9.1 Necessary Preparations
The normal negotiation process on Lombok is a drawn out process, but like mentioned in earlier chapters, it can also be fast if the landowner urgently needs money. The normal negotiation process is similar to buying a car from a used car dealer. Foreign investors must not get frustrated with long delays before reaching an agreement on a final price. The long delays should be used to your advantage. If the foreign investor is in a hurry to make a deal, the price will be much higher than necessary. Don’t forget that prolonged bargaining is a way of life among the Sasak people and the Indonesian people in general. You are never expected to pay the first price that is offered. Typically the first owners are keen on selling large chunks of land, i.e. more than 1 ha is a normal size. This means that there will be a lot of money on the table so be very careful in giving any of it away.
At the moment when you express interest in buying a piece of Lombok land for sale, your agent will quickly try to seal the deal. This can make it difficult to determine the usual selling price of land in the area. To avoid this situation, don’t reveal your true feelings about any property shown to you until you have had a chance to do some research about the price in the area. Hopefully you will already know a few local people or expats who can give you an unbiased opinion about price in the area. Shop owners nearby may also be able to give you information about previous selling price in the area.
You cannot rely on advice from the selling agent since he or she will earn a large commission if you buy the land. Anyone with a bias is not thinking in your best interest.
It is very important that you have an experienced and competent negotiator in your team. Since you don’t speak the language well enough, the negotiator must take control of the conversation on your behalf. Personally me and my wife prefer to let our partner do the talking and we never make commitments during the negotiations. This makes it possible to reject the price, make counteroffers or other changes to the deal after thinking things over.
9.2 Establish Proper Atmosphere
The money is in your pockets so you have the power to establish the ground rules. You don’t need to be in an uncomfortable situation. In fact, as a foreigner, you will be regarded as someone who commands respect. You should maintain this strategic advantage in small, but significant ways. For example, giving someone money to go to the store to buy a bottle of water for you or in remote areas, find and open a fresh young coconut. My partner usually requests the locals to find and open young coconuts when we arrive at a Lombok property for sale.
Location, location, location also holds true for where the conversations will take place. Acceptable places to you is your hotel lounge or a quiet restaurant. The office of a lawyer or real estate agent should be avoided since you loose a lot of bargaining power in these places. The most common place to hold conversations is in a gazebo style sitting platform called berugak in Lombok. Holding conversations and negotiations in a berugak at the landowner’s house is a sign of courtesy. By accepting the local traditions you will send a message that you understand and respect local customs. Once seated, you will typically be offered Lombok style coffee or tea as a sign of hospitality. I usually prefer to drink the tea, but I am very picky how I prefer my coffee. Make sure to make yourself comfortable by using a corner post to support your back, you may be sitting for a while. Please find a photo of a bamboo style berugak below.
Make sure to insist on conducting the negotiations in private and control who is attending. Lombok traditions have a concept called listening money which basically means that anyone who is attending the negotiations is entitled to listening money. The more people attending, the faster the gossip of how wealthy you are will spread in town. This gossip will make it more expensive for you to stay at a hotel, purchase a pair of shorts etc. It is wise to keep the negotiations as private as possible.
9.3 Conduct the Negotiations
All interested parties should be present during the negotiations, this includes the landowner and anyone who is getting paid commission. How much commission is everyone getting and for what purpose? If the commission is put on top of the price of the land, the price you will have to pay can be lowered by cutting commissions. This is why it is so important to gather everyone and make the commissions transparent. If one party cannot motivate well enough his or her commission, why should he or she get paid? It is only reasonable that you pay a 5-10% commission one time. If several middlemen are involved, they can split up the commission fairly between them which really is an exercise for the middlemen. Not your problem, unless you pay a too big commission off course.
It is common that extra charges come up after the negotiations are concluded and if not settling exactly who is going to pay for extra charges, it will become your responsibility. Extra charges can be some mysterious tax, neighbours claiming part of the land and must be paid or even other foreign investors claiming to have put down a deposit on the land previously.
