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Pre-sale real estate in Indonesia: three investor risks

Buying under-construction property in Indonesia is often perceived as an easy way to enter a project at an early stage at a minimum price. However, behind the attractive renders on social media lies a stark reality: one of the most frequent categories of legal disputes is directly linked to the pre-sale model.

The reality is that investors planning to purchase pre-sale properties in Indonesia take on all financial risks while the developer retains full control over the project. The situation of "buyer paid, developer disappeared" has become typical, as the legal structure of preliminary sales does not provide the client with sufficient legal guarantees from the outset. When examining the risks of a pre-sale villa, it is important to understand what practical consequences participation in such investment schemes can lead to.

Disputes around pre-sale in Indonesia recur with alarming regularity. Over years of work and practice, we have identified three typical scenarios.

Scenario №1: Deadline Delays and the Trap of Non-Performance (Wanprestasi)

The most common trigger for going to court — the project simply fails to meet the stated schedule. The buyer tries either to accelerate the handover of keys or to recover the money invested.

  • Legal reality: Formally, this is classified as wanprestasi (breach of contractual obligations) under Article 1243 of the Indonesian Civil Code (KUHPerdata).

  • Key risk: The court evaluates only the formal terms of the contract and the fact that you made payments. It will readily acknowledge the developer's breach, but the question of recovering funds remains open. If the project is experiencing financial difficulties, the economic outcome of the litigation will not match the legal ruling in your favor.

Scenario №2: Unilateral Modification of the Property Parameters

After construction begins, developers often start changing layouts, actual floor areas, internal infrastructure, or even the overall concept of the complex. A buyer who relied on the original terms and renders is faced with the fact that the final property does not meet their expectations. Such disputes also regularly reach the general courts of Indonesia.

Scenario №3: Project Freeze and Dependence on the Financing Scheme

The most critical scenario — a complete halt of construction. The developer may freeze the project due to internal conflicts among founders, debts, or a simple lack of capital.

  • Legal reality: The risk is embedded in the financing model itself. Many projects on the island are built on the principle of continuously attracting new buyers for subsequent phases. If the flow of investors slows down, the developer instantly loses the ability to continue work. This turns the purchase from a reliable investment into complete dependence on the stability of the developer's entire financial scheme.

  • Key risk: Buyers are effectively left holding a contract with no real physical asset. Even with a favorable court ruling, the question of its enforcement remains: if the developer has no liquid resources or assets, recovering the money will not be possible.

Practical Conclusion for the Investor

Purchasing property at the pre-sale stage is not the acquisition of a finished asset — it is participation in a project with execution risk. The earlier the stage of construction, the greater the uncertainty.

Attractive renders and promises of high returns in Indonesian practice do not guarantee delivery of the property. The problem arises when behind them lies a structure where the buyer fully finances construction without adequate legal guarantees. A thorough analysis before the transaction should include verification of the developer's ability to complete the project: their financial model, track record of completed cases, current litigation, and the land ownership structure.

How to Protect Yourself Before Signing the Contract?

Legal review of the pre-sale contract is the only tool that allows you to lock in guarantees before the money passes to the developer. The analysis includes review of the property handover conditions, the refund procedure in case of non-performance, land status, and the developer's legal history.

Property contract review in Indonesia

Sources:
Article 1243 of the Indonesian Civil Code (KUHPerdata) https://peraturan.bpk.go.id/ and https://www.hukumonline.com/

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