Buying or leasing a villa in Bali with the intention of generating income from short-term guests can look like an attractive investment opportunity.
However, acquiring an interest in a Bali property and being legally able to operate that property as short-term accommodation are not necessarily the same thing.
Before committing to a villa intended for Airbnb or other short-term accommodation platforms, foreign investors should investigate not only the property itself but also how it can legally be used, the documentation attached to it and the structure through which any accommodation business will operate.
Here are some of the key issues to consider.
1. Check the Property Before You Commit
The first step should be establishing exactly what you are buying or leasing.
Foreign investors should not rely solely on information contained in a sales listing, marketing brochure or statements made during negotiations.
Appropriate Property Due Diligence can include investigating relevant ownership documentation, the parties involved in the transaction and other legal matters affecting the property.
Where appropriate, Property Title Verification can also help establish important information relating to the underlying title and ownership documentation.
This becomes particularly important where substantial funds are being committed before construction or before all aspects of the proposed investment have been verified.
2. Buying or Leasing a Villa Does Not Automatically Mean You Can Operate It as Short-Term Accommodation
This is one of the most important distinctions for foreign investors.
A villa may physically be capable of accommodating tourists, but that does not automatically establish that the property can lawfully be operated as a short-term accommodation business.
Indonesia’s business classifications specifically recognise villas and other forms of short-term accommodation as accommodation activities.
Investors therefore need to investigate the proposed use of the property, rather than simply establishing that the property itself exists and can be acquired or leased.
3. Check the Intended Use of the Property
Before investing, establish what you actually intend to do with the villa.
There is an important difference between:
- using a villa privately
- leasing a villa for your own long-term use
- occasionally allowing others to use a property
- operating commercial short-term accommodation
- establishing a villa accommodation business
- engaging another company to operate or manage the property
The legal, business and licensing considerations can differ depending on the arrangement.
An investor intending to generate regular income from short-term guests should therefore make that intended use clear during the due diligence process.
4. Check the PBG
The Persetujuan Bangunan Gedung (PBG) is an important part of the building documentation that should be investigated when considering a Bali property.
Investors should check whether relevant building approvals exist and whether the documentation corresponds appropriately with the building and its intended use.
This is particularly important where a villa has been extended, substantially altered or developed differently from what was originally approved.
Bali Legals can assist with PBG Verification as part of the wider investigation into a property.
5. Check the SLF
The Sertifikat Laik Fungsi (SLF) relates to the functional suitability of a completed building.
This is another area investors should investigate rather than simply assuming that a completed or operating villa has all relevant documentation in place.
Our SLF Certificate Verification service can assist with checking relevant SLF documentation.
Foreign investors can also read our resource What Happens if a Property Doesn’t Have an SLF Certificate in Bali? for more information about why this documentation can matter during property due diligence.
6. Consider the Business Structure
If the intention is to operate a commercial accommodation business, investors also need to consider who will actually operate that business.
Foreign investors may need to consider whether an appropriate Indonesian company structure is required for their proposed activities.
One structure commonly relevant to foreign investment is the PT PMA, Indonesia’s foreign-owned limited liability company.
However, a PT PMA should not simply be established because someone has been told that every foreign villa investor needs one.
The appropriate structure depends on the proposed business activities, ownership arrangements, investment and other circumstances.
Our resource What Is a PT PMA and Who Needs One in Bali? explains the structure in more detail.
Where a PT PMA is appropriate, Bali Legals can assist with PT PMA Company Setup in Bali.
7. Check the Business Licensing Requirements
The company structure is only part of the picture.
Investors should also establish what business classification and licensing requirements apply to the accommodation activities they intend to conduct.
Indonesia operates a risk-based business licensing system through OSS, and accommodation activities are specifically recognised within the country’s business classification framework.
The applicable requirements can depend on the precise nature and scale of the operation.
This is another reason why an investor should establish the intended operating model before completing the investment rather than attempting to address licensing after the villa has already been acquired.
8. Don’t Assume an Existing Airbnb Listing Proves Compliance
A villa already appearing on Airbnb or another booking platform may look reassuring to a prospective investor.
However, the fact that a property is being advertised or accepting guests should not, by itself, be treated as evidence that all underlying property, building, business and licensing requirements have been satisfied.
The relevant documentation should still be independently investigated.
This is especially important when acquiring an existing villa business where the seller represents that the property is already operational.
9. Buying an Existing Villa Business Requires Business Due Diligence Too
Sometimes the transaction involves more than the property.
An investor may be acquiring an existing operating business, company, brand, booking accounts, contracts or other commercial assets associated with the villa.
In this situation, property due diligence and business due diligence are different investigations.
The investor may need to understand matters including:
- who owns or controls the operating company
- what licences the business holds
- existing contracts
- management agreements
- liabilities and obligations
- staff arrangements
- booking and management relationships
- whether claimed business assets actually form part of the transaction
The fact that a villa has historically generated rental income does not by itself establish the legal or financial position of the underlying business.
