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A Guide About Due Diligent Process

Posted by Admin on May 30, 2023
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When you decide to buy a property in Indonesia, due diligent is an important step to do. In property purchasing, due diligence is referring to reasonable measures to which all individuals must adapt before entering into real estate and real estate contracts.

Due diligence helps you to evaluate the risk when you are about to buy or even plan to buy a property in Bali. Due diligence is typical can executed by a legal consultant, a lawyer, or a notary, but it is important for you to read and understand the document too. This process might take a lot of time and energy, but by doing this you’ll avoid potential legal difficulties in the future.

We know the esential of Due Diligence process in property purchasing, but what is Due Diligence really means?

“Due diligence latterly means is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into any agreement or contract with another party or an act with a certain standard of care.”

In this article, we will discuss further the process of due diligence in buying property in Indonesia.

There are FIVE IMPORTANT THINGS TO DO DURING THE DUE DILIGENT PROCESS

1. CHECK THE OWNERSHIP AND HISTORY OF THE PROPERTY

Making sure that you are actually dealing with the owner of the property or someone that is duly representing the owner is the first step you need to undertake. Depending on the type of acquisition or contract you aim to sign, you should enlist the assistance of a lawyer, a property legal consultant or a property notary. They will also check whether the title is clean and ready to be transacted or whether there are any liens on it that need to be removed prior to you being able to acquire the property. This part of due diligence can take some time. It depending on the regency in which you are buying property.

Information on seller – if the seller is an entity, the buyer will need to check the seller’s articles of association, authorized representative and other corporate documents or licenses relevant to the transaction. If the seller is an individual, the buyer will need to check the marital status of the seller and validity of any heir (if the obtainment is through inheritance).

Buyers normally engage local legal property or legal consultant to conduct real estate due diligence. The legal counsel will coordinate directly with the seller and, when necessary, the seller’s Land Deed Official (Pejabat Pembuat Akta Tanah, or PPAT) to obtain the documents to be reviewed and collect the necessary information on the land and the seller. The due diligence would normally include the following.

Land ownership and land search – to make sure the seller is the legal owner and has the legal right to transfer the land title. The documents that need to be reviewed in this case depend on whether the land is certificated. A land search is conducted to check the legal owner of the land and whether there is any security right or claim over the land.

2. ZONING LAWS, REGULATIONS, AND LEASE RIGHTS

Secondly, you need to verify that the property is under the correct zoning. If you want to buy a piece of land to build a hotel, it should be zoned for tourism. If you plan to build a residence for yourself, make sure that are actually allowed to build on the land. Check if there are other restrictions that apply to the property, like distance from important temples or other places of worship. If you are building close to the ocean, a river or on a cliff, investigate what setback applies. You don’t want to end up with a beautiful island, such Bali beachfront property where you can only build on the last two meters of the land. This part of due diligence can take up to 2 weeks and is best done by a legal consultant or property. Fees for that service vary greatly.

Licenses – to identify whether the existing licenses associ­ated with the land are relevant for the purchaser. If so, the buyer will also need to check the validity of the relevant licenses. It is also necessary to check whether there are any obligations imposed under the license (eg, reporting obligations, restrictions).

Agreements –The buyer will need to review all relevant agreements pertaining to the land (eg, lease agreement, financing or loan agreement making the land an encum­brance) and check any material provisions in the contract that could impede the contemplated transaction (eg, cross default, negative covenant).

Miscellaneous – evidence of tax payment (eg, land and building tax, or PBB, and land acquisition tax and duty), research at the relevant government institution to con­firm zoning and spatial layout, and the map of the land. Additionally, in certain cases, a site visit and interview with the relevant parties who know the status of the land and ownership might be necessary

3. RESEARCH THE NEIGHBORHOOD

Whether you’re familiar with the island or a complete outsider, you’re likely to have zero information on the neighborhood you’re planning to purchase the property in. Invest time in looking into the specifics by enquiring with the local village organizations and leaders. Talk to other people that live in the neighborhood. Find out whether there are specific local laws (“tanah adat”) that apply and about which you should be aware.

4. CHECK THE BUILDING QUALITY

If you have no experience in building, it is best to get an expert to have a look at the property you intend to buy and ensure that you won’t have any nasty surprises in the future. Are there termites in the building? Is the roof solid and waterproof? Is the structure of the building strong and solid? What is the quality of the electrical wiring? What about the water supply? What is the quality of the water in the house? How much power is connected to the house? Are the swimming pools leaking or not? How old are the various pumps, air conditioning units, and other appliances? The more you know the better.

5. AM I PAYING A FAIR PRICE?

Check whether the price of the property you are about to buy is within the range of the asking price of other similar properties in the neighbourhood? If you can’t find any data, try to assess the land value separately from the building value. The building value is fairly easy to assess by using a square meter price depending on the quality of the building and the age. You can consult with one of our experts here with  IndoNed Property  to assist you with this.

Disclaimer

The information provided here is based on our long experience. The process or requirement may vary depending on the specific facts and conditions. Besides, the law and regulations in Indonesia subject to frequent changes. Please contact us as your consultant to get an up to date information and accurate advice. More Information click here and You can also follow our social media accounts to see the latest information posts. please click on the following links: FacebookInstagramLinkedin, and Twitter.

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