personalized advice or want to stay informed about the latest trends and regulations in Indonesia’s real estate market, we invite you to join the Seven Stones Indonesia WhatsApp community.
It’s a great platform for asking questions, gaining insights, and connecting with our team who can guide you through the complexities of property investment in Bali and beyond. Whether you’re a seasoned investor or just starting out, Seven Stones Indonesia is a trusted local partner for valuable resources and real-time support for all your property needs.