Can Australians buy property in Bali? The questions worth asking

Australians can invest in Bali property. What they cannot do is own it outright in their own name the way they own a house in Brisbane. Indonesian law reserves freehold title, Hak Milik, for Indonesian citizens, so a foreign investor ends up holding one of three other things: a long lease over the land and building, a registered right of use in their own name, or shares in an Indonesian company that holds the property. Each has a different term, different renewal rights, and a different answer to the question of what happens when it expires.

The arrangement to stay away from is the nominee, where an Indonesian citizen holds the title on your behalf under a private side agreement. Those agreements have not fared well in Indonesian courts, and the party who loses is reliably the foreign buyer. Any project that relies on one is answering a legal problem with a handshake.

Get Indonesian legal advice on which structure a project uses before anything else. Once that part is straight, six further questions decide whether the investment itself is sound. They are not clever questions. They are the ordinary ones any unlisted asset should have to answer, and they are worth writing down because the sector is unfamiliar enough that people forget to ask them.

1. What exactly would I own?

Ask for the answer as a chain, starting with your name and ending with the building. A lease is a different thing from a right of use, which is different again from shares in an Indonesian company, which is different again from units in an Australian trust that holds one of those. Each carries different rights, different protections and a different position in the queue if something goes wrong.

Where a lease is involved, the remaining term is the number that matters most. A lease is a wasting asset. Every year that passes shortens it, and unless there is an enforceable extension right, the value at year twenty is not the value at year one. Ask what the initial term is, what extension rights exist, whether they are contractual or discretionary, and what the extension will cost.

A good answer names every entity in the chain and points to the document that creates each link. A poor answer uses the word "ownership" repeatedly without ever saying of what. If nobody can draw you the chain on a single page, you do not yet know what is being sold.

2. Who runs it, and what have they run before?

The income from a hotel comes from somebody operating a hotel competently. That makes the operator at least as important as the building, and often more so.

Ask who the operator is, what else they run, how long the management agreement lasts, what happens when it ends, and who can replace them if performance is poor. Ask the same about the brand, which is usually licensed rather than owned, and licences expire. A brand you recognise on the sign tells you about marketing reach. It does not tell you who is accountable when the occupancy drops.

3. Who gets paid before I do?

Every resort has a stack of costs sitting above the owner. Management fees, brand licence fees, staffing, maintenance, marketing, a reserve for refurbishment, local taxes, and whatever the structure itself costs to administer. You do not need a projection to ask about this. You need the list.

Ask for the full order of payment in writing, who sets each fee, whether any of them are payable to related parties of the developer, and who decides how much goes into the refurbishment reserve. Resorts need serious money spent on them every several years, and the question of who funds that is one of the most consequential in the whole document set.

4. How would I get out?

Assume you need to sell in year four, in a soft market, for a reason that has nothing to do with the resort. What happens?

Ask whether there is a resale market, who has actually sold and to whom, whether the developer or operator has any buy-back obligation, and if so whether it is a contractual obligation or a stated intention. There is a large difference between those two, and it is usually visible in the wording rather than in the presentation. Ask about transfer restrictions, consent requirements and any minimum holding period. An asset that can only be exited on the seller's terms is worth less than the same asset that can be sold freely, and the price of admission should reflect that.

5. What happens in a bad few years?

Bali has closed to international visitors within living memory, and the tourism cycle has turned sharply more than once. Any assessment that assumes uninterrupted trading is not an assessment.

Ask what happens to the arrangement if the resort trades poorly or not at all. Who funds the shortfall on fixed costs. Whether owners can be called on for further contributions, and if so on what terms and with what cap. Whether the operator can walk away. These answers exist in the documents. They are just rarely in the brochure.

6. How big should this be against everything else I own?

This is the question that actually determines the outcome, and it is the one most often skipped, because it is about you rather than about the project.

An illiquid, single-asset, foreign-currency holding belongs in the small satellite portion of a portfolio, funded with money that can genuinely stay put. The useful test is to assume the position cannot be sold for five years and is worth materially less at the end of that time, then ask whether the plan still works. If it does, the size is defensible. If it does not, the size is wrong, and the quality of the project is not the variable that fixes it.

The question behind all of them

Ask the person in front of you how they are paid, and by whom.

I am engaged by Geonet Property & Finance Group and represent its projects. That is worth knowing when you weigh anything I tell you, which is exactly why it is written here rather than left for you to discover. Anyone who is uncomfortable answering that question has told you something useful about the rest of their answers.

Getting straight answers

My job is to put the documents and the operator detail in front of investors and their advisers, and to answer these six questions without a slide deck in the way. Where you have a financial planner, mortgage broker or accountant, I am happy to answer them with that person on the call instead, which is usually the faster route to a decision either way.

Bring the project you are weighing, or bring a client scenario, and start with question one.