Bali has long been a dream destination for real estate investors. Its tropical beauty, thriving tourism, and vibrant lifestyle attract buyers from around the world. But beneath the allure lies a market that is fundamentally different from Western systems, with unique legal, financial, and operational complexities that pose real risks.

Understanding these risks — and how to mitigate them — is essential for protecting your capital and securing long-term returns.

1. Legal and Ownership Risks

The Challenge:
Foreign investors cannot legally own freehold land (Hak Milik) in Bali. Indonesian law reserves land ownership exclusively for Indonesian citizens. Foreigners must instead use alternative structures such as leasehold (Hak Sewa), right‐to‐use (Hak Pakai), or through a foreign-owned company (PT PMA) with Hak Guna Bangunan (Right to Build) rights. Misunderstanding or ignoring this can lead to contracts being voided, disputes, or loss of investment.

The Risks:

  • Invalid contracts due to improper ownership structure
  • Disputes and legal challenges
  • Potential loss of rights if nominee schemes are used

Mitigation Strategies:

✔ Work with specialized legal counsel: Hire a lawyer experienced in Indonesian property law to structure your purchase correctly.

✔ Avoid nominee arrangements: These are illegal and unenforceable, offering no real protection if disputes arise.

✔ Choose the right structure: Understand the pros and cons of leasehold, Hak Pakai, and PT PMA to align with your investment goals.

2. Due Diligence and Title Verification

The Challenge:
Land titles in Bali can be unclear or disputed. Properties may have overlapping claims, unresolved boundaries, unregistered easements, or forged documents — issues that are not always apparent without thorough investigation.

The Risks:

  • Ownership disputes
  • Inability to secure permits
  • Loss of investment value

Mitigation Strategies:

✔ Title search and verification: Always obtain a full land certificate (Sertifikat Tanah) from the National Land Agency (BPN).

✔ Notary and survey checks: Use a reputable notary (PPAT) and land surveyor to confirm legal access rights and boundary accuracy.✔ Check historic ownership: Identify past transfers and ensure clear lineage of title.

3. Permitting, Zoning and Compliance Risks

The Challenge:
Bali has strict zoning rules and construction permit requirements (e.g., PBG/IMB). Properties without the right permits — or those in zones not aligned with planned use — can face fines, forced modifications, or even demolition. A major resort complex in Ubud was shut down by authorities for regulatory violations, highlighting increasing enforcement.

The Risks:

  • Legal penalties or enforcement actions
  • Forced changes to property use
  • Financial losses due to non-compliance

Mitigation Strategies:

✔ Zoning verification: Confirm the land’s designation and permitted uses with local authorities.

✔ Permit due diligence: Ensure all relevant permits (building, functionality, tourism licenses) are legally obtained.

✔ Professional support: Engage firms that specialize in regulatory compliance for foreign investors.

4. Market Liquidity and Resale Challenges

The Challenge:
While certain areas of Bali remain in high demand, the real estate market can be less liquid than in developed economies. Selling specialized properties like villas may take longer than expected, especially outside prime locations.

The Risks:

  • Slow resale process
  • Price sensitivity to tourism cycles
  • Need to hold investment longer than planned

Mitigation Strategies:

✔Location analysis: Focus on areas with consistent tourism demand and strong buyer interest.

✔ Diversified use: Choose properties that appeal to both rental and owner-occupier markets.

✔ Realistic valuation: Work with experienced agents to price your asset competitively.

5. Construction and Quality Risks

The Challenge:
Not all construction in Bali meets international standards. Issues like poor waterproofing, structural defects, or substandard materials are more common in tropical environments and can rapidly escalate maintenance costs.

The Risks:

  • Unexpected repair costs
  • Lower rental ratings
  • Structural problems from climate stress

Mitigation Strategies:

✔ Professional inspections: Commission thorough structural and systems assessments before closing.

✔ Verify materials and methods: Review complete construction documentation.

✔ Escrow protection: Use third-party escrow for staged payments during development.

6. Financial and Hidden Costs

The Challenge:
Beyond purchase price, Bali property comes with a range of taxes, fees, and ongoing expenses that international buyers often underestimate — from notary fees and permit costs to land taxes and maintenance.

The Risks:

  • Lower than expected net returns
  • Budget overruns
  • Financial strain if cash flow assumptions are optimistic

Mitigation Strategies:

✔ Detailed financial modeling: Include taxes, permits, management fees, and contingencies.

✔ Currency risk planning: Account for fluctuations in the Indonesian Rupiah against your home currency.

✔ Professional tax advice: Consult a local tax expert to optimize liabilities.

7. Market Cycles and Tourism Dependence

The Challenge:
Bali’s property market is heavily tied to tourism. Global travel disruptions — like the COVID downturn — resulted in steep drops in visitor numbers and rental demand, underscoring exposure to external shocks.

The Risks:

  • Rental income volatility
  • Price sensitivity to global travel trends
  • Economic downturn impacts

Mitigation Strategies:

✔ Stress test cash flows: Model income under various tourism scenarios.

✔ Diversify tenant base: Blend short-term rentals with longer leases where possible.

✔ Reserve funds: Maintain financial buffers to weather downturns.

Conclusion: A Rewarding But Complex Market

Investing in Bali real estate can be financially rewarding and personally fulfilling — but it demands deep understanding, rigorous due diligence, and professional partnerships. The risks are real — legal complexity, regulatory compliance, construction quality issues, market volatility, and hidden costs — but none are insurmountable with the right preparation.

Approach with caution, expertise, and a long-term perspective, and Bali’s property market can be a strategic addition to your investment portfolio.

Ready to invest in Bali real estate with confidence?
Speak wth Kibarer Property and legal professionals to assess risks, structure your investment correctly, and protect your capital before you commit.