Nominee structures: another reason foreign investors lose property in Bali
Nominee arrangements are one of the most common—and most misunderstood—risks in Bali’s real estate market.
They are widely used. They often look safe. But from a legal standpoint, they are fundamentally vulnerable.
Why nominee structures exist
Restrictions on foreign ownership of land in Indonesia have led to a predictable market response: nominee structures.
In these arrangements:
A local Indonesian citizen is the formal owner of the property
A foreign investor provides the funding and control
On paper, the setup may seem manageable. Parties sign:
Loan agreements
Powers of attorney
Side agreements on transfer of rights
From a business perspective, it can feel secure.
From a legal perspective, it is not.
The core legal issue
Indonesian law explicitly restricts foreign ownership of land.
This is established under Basic Agrarian Law No. 5 of 1960 (Undang-Undang Pokok Agraria).
Any attempt to bypass these restrictions through hidden or indirect agreements may be treated by courts as a violation of the law.
The key legal principle is simple:
a transaction that violates the law is not enforceable and may be declared void.
How сourts handle these disputes
Court practice shows how these structures tend to break down.
In disputes between foreign investors and nominee owners:
The title is formally registered under the Indonesian citizen
That person is recognized as the legal owner
The foreign investor may argue that:
There were agreements to transfer control
The asset was financed by them
The arrangement reflected the “true” ownership
However, courts often take a strict approach.
If the structure is seen as an attempt to circumvent legal restrictions, such agreements are not considered valid grounds for protection.
Why the investor is in a weak position
In these cases, the foreign investor faces a structural disadvantage:
They cannot rely on ownership rights—because they do not legally own the property
Supporting agreements may be disregarded if they contradict mandatory legal norms
Even if:
The full purchase price was paid
The property was built and used
The legal structure itself can be declared invalid.
Risks related to nominee behavior
Another major risk is the nominee’s own actions.
The registered owner may:
Refuse to honor agreements
Sell the property to third parties
Use the title for personal benefit
If the dispute goes to court, the decisive factor is the registered ownership.
And if the title is under the Indonesian citizen, they hold the legal advantage.
In some cases, authorities may even invalidate the original arrangement entirely, which can lead to loss of rights or state intervention over the land.
Why “complex structures” don’t always help
Investors often try to strengthen nominee arrangements through layered legal tools:
Loan agreements
Options
Powers of attorney
However, courts may treat these as parts of a single scheme designed to bypass legal restrictions.
In such cases, complexity does not increase protection—it may simply confirm the intent to circumvent the law.
Key takeaway
The practical conclusion is not that nominee structures don’t exist—they are widely used.
The issue is that they do not provide the level of legal protection many investors expect.
Courts are not required to protect the economic reality of a transaction if it contradicts the legal framework.
For foreign investors, this means:
Control over the asset is based not on ownership rights, but on a balance of agreements and risks.
And once a dispute reaches court, the legal position becomes fairly clear.
A practical approach
Any real estate investment in Indonesia requires more than market analysis—it requires a properly structured legal approach.
The most important step is to assess and manage risks before funds are transferred and ownership structures are set up.
In many cases, it is advisable to involve local legal professionals who understand how these structures are treated within the Indonesian legal system.
I Gusti Ayu Bitari Karma Gita
Legal Department Expert, Legal Indonesia
