Why Due Diligence Is Important For Vendors?

Over the last few years, we’ve written many blogs and articles about legalities, permits, taxes and so on regarding buying property in Bali.

But we keep on running into properties and land deals that often have multiple issues associated with them.

Let me share one fictitious example with you, which is made up of different experiences.

The example deal I’ll use to illustrate things is for a villa for sale somewhere in Seminyak near Canggu – both very popular areas and I’ll use the industry recognized term for a seller, which is Vendor, just in case you were confused with what that means.

On the surface after a quick check of the most relevant documents it seems to be a nice deal … good location, good price, nice vendor.

We go through the negotiation process with the buyer who makes a reasonable offer subject to some bargaining, of course. But part of our internal due diligence process has started to drop some red flags.

Here’s what we find …

Red Flag 1

It turns out the property is “owned” under a nominee structure.  This is risky because we all know this is, and always has been, illegal.

Sure, it’s still possible to transact, but in this particular case the deal involves a mortgage, and in Indonesia, the banks will only agree to a mortgage and transfer to an account held by the name on the certificate.  Sorry, that means no nominees.

Sure, there are ways to work this out if you are lucky enough to have a cooperative nominee.  But the question is why doesn’t the vendor try to do this before they try and list their property?

It’s true that many vendors did try to resolve issues under the recent tax amnesty, but many others didn’t.  And for those that didn’t there were (and will be) tax issues to sort out, where the vendor is liable for income tax handed down from the nominee.

Red Flag 2

The nominee system may complicate the possibility of transferring money out of Indonesia, as the underlying source of funds is not clear.  And receiving money in the country of origin may also give rise to tax issues and invite some unwelcome and uncomfortable questions.

We continued our internal due diligence and check the tax value of the property to get a clearer picture of any tax implications for both buyer and the vendor.

Red Flag 3

And we discover the property has never been reported under the tax amnesty.  This is still something that can be worked out, BUT depending on the tax subject’s tax position, this will end up being either 12.5-percent or 30-percent of the value of the property.

We dig deeper … not because we like to rain on parades, but because it’s vitally important for all legal paperwork and documentation to be correct so that the process is as smooth as possible for all parties concerned. And if there’s one problem, there may be two, or three and so on.

Red Flag 4

We find another problem without having to dig very far at all! It’s clear there are more serious issues with the land and building taxes because it turns out taxes were only ever paid on the land and NOT on the building! This isn’t unusual by the way. And again, why didn’t the vendor consider this before putting their villa on the market?

Things don’t get any better.

Red Flag 5

Turns out there’s also a problem with the build permit, called an IMB. This is an absolutely necessary part of the paperwork and the process. And this property doesn’t have one.

This is a problem but, again, it isn’t the end of the world and it’s a problem that can be solved, but it’s going to take some time … and most importantly additional costs.

By now, the buyer, who’s keen to make the purchase, is understandably frustrated.

Some reasons why things have gotten to this stage are that the vendor may not have been aware of the legal status of the property. It’s unlikely and there’s no justification for it, but it’s still a possibility.

Or the vendor maybe be having some issues issues with the nominee, whose name was used to buy the land in the first place.  In our experience, this is the more likely scenario.

The bottom line is the buyer, quite rightly looks for another villa; one with all legal documentation in order, and the vendor is now left with cleaning up a mess that should never have happened in the first place. And they lose a buyer who was ready to complete.

So, my advice to anyone seriously looking at selling their land or villa in Bali is this – if you want to sell, take the time to make sure all of your paperwork is in order before you try and do it.

Or at least get someone to check it for you before you go to market, because nine times out of ten, in situations like this, buyers will go cold and your property will be sitting there gathering dust.

Part of our internal due diligence process is designed to save everyone time and frustration. It’s meant to make the experience of buying property in Bali more memorable, because it can be. It doesn’t have to be a nightmare in paradise!

Other aspects to consider in checking your paperwork are the access road; is it clear who owns it? Is it commonly owned?

Operational permits; do you have them? Especially if you’re considering renting your villa for short-term holiday rentals. Are you in the right zone for this and does your IMB reflect this? Are you legally allowed to conduct business in a particular area? And yes, short-term holiday rentals are considered a business.

If you’re interested in having a chat about this, or the property business in general, please feel free to touch base anytime. We’d love to help.


Harcourts Seven Stones is a property company headquartered in Bali, Indonesia, with a mission to help people who are interested in buying and selling residential and commercial real estate.