Don’t get misled by cultural stereotypes. People may look poor, but have certainly survived in life by being clever. Sure you might have a Masters Degree in Business Economics, but you have never worked with anyone as clever as these people. You will be told long stories about the Sasak culture and how much they enjoy working with you and other foreigners. “Don’t worry, you are part of my family” is a favourite phrase. Many people have nothing but time and use it to their advantage by sitting silent long periods of time, having drawn out discussions or repeating one single point. The purpose of this is to make you believe that the negotiations will never end and it is their way of wearing you down as an opponent. When this occurs and you start feeling tired or frustrated, it is often best to say something like “I am tired and need to take a shower – I will talk to you again soon”. This is a polite but efficient way to eject yourself from the seemingly endless negotiation process. When back again, bring cigarettes for the men and 3 kg of sugar for the wives. Sleep on it and talk to your unbiased trusted friends.
9.4 The Issue of Parcel Size
The exact size of uncertified land is always a guess and the size offered to you initially will never be the same size as you buy. Since the negotiation typically is done on a price per are basis, it is important to reduce the size error. Mark the corners as the landowner points them out and have a surveyor come out and check the actual size of the land before starting the negotiations. It is more common that the true size is larger than the initially offered size. Sometimes the landowner has a lot of land and you are offered to buy 1 ha of land, then you need the landowner to point out the corners of the land together with the surveyor, making the size as close to 1 ha as possible. The problem with true size being larger than initially offered is obvious. You planned to pay a certain amount, perhaps you have an absolute spending limit, while the landowner don’t wish to sell his land at a discount price.
It is becoming common practice to ask a provision that says if the land is larger than the stated size, the total parcel price remains the same. If the land is smaller in size, then the price will be reduced to match the price per are. This is part of the negotiation and something that some landowners are willing to accept, while others will not. Make sure to always try this bargaining technique and be prepared to negotiate with a landowner that wants to be paid extra for the additional land. Say something like “This portion of the land has more trees, is closer to the road or have no view” and the landowner usually is willing to give you a lower price per are for the extra land.
9.5 Money is Not the Only Issue
In addition to settle the price, you may often need to obtain permission from the landowner and/or the neighbours to build an off-property access road. Perhaps you plan to bring electricity to the area in the future or making improvements to an access road that will benefit other people, including the landowner. Use this to your advantage.
Payment terms are also part of the negotiation and needs to be settled. Sometimes the land can be paid for in interest free instalments. The Notaris can prepare a separate document that details the payment terms. In the past, most landowners where not willing to transfer the certificate until 100% of the total was paid. This is changing and the timing of when the new certificate will be issued is now also part of the negotiation. From our experience with land offered at a bargain price, about 25% of the total was paid when all necessary documents were signed and submitted to BPN to initiate the land title transfer to my wife and nominee. The remainder was paid after we safely could hold the certificate in our hands in Europe. This only works if you have an experienced and competent partner that has performed a thorough due diligence before submitting the documents to BPN. This example was regarding uncertified land.
You must also settle who will process and pay for the land certificate at BPN and other fees at the Notaris Office. So far, we have always paid for these types of fees when purchasing land. The exception is when we purchased land with an existing Hak Milik certificate, then the seller is responsible to pay half of the 10% tax on the transfer of a Hak Milik certificate. This was handled by the Notaris. The tax object acquisition value is usually lower than the real price you pay for the land to keep the tax amount to a minimum. Typically the other half of the tax, that the buyer will pay is about 1-2% of the total price of the land since the tax is based on a lower tax object acquisition value. If the Notaris cannot lower the tax object acquisition value, you should think of using another Notaris, otherwise you will pay 5% of the total price in tax, which is unnecessary.
Please read more about legally binding tax for your type of transaction here.
9.6 Giving a Deposit?
When the negotiations are complete and you will start to conduct due diligence, it is common that you will be asked to make a small deposit to hold the land. Keep the deposit as small as possible since any deposit paid is money lost if you do not buy the land. Make sure to get a legalised receipt of your deposit with reference to the sporadic or other details uniquely identifying the agreement.
Most local buyers of land do not pay a deposit. The reason for this is that the landowner is not likely to actively looking for a new buyer after he or she has gone through the negotiation process. The landowner is likely to be patient when in the process of completing a sale. The risk of loosing the land by not putting down a deposit is very low. The risk of loosing the deposit if the deal doesn’t go through is 100%. There is an Indonesian saying “Any money that goes out of your pocket is never returned to your pocket”. This is very true whether you are buying a bracelet, loaning somebody money or buying land. If you absolutely need to put down a deposit, keep it as small as possible.
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