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Property in Bali: It's Déjà Vu All Over Again

Property Developers Suffer a Setback in Efforts to Allow Foreigners to Own Land in Bali and the Rest of Indonesia.

(6/7/2010) Both the New York Times and Jakarta Globe have stories announcing that the hopes of real estate developers for a significant liberalization of rules for foreign property ownership in Bali have been dashed by the failure of the government to deliver a promised massive revamp of the rules.

Bagus Adikusumo of Colliers International Indonesia said: "We all thought they were ready to go for it. But then it didn't happen."

Rules specifically prohibiting foreign ownership of freehold title and constitutional limits in support of those rules remain very much in place. As a result, foreigners wishing to buy property in Bali and the rest of Indonesia resort to proxy and nominee legal constructs that are, strictly speaking, in direct contravention of the laws of the Republic. Complicating matters further, the irrevocable powers of attorney and loan agreements used by foreigners to secure their precarious claim on Indonesian property also stand on shaky legal footing.

There is apparently a large legal tug-of-war being waged in Jakarta between property developers eager to tap into a huge potential market of foreign property purchasers and nationalists intent on keeping the status quo. Those seeking change may have to content themselves with a revision of the rules allowing "automatic" extensions to the current maximum 25-year lease period. And, even if such extensions are approved, they face the eventual risk of being rejected by Indonesia's Constitutional Court, repeating an earlier attempt to grant lease extensions for foreigners which was rejected by the Courts in 2007.

Describing the confusion over efforts to change rules for foreign property ownership, one local observer of the real estate scene in Bali said, "It's déjà vu all over again."

Adikusumo said, "I think they backed off first for nationalistic reasons, then secondly, because of fears that opening up the market to foreigners would favor luxury house construction at the expense of low-cost mass housing. They will also have to make major changes in the law, even perhaps the Constitution, which would take quite a while to push through Parliament."