If you’re thinking about property, ROI, capital gains or lifestyle investments in Bali, Jakarta, Surabaya, and Indonesian’s Eastern Islands and need some friendly advice and guidance then why not email hello@sevenstonesindonesia.com or check out Seven Stones Website | Seven Stones Linkedin | Seven Stones Facebook

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Andrzej Barski

Director of Seven Stones Indonesia

Andrzej is Co-owner/ Founder and Director of Seven Stones Indonesia. He was born in the UK to Polish parents and has been living in Indonesia for more than 33-years. He is a skilled writer, trainer and marketer with a deep understanding of Indonesia and its many cultures after spending many years travelling across the archipelago from North Sumatra to Irian Jaya.

His experience covers Marketing, Branding, Advertising, Publishing, Real Estate and Training for 5-Star Hotels and Resorts in Bali and Jakarta, which has given him a passion for the customer experience. He’s a published author and a regular contributor to local and regional publications. His interests include conservation, eco-conscious initiatives, spirituality and motorcycles. Andrzej speaks English and Indonesian.

Terje H. Nilsen

Director of Seven Stones Indonesia

Terje is from Norway and has been living in Indonesia for over 20-years. He first came to Indonesia as a child and after earning his degree in Business Administration from the University of Agder in Norway, he moved to Indonesia in 1993, where he has worked in leading positions in education and the fitness/ wellness industries all over Indonesia including Jakarta, Banjarmasin, Medan and Bali.

He was Co-owner and CEO of the Paradise Property Group for 10-years and led the company to great success. He is now Co-owner/ Founder and Director of Seven Stones Indonesia offering market entry services for foreign investors, legal advice, sourcing of investments and in particular real estate investments. He has a soft spot for eco-friendly and socially sustainable projects and investments, while his personal business strengths are in property law, tourism trends, macroeconomics, Indonesian government and regulations. His personal interests are in sport, adventure, history and spiritual experiences.

Terje’s leadership, drive and knowledge are recognised across many industries and his unrivalled network of high level contacts in government and business spans the globe. He believes you do good and do well but always in that order. Terje speaks English, Indonesian and Norwegian.

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Ridwan Jasin Zachrie

CFO of Seven Stones Indonesia, Jakarta

Ridwan is one of Indonesia’s top executives with a long and illustrious career in the financial world. He holds several professional certifications including being a Certified Business Valuer (CBV) issued by the Australian Academy of Finance and Management; Broker-Dealer Representative (WPPE); and The Directorship Certification for Directors and Commissioners, issued by the Indonesian Institute of Commissioners and Directors.

His experience includes being the Managing Director at one of the top investment banking groups in the region, the Recapital Group, the CFO at State-owned enterprises in fishery industry and the CEO at Tanri Abeng & Son Holding. He’s also been an Independent Commissioner in several Financial Service companies and on the Audit and Risk Committee at Bank BTPN Tbk, Berau Coal Energy Tbk, Aetra Air Jakarta as well as working for Citibank, Bank Mandiri and HSBC. His last position was as CFO at PT Citra Putra Mandiri – OSO Group.

Ridwan has won a number of prestigious awards including the Best CFO Awards 2019 (Institute of Certified Management Accountant Australia-Indonesia); Asia Pacific Young Business Leader awarded by Asia 21 Network New York USA (Tokyo 2008); UK Alumni Business Awards 2008 awarded by the British Council; and The Most Inspiring Human Resources Practitioners’ version of Human Capital Magazine 2010.

He’s a member of the Board of Trustees of the Alumni Association of the Faculty of Law, Trisakti University, Co-Founder of the Paramadina Public Policy Institute and actively writes books, publications and articles in the mass media. He co-authored “Korupsi Mengorupsi Indonesia” in 2009, which helps those with an interest in understanding governance in Indonesia and the critical issue of corruption. Ridwan speaks Indonesian and English.

Per Fredrik Ecker

Managing Director of Seven Stones Indonesia, Jakarta

Per is the Managing Director of the Seven Stones Indonesia (SSI) Jakarta office and has more than 25-years’ experience in Indonesia, China, and Western Europe. He previously worked in senior management positions with Q-Free ASA, Siemens AG, and other companies in the telecom sector. Over the last six years, he has been the Chairman of the Indonesia-Norway Business Council (INBC) and recently become elected to be on the board of EuroCham Indonesia.

His most recent experience is within Intelligent Transport Solutions (ITS), Telecom, and other sectors within the Indonesian market. He is today through his position in SSI and by representing Norway Connect, promoting Nordic and European companies that would like to explore business opportunities in the Indonesian market. He’s also playing an active role to help create the Nordic House concept in Jakarta that will provide an excellent platform for Nordic companies entering Indonesia, where they’ll find a community that can offer support with trusted information and affordable services to enter this market.