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Bali has long been a popular destination for international investors looking to own property or build villas on the island. However, recent statements from Indonesian authorities highlight increasing scrutiny around the use of nominee ownership structures.
For foreign investors, it is important to understand the legal landscape and the potential risks associated with these arrangements.
Understanding the Nominee System
Under Indonesian law, foreign nationals are not permitted to directly own land with freehold ownership rights (SHM). Instead, foreigners are legally allowed to hold Right to Use (Hak Pakai) or Leasehold rights on land.
In practice, some foreign investors have used what is known as the nominee system. In this arrangement, an Indonesian citizen is listed as the legal owner on the land certificate, while the foreign party provides the funds and effectively controls the property through private agreements.
While this structure has been used in the past, authorities have increasingly warned that such arrangements may violate Indonesian law.
Government Position on Nominee Arrangements
The Chief Justice of the Supreme Court of Indonesia recently emphasized that nominee ownership structures can be considered a form of “legal smuggling.” These arrangements are seen as an attempt to bypass regulations that restrict foreign ownership of land.
In nominee agreements:
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An Indonesian citizen (WNI) is listed as the official owner on the land certificate.
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The foreign investor (WNA) acts as the financial beneficiary and often controls the property.
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The legal ownership, however, remains entirely with the Indonesian citizen.
Because the foreign party is not legally recognized as the owner, these arrangements carry significant legal risk.
Scale of the Issue in Bali
Research conducted by the Crisis Work Group on Nominee Indonesia (K3NI) suggests that nominee structures may be widespread in Bali. Estimates indicate:
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Around 50,000 foreign nationals are suspected of controlling land or property through nominee arrangements.
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Approximately 10,500 land plots may be involved.
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The total value of these properties is estimated at USD 10.4 billion, equivalent to around IDR 109 trillion.
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About 7,500 villas are believed to be operating without clear legal ownership structures.
Authorities believe this situation may create legal uncertainty and potentially impact the stability of property investment in Bali.
Potential Legal Consequences
In a recent statement, the Governor of Bali indicated that both Indonesian citizens and foreigners involved in nominee property arrangements could face criminal charges. Authorities are also encouraging the public to report suspected cases.
This reflects a stronger regulatory focus on ensuring property ownership complies with Indonesian law.
What This Means for Property Investors
For foreign investors interested in Bali’s property market, compliance with local regulations is essential. Legal and transparent structures—such as leasehold agreements or properly structured right-to-use ownership—are the safest ways to invest.
Seeking professional legal advice and working with trusted property professionals can help ensure that investments remain secure and fully compliant with Indonesian regulations.
A Responsible Approach to Property Investment
Bali remains one of the world’s most attractive destinations for lifestyle and property investment. However, understanding the legal framework and choosing compliant ownership structures is key to protecting long-term investments.
For investors considering property opportunities in Bali, taking a transparent and legally sound approach will ensure both security and peace of mind in this evolving market.
