Buying property in Lombok from Australia

Why Australians are looking at Lombok

• Close to home: Lombok runs on Central Indonesian Time, the same as Perth. That's two hours behind Sydney and Melbourne, or three during daylight saving.
• Bali without the crowds: the same surf, warm water and villa lifestyle, with much less traffic and development
• Price: land and villas generally cost less than in comparable parts of Bali. Read Lombok vs Bali for the trade-offs.
• Holiday use and rental: many Australian owners use the villa for a few weeks a year and rent it out the rest of the time

How you'll hold the property

Australians can't own freehold land in Indonesia, and buying through an Indonesian friend's name is a trap. Most Australian buyers take a long lease in their own name, usually 25–30 years with an extension option. It needs no Indonesian residency and can be held while you live in Australia.

The alternatives are Hak Pakai, which needs an Indonesian residence permit, and an Indonesian company (PT PMA), which suits larger rental businesses. Read can foreigners buy property in Lombok? and land titles explained.

Tax in Australia

If you're an Australian tax resident, you're taxed on your worldwide income. So rent from a Lombok villa goes in your Australian tax return, converted to Australian dollars.

• Deductions: management fees, maintenance, interest on any loan used to buy, and some other costs may be deductible under Australian rules, as with a local investment property.
• Foreign income tax offset: if you've paid Indonesian tax on the same income, you can generally claim an offset, so you aren't taxed twice. The offset is capped and has conditions.
• Selling: Australian capital gains tax can apply when you sell or assign the lease, worked out in Australian dollars. A lease also loses value as it runs down, which affects the calculation.
• Records: keep the lease, payment receipts, exchange rates on the day of each payment, and management statements. You'll need them for both countries.

Tax in Indonesia

Indonesia taxes rental income from Indonesian property, even when the owner lives overseas. In practice it's often handled through the rental management company or your ownership structure, and the rate depends on how the property is held and rented. The Australia–Indonesia tax treaty decides which country can tax what, and how much of the Indonesian tax Australia will recognise.

Ask the developer or manager, in writing, exactly what tax they withhold or pay on your behalf, and get the tax slips. Then have both an Australian accountant and an Indonesian tax adviser look at your setup before you sign. It's much cheaper to set up correctly than to fix later.

Moving money

• Use a specialist transfer service: on large payments, transfer services and currency brokers usually beat the big banks' exchange rates by a wide margin. Compare before each stage payment.
• Pay only into a company or notary account: never into a personal account. Check the account details by phone before every transfer, because email payment scams target property buyers.
• Watch the currency: Lombok villas are usually priced in US dollars or rupiah, and your income and savings are in Australian dollars. A falling Australian dollar during a staged off-plan payment plan raises your real cost. Some buyers lock in part of the amount with a forward contract.
• Keep records: large international transfers are routinely reported to Australian authorities. Keep the paperwork for every payment.

Borrowing

Australian banks generally won't lend against property in Indonesia, and Indonesian banks rarely lend to foreigners. Most Australians buy with savings, or by borrowing against their Australian home. If you do borrow at home, ask your accountant how the interest is treated.

Getting there

Most Australians fly to Bali and then on to Lombok. It's a short domestic flight to Lombok International Airport, or a fast boat across the strait. Direct flights between Australia and Lombok have come and gone over the years, so check current routes when you plan a trip. From the airport, the south coast is about half an hour to an hour by car.

Australians can get a visa on arrival, or apply for one online before they fly. It's valid for 30 days and can be extended once. Read visas for property owners if you plan longer stays.

Viewing from Australia

Can't get there yet? Many buyers start with a video-call tour of the site and the area, then visit before signing. Don't pay more than a small refundable reservation without seeing the land, or having someone independent inspect it for you.

Estate planning

Make sure the lease says it passes to your heirs. Check that your will, or an Indonesian will, covers the property. Leases held in two names, such as a couple, need clear wording on what happens if one of you dies.

Your checklist

• Read the off-plan checklist and the costs of buying
• Engage your own Indonesian notary (PPAT), independent of the developer
• Talk to an Australian accountant and an Indonesian tax adviser before signing
• Set up a transfer service, and check every account by phone
• Stress-test the rental income in Australian dollars, at low occupancy and a weaker dollar
• Visit, or arrange an independent inspection, before paying more than a reservation

Looking at Lombok from Australia? Tell me what you're after, and I'll arrange a video-call tour with the developer and send the details.

This guide is general information, not tax or financial advice. Australian and Indonesian tax rules change and depend on your situation. Talk to a qualified adviser in each country.