10. Review the Lease Carefully if the Property Is Leasehold
Many foreign investors consider long-term lease arrangements for Bali property.
If the proposed villa investment is leasehold, the lease agreement becomes a critical part of the transaction.
Investors should understand matters such as the lease period, extension rights, payment terms, permitted use, assignment, subleasing, improvements, termination and what happens when the lease ends.
This becomes particularly important if substantial funds will also be spent renovating, furnishing or marketing the villa.
Our guide What Should a Bali Property Lease Agreement Include? covers these issues in more detail, and Bali Legals provides Lease Agreement Review Services before investors enter an agreement.
11. Be Careful With Off-the-Plan Villa Investments
Additional considerations arise where the villa has not yet been completed.
An off-the-plan investor may be committing funds before the finished property, building documentation and operating business can all be inspected.
The developer, underlying land, contractual arrangements, construction documentation, payment schedule, proposed approvals and intended commercial use should therefore be investigated carefully.
Our guide Buying an Off-the-Plan Villa in Bali: What Should Foreign Investors Check? covers these risks in greater detail.
12. Consider Who Will Manage the Villa
Many foreign investors do not intend to manage guest bookings, cleaning, maintenance and day-to-day operations themselves.
Instead, they may appoint a villa management or accommodation operator.
The agreement with that operator can become an important part of the investment.
Investors should understand matters such as:
- management fees
- responsibilities of the operator
- booking revenue and payment arrangements
- maintenance expenditure
- authority to incur expenses
- termination provisions
- control of booking accounts and guest information
- reporting obligations
- what happens if the management relationship ends
The commercial arrangement should be properly documented rather than relying solely on informal understandings.
13. Consider Your Own Immigration Position
Owning or investing in a Bali business does not automatically mean a foreign investor can personally undertake any activity within that business.
If you intend to actively work in, manage or otherwise participate in the operation of the villa business while in Indonesia, your immigration position should also be considered.
Our resource What Visa Do I Need to Start a Business in Bali? explains why company ownership, investment and permission to undertake particular activities in Indonesia should be considered separately.
Due Diligence Before Buying a Bali Rental Villa
A villa can look like an excellent investment on paper.
Projected occupancy, nightly rates, location and expected returns are important commercial considerations, but they should not replace legal due diligence.
Before buying or leasing a Bali villa intended for short-term accommodation, foreign investors should establish:
- what property interest they are acquiring
- whether the underlying documentation can be verified
- whether the proposed use is appropriate
- whether relevant PBG and SLF documentation exists
- what business structure may be required
- what licensing requirements apply
- whether existing business claims can be verified
- whether contracts and lease arrangements adequately protect their position
- whether their own immigration arrangements are appropriate for their intended involvement
Bali Legals assists foreign investors with property due diligence, title verification, PBG and SLF verification, PT PMA establishment, business due diligence and commercial legal matters in Bali.
If you are considering buying or leasing a villa to operate as short-term accommodation, contact Bali Legals before committing to the transaction.
Frequently Asked Questions
Can a foreigner buy a villa in Bali and put it on Airbnb?
Foreign investors need to consider both the legal structure through which they hold an interest in the property and whether the proposed short-term accommodation activity meets applicable business and licensing requirements. Acquiring or leasing a villa does not by itself establish that it can be commercially operated as short-term accommodation.
Do I need a PT PMA to operate an Airbnb villa in Bali?
Not every property arrangement is identical. Whether a PT PMA or another structure is appropriate depends on the proposed business activities, investment structure and circumstances. Foreign investors should obtain advice based on their intended operating model.
Does a Bali rental villa need a PBG and SLF?
Building and functional documentation should form part of the investigation into a property intended for commercial use. The documentation applicable to a particular villa should be verified according to the building and proposed activity.
If a villa is already listed on Airbnb, does that mean it is legal?
An existing online listing should not be treated as proof that all property, building, licensing or business requirements have been satisfied. Relevant documentation should still be independently checked.
Can I buy an existing villa rental business in Bali?
Foreign investors may be able to acquire or invest in an existing business through an appropriate legal structure, but the company, licences, contracts, liabilities and other aspects of the business should be investigated before completing the transaction.
Should I have a Bali villa checked before paying a deposit?
Legal due diligence is best undertaken before an investor becomes irrevocably committed to a transaction or transfers substantial funds. The appropriate timing will depend on the proposed agreement and transaction.
Can Bali Legals check a villa before I invest?
Yes. Bali Legals assists foreign investors with property due diligence, property title verification, PBG and SLF verification and related legal matters when considering a Bali property investment.
Important Information: This article reflects the laws, regulations and administrative requirements applicable in Indonesia to the best of our knowledge at the time of publication. Requirements and their application may change over time and can vary depending on individual circumstances. For current advice relevant to your specific property, investment, business or immigration matter, please contact Bali Legals.