You may be thinking of selling your property in Bali.
But you might be asking yourself if this is the right time to maximize your return on investment or if you should wait a bit longer?
Frankly, in Bali's current real estate market, selling your Bali property should be easy peasy.
After all, demand is strong again with the pandemic behind us and more home seekers are considering buying property in Bali to settle down or invest.
Are we in a seller’s market?
Yes and no.
The answer depends on the type and price of the property you are intending to sell and how you control your asset.
In this article we dive deep into all aspects of successfully selling your property in Bali and show you the pitfalls you absolutely need to avoid.
You will learn that it may well be easy to find a buyer, but tricky to repatriate your funds, if you are a foreigner.
Or the associated cost of selling may well be much higher than you anticipated.
Bali property sale ownership titles
When selling a property in Bali, the first question to address is: what ownership title are you selling?
Is it freehold (‘hak milik’), leasehold (‘hak sewa’), right of use (‘hak pakai’) or right to build (‘hak guna bangunan’) or a mix of it?
This is important, because the selling process differs considerably, as do costs involved with such a sale.
Let’s look at all these different ownership titles one by one.
Freehold (‘Hak Milik’)
If you are selling a property that comes with a freehold title (‘hak milik’) [link to article on freehold] you need to process the sale through a so called PPAT (‘pejabat pembuat akta tanah’), a specially licensed official for land transactions.
This privilege is typically vested in a notary or a government official like the sub-regent or ‘camat’.
Note, that not all notaries are PPAT!
So make sure that your chosen notary is properly licensed.
Usually, such information is displayed outside the notary office on a signboard with the name of the notary and his license number.
Selling a freehold title involves the payment of the seller’s tax of 2.5%, which is called PPh (‘pajak penghasilan’ or income tax).
This is a so-called final tax on the sale of property and means that you don’t have to pay tax on that income again in your annual tax return.
Last but not least, you will also have to agree upon who pays the notary fee, which is typically 1% of the transaction value.
This is quite often paid by the buyer if he selects the notary.
In a commercial transaction, the parties need to agree on who is paying the notary.
If you would like to appoint your favourite notary for a sale, then you may end up paying for his services, or get the buyer to share half of it, if you can.
If the buyer of your freehold title is a company or a foreigner with a residential permit, the freehold will be downgraded to a so called right of building (‘hak guna bangunan’) if it is a company or to a right of use (‘hak pakai’) if it is a foreigner.
The cost of downgrading the title is typically born by the buyer.
This involves a process that will take a few weeks.
Therefore, the sale and purchase agreement that you will have to sign is normally in the form of a PPJB (‘perjanjian pengikatan jual beli’), which can be conditional or non-conditional depending on the status of the due diligence from the buyer’s side.
If the PPJB is non-conditional, the entire price is paid upon signing and you will no longer be required to sign any further deeds, as you will be granting the buyer a non-revocable power of attorney to sign on your behalf and finish the deal by signing a so called ‘akta jual beli’ or ‘sale’s deed’.
If the PPJB is conditional, a deposit is typically paid to either the transacting notary or an agent, in order to secure the deal.
For small and mid-sized deals, 10% of the purchase price is quite the norm.
However, if we are talking multi-million dollar transactions, a smaller percentage is negotiated.
Once the conditions of the sale are fulfilled, the balance payment is due and the ‘akta jual beli’ can be executed.
Leasehold (‘Hak Sewa’)
Leasehold titles [link to article on leasehold] are typically owned by foreigners, although some Indonesian businessmen have started to understand the benefit of this title for commercial investments with a shorter life time.
Technically you are not required to use a notary to draft a lease agreement or the sale of a lease agreement.
It is however strongly recommended to use a notary, as it provides you with a higher level of security.
Selling a leasehold title may happen in two different forms: a) as a sublease that you grant to your buyer or b) by cancelling your lease and replacing it with a new lease directly between the owner of the freehold title and your leasehold buyer.
Deciding which route to choose is entirely a contractual matter between the parties. However, the tax implications are important to consider.
When selling a leasehold, you are subject to a 10% PPh tax – the buyer of the leasehold doesn’t have to pay a tax in this scenario.
Note that the PPh may be as much as 20% if you don’t have an Indonesian tax number!
Note: in the case where you cancel your leasehold title and it gets replaced by a new leasehold agreement between your buyer and the underlying freehold owner, you will have to pay the PPh on behalf of the freehold owner.
Right of Use (‘Hak Pakai’)
If you are a foreigner selling a right of use title [link to article on ‘hak pakai’], you should be in the possession of a residential permit at the moment of selling your property.
If you are not, you must clarify this matter through your notary and the Indonesian land authority (‘BPN’) before you engage in a sale.
The process of selling a ‘hak pakai’ title is very similar to the sale of a freehold title.
You have to use a PPAT official and you have to pay your 2.5% tax as the seller.
The conversion of the title to a freehold title or a right of building title are typically at the expense of the buyer.
Right of Building (‘Hak Guna Bangunan’)
If you are representing a company selling a right of use title [link to article on ‘hak guna bangunan], the process is again very similar to selling a freehold title.
The same tax rate applies here, i.e., 2.5% PPh and you need the services of a PPAT official to conclude the transaction.
The selling process
Besides knowing the legal aspects of selling your Bali property, you need to be well aware of all the preparatory steps and the time required to conclude a sale before you even start the process.
