1 Important Facts Before Buying

This chapter quickly tries to lift on some important stones to make you understand what lies beneath and realize if buying land on Lombok is something for you.

1.1 Risk

All investments have some level of risk and the Republic of Indonesia is still young, undeveloped to large parts and suffers from corruption. The new president Joko Widodo (and many other politicians) has promised to fight the corruption and Indonesia is getting more developed for each year, especially Lombok Island where the new international airport, roads, electricity grid, cell phone network and the Mandalika project reduces the infrastructure risk significantly.

Foreigners cannot own land directly (hold Hak Milik land title), but there are methods of investing in land and benefiting from the potential value increase. The most popular method is the nominee method. This method requires an Indonesian partner whom you trust highly and establish a civic contract with. The nominee will be the owner of the land, but the civic contract typically states that the investor has the right to occupy or sell the land. The nominee is typically compensated with a 5-10% commission when the land changes ownership. This method is not without risk and you need to choose your nominee very carefully. If you are thinking of marrying an Indonesian citizen that currently is your nominee or could become your nominee. It is very important to enter into a pre-nuptial agreement before the marriage; otherwise your spouse may no longer hold Hak Milik land title (legal trap). Mixed-couples that did not register a pre-nuptial agreement are risking loosing their properties in Indonesia.

The government frequently shifts between pro-Indonesian and pro-foreign investment. This shifting result in new land ownership regulations by the Parliament and Supreme Court rulings that add a high degree of legal complexity. What is quite certain is that Indonesian citizens will be able to hold a freehold title also in the future, unless of course the communists will take over, but that is not likely to happen.

Scams are common since there are very few consumer protection laws in the process of buying and selling land. Real estate agents are not licensed and land transfer regulations are not transparent. By understanding this, you can reduce your risk by studying the guide and increase your potential financial benefit.

1.2 Investment Strategies

There are in principle four different investment strategies suitable on Lombok. All strategies require foreigners to solve the issue on how to invest in land in Indonesia and benefit from the value increase.

Which investment strategy fits your investment style best?

1.2.1 Land Banking (invest, hold, sell)

Land banking is a long-term and passive investment strategy. The investor typically holds the investment for several years. The investor must be able to accept a moderate risk and have a lot of patience. This strategy is most efficient when the investment is done prior to major infrastructure or hotel developments. Land banking has been the most used investment strategy in south Lombok and in many areas land prices has increased by 40% annually. The advantages of this strategy are:

  • Little work effort
  • Almost no “running” costs
  • High Return on Investment (ROI)

1.2.2 Trading (invest, add value, sell)

Trading is a short to medium-term and active investment strategy. The investor typically adds basic infrastructure and/or subdivide into smaller plots. The investor must be able to accept a short-term high-risk and invest a lot of time. It is common that Land Banking is combined with the Trading investment strategy. This strategy is most efficient when the investor can take advantage of desperate sellers or buyers. The advantages of this strategy are:

  • Capital resources illiquid short period of time
  • High Return on Investment (ROI)

1.2.3 Developing (invest, build, sell or hold)

Developing is a medium to long-term and active investment strategy. The investor typically first adds value by building for example a villa. Secondly the investor adds a yield by enabling rental of the villa. The investor must be able to accept a moderate risk and invest a lot of time. The investor must also allocate sufficient funds for maintenance, operations, marketing and tax. This strategy is most efficient when the investor understands the rental demand in an area and chooses to develop where there is a lack of supply. But there is also a trend to develop in more remote areas for the exclusive luxury segment, which most people/companies are not competent to manage. You can imagine how high the risk is when doing this without having the proper competence and connections. The advantages of this strategy are:

  • Generates a yield when holding
  • High Return on Investment (ROI)

1.2.4 Villa (invest, sell or hold

Villa is a medium to long-term and semi-passive investment strategy. The investor typically invests in a ready built villa or one off the drawing. This strategy offers a low risk for ready built villas and attracts investors interested in an immediate yield or lifestyle buyers. Investing in a villa off the drawing increases the risk, delays the yield, but makes it possible to customize more and get a lower price. The advantages of this strategy are:

  • Generates a yield when holding
  • Medium Return on Investment (ROI)
  • Low to medium risk

1.3 Culture

It is common that tourists do not recognize how different the culture of Lombok can be when compared to their home country or Bali. One reason is that Indonesia never has experienced immigration like other parts of the world.

Only about sixty years ago, Lombok was almost completely isolated from the rest of the world. Do not be surprised to find that most of the residents of Lombok are rooted with their own unique set of values, morals and traditions.

Positive qualities of the Sasak culture are an uncommon friendliness to strangers and a strong sense of hospitality wherever you may go. The local people still maintain their culture with traditional clothing, elaborate marriage ceremonies and extraordinary music. It is easy to visit the traditional Sasak village in Rembitan to quickly get an idea about their culture.

Corruption, thievery and clever scams are unfortunately more common on Lombok compared to Bali, where the karma mindset influences ethical integrity requirements. This means that the foreign buyer must exercise caution when buying property on Lombok and gather as much information possible before visiting potential plots of land.

1.4 Living On Lombok

Internet connections are slow and power outages are still common. Workers have a tendency to be much faster when managed on the work site. You will be at risk of tropical deceases such as malaria and dengue fever. Living on Lombok simply requires more of your time, planning and patience.

Can you adapt?

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