This involves understanding the fair market value of your property and how to get the highest possible price for it, the costs that you will have to bear as a seller, and knowing how to repatriate your investment if you are a foreigner.
Step #1: Get your property valued by an expert
Perhaps the most important question when selling your property is: how much is it worth?
The answer to this question is what will motivate you to consider a sale now or wait a bit longer.
In a fully developed western property market, it is rather easy to get a set of comparative sales to compare your property with and arrive at a value.
In Bali, this is sadly not the case.
Here you have to rely on the advice of experts, typically a real estate agent that has a solid track record selling property on the island.
He or she will have information about similar sales in the recent past to serve as a guideline and orientation for you.
The agent should also be able to assess the replacement value of your property, which may be a more useful and accurate approach.
In other words: what would it cost to buy the land and build the property that you want to sell today?
In a seller’s market you can then add the cost of sale (commission, fees, tax, etc.) and arrive at an asking price to which you may want to add a bit of negotiating space.
Et voila, there is your asking price.
If you want a property assessment price, feel free to get in contact with the team here at Exotiq we’ll be happy to help you out!
Step #2 – Choose a reliable real estate agent to represent you
Now that you have decided to sell your property and have a price in mind for which you will settle, it’s time to appoint the right real estate agent to market your property and sell it.
This is the most important step in the entire sale process!
Your agent should be someone you can trust and rely on.
After all, you are entrusting him with the sale of one of your most valuable assets.
We recommend you to thoroughly interview the agent before you are appointing anyone to represent you.
If your property is valued close to or above USD 1 million, you should seriously consider the benefits of entering into an exclusive listing agreement with a qualified agent.
Demand for exclusive luxury villas is naturally smaller than for much less expensive properties.
This requires more attention and better preparation by the real estate agency.
Your property needs to stand out from the crowd.
And buyer’s need to know that they can only buy it from the exclusive agent that you have appointed – and no one else.
This gives you a better bargaining position and translates into a better price for you.
If you are searching for a reliable team of real estate agents that are based in Bali and that know the market insid eout, feel free to get in contact with use here at Exotiq.
Step #3 - Set a realistic timeline for selling
Once you have appointed your agent it is time to set a timeline for selling your property.
Your goal should be to realize a sale within no more than 12 months from entering the marketplace.
If your property hasn’t sold in that timeframe, your price is either too high or your agent is not qualified.
Keeping your property on the market for much longer will make it look stale in the eyes of potential buyers.
Better withdraw it from the market and analyse what went wrong.
Step #4 – Prepare your marketing materials
The most important tool for a successful marketing campaign is your visuals.
Great photography or even a video is crucial if you want to stand out and get a buyer to notice your property and plan an inspection.
If you have chosen to work with an exclusive agency, professional photography and documentation is normally part of the marketing package. If not, hire a professional photographer.
A rough estimate is that you will have to fork out USD 50 – 100 per fully retouched HiRes image and you will need at least 10 images.
Make sure that you will get a hero shot that says the famous thousand words about your property.
This is the hook to get your buyer!
Step #5 - Prepare your property for sale
Your property needs to look at its best if you want to achieve the price that you have set.
Let someone else be the judge how you could spruce up your villa and make it look enticing to a future owner.
You may have to invest in a bit of paint, trim the garden, get some new plants, fix those leaks in the roof, give the entire property a good clean job, check your lighting and tidy the access.
You can achieve so much, with so little!
But remember, the property will have to look good during the entire sale process, not just for an auction and a few days.
Before your agent schedules an inspection with a potential buyer, make sure that all lights in all rooms are on, the aircon’s are switched on in all rooms well before the visit and your private stuff is tidied up.
Remember, it’s the first impression that often makes it or breaks it.
Step #6 – Have your paperwork ready
This may sound obvious.
But how many times did we discover that a sale couldn’t go through because the original paperwork for the property wasn't readily available or had been lost?
It happens and therefore this needs to be on top of your checklist.
Start with scanning all your important documents into PDFs: agreements, titles, permits, recent zoning information, tax receipts, audit reports, utility bills, list of inventories, warranties, original invoices, building inspection report and so on.
Keep all those documents in a safe place in Bali, where they can be accessed quickly.
Last but not least, think about getting someone to represent you by signing the sale agreements, in case you can’t make it to Bali on time.
A power of attorney drafted by your notary and validated by a lawyer overseas and the embassy of the Republic of Indonesia is all that is needed.
But this takes time and you could lose a deal if you are not ready.
Step #7 – Close the deal and count the money
You finally got the long awaited serious offer for your property and you have agreed on a price and payment terms.
Now it’s time for your real estate agent to draft a sales and purchase agreement or at least a reservation agreement that involves the payment of a deposit that shows you that the buyer is serious and liquid.
The deposit may be held by the appointed notary or your agent. This is then typically followed by a due diligence period of 30 days or longer if the asset you are selling has a going concern.
A lot can happen during that period and a sale can still get lost because something comes up that you didn’t anticipate.
Therefore, it is important that your agent closely works with the buyer and his legal representatives and provides all information that they require during due diligence.
Once due diligence is over, the final sale agreement needs to be signed and you should get paid.
With money counted and in your hands, it is the time you hand over the keys to your property to the new owner, wish him well and move on to other adventures!