How PP 28/2025 Reshapes Property and Hospitality Investment

How PP 28/2025 Reshapes Property and Hospitality Investment Compliance in Bali

The regulatory environment governing property and hospitality activities in Bali is no longer dependent on informal interpretation or personal networks. Over the last two years, Indonesia has completed a structural shift in how investment approvals are issued and monitored. Every stage—zoning, environmental documentation, building permissions, and operational licensing—now follows a single integrated framework managed through national digital systems.

Foreign investors who have operated in Indonesia for some time will immediately notice the difference. In the past, it was possible for a project to move forward even when certain documents were incomplete or mismatched. That is no longer the case. The current rules emphasize traceability, accuracy, and alignment across all regulatory components.

The following sections explain how PP 28/2025, together with updated provincial oversight in Bali, changes the requirements for compliant development and operation in 2025–2026.

A Shift Toward Fully Documented Investment Structures

The main change introduced by the updated framework is the removal of informal pathways. Investment activities—especially those connected to accommodation, tourism, and rental operations—must now follow a sequence that is both structured and transparent. This applies equally to small-scale villa clusters, medium-sized resorts, and larger hospitality developments.

The typical starting point is no longer land acquisition. Feasibility begins with regulatory suitability. Authorities expect clear evidence that the land, the business entity, the building plans, and the intended operations belong to the same regulated category. Any inconsistency between these elements becomes an automatic blocker.

This shift leads to more predictable oversight, but it also requires more deliberate planning from investors.

Zoning Confirmation (KKPR) Determines What Is Possible

Zoning is now the first and most decisive checkpoint. KKPR verification is required before moving forward with technical design, environmental documentation, or construction approvals.

Under the current system:

• Land designated for non-commercial use cannot be repurposed for tourism or rental accommodation.
• Setback requirements related to rivers, beaches, and culturally protected areas must be respected.
• Height limits in specific zones are applied consistently.
• Mixed-use interpretations are no longer accepted without explicit written confirmation.

The earlier practice of using local flexibility to justify development in unsuitable zones has largely disappeared. KKPR is reviewed digitally against official spatial plans, and mismatches result in immediate rejection. For foreign investors, this underscores the need to verify zoning before committing to land or beginning architectural work.

Land Tenure Must Align With Commercial Intent

Foreign participation in Indonesian land ownership remains regulated, meaning most hospitality projects rely on long-term leasehold interests or corporate-held land rights. These arrangements are valid, but they must be executed correctly and recorded in a way that supports formal licensing.

Key points include:

• Lease agreements must clearly permit revenue-generating activity.
• Land titles held by corporate entities must be consistent with the business nature of the PT PMA.
• Any attempt to disguise commercial use as “private residential use” will conflict with zoning and operational licensing requirements.
• Title transitions or upgrades must comply with spatial plans and documented land-use restrictions.

Authorities now cross-check land records, zoning status, and business licenses as part of a single compliance process.

Building Approvals Require PBG and SLF

Indonesia has completed the transition from IMB to two separate documents:

• PBG (approval to construct based on technical, structural, and functional criteria)
• SLF (confirmation that the completed building meets approved standards and is safe to operate)

Any structure intended for paid accommodation or hospitality activities must hold both approvals. Buildings constructed without a valid PBG face significant difficulty obtaining SLF because authorities evaluate whether the final construction matches the previously approved plans. Structures built before obtaining PBG or those modified without updated approvals often face compliance delays or formal warnings.

For investors, the key implication is that design, engineering, and construction must proceed in line with regulated technical standards. Attempts to secure building approvals after completion are rarely successful under the current system.

Environmental Documents Influence Both Design and Operations

Environmental compliance is determined by project scale, location, and impact characteristics. The applicable document—SPPL, UKL-UPL, or AMDAL—guides the environmental obligations a project must meet.

Choosing the wrong category can lead to operational issues later. For example, a project that should be classified under UKL-UPL but is submitted as SPPL may find its building approval or operational license suspended until proper documentation is provided.

These documents affect:

• Wastewater management
• Solid waste systems
• Drainage solutions
• Noise control measures
• Construction methodologies
• Ongoing monitoring obligations

Environmental obligations are therefore not only regulatory requirements but also practical design considerations.

PP 28/2025 Integrates All Compliance Components Into One System

Government Regulation 28/2025 functions as the primary framework for ensuring that all permits align with one another. Rather than processing approvals separately, the government now verifies whether each document is consistent with the others.

Every submission inside the national OSS system must align across four key dimensions:

1. KBLI classifications selected for the PT PMA
2. Zoning category linked to the land parcel
3. Building use and technical specifications proposed in the PBG
4. Operational model declared in the sectoral licensing

When these elements contradict each other, OSS identifies the inconsistency and prevents the approval from moving forward.

Common mismatches flagged by the system include:

• A PT PMA registered for consulting services attempting to operate hospitality units
• Buildings approved as residential structures but marketed for short-term accommodation
• Zoning classified as residential with an application for commercial operations
• Environmental documents that do not match the building size or guest capacity

This structure ensures that every operational business—from small villa rentals to larger hospitality entities—follows the same standardized rules.

Increased Visibility Means Less Room for Informal Approaches

Because PP 28/2025 makes each approval electronically traceable, practices that previously existed outside the official framework are becoming obsolete. Activities that were once considered “workarounds” are now easily identified through system checks.

Examples include:

• Using residential buildings for commercial accommodation
• Operating without an SLF
• Listing unlicensed units on rental platforms
• Utilizing legal structures that do not match operational reality
• Attempting to secure approvals based on partial or inconsistent documentation

Authorities are taking a more data-driven approach to compliance. The integration between OSS, local reporting systems, and tourism oversight makes it more difficult for businesses to operate without proper permits.

Entity Structure and KBLI Selection Must Reflect the True Business Model

Under the current risk-based licensing framework, the KBLI selected for the PT PMA is a critical component. Authorities expect the operational model to match the declared KBLI, and any deviation creates an administrative obstacle.

For the hospitality sector, the relevant KBLIs vary depending on whether the property offers:

• Full-service accommodation
• Limited service
• Long-stay facilities
• Managed villa operations
• Rental-only accommodation without amenities

Selecting the wrong KBLI may not stop the entity from being established, but it will prevent downstream permits from being issued. The system checks whether building approvals, environmental documents, and operational licensing correspond to the chosen business activity.

Due Diligence Requires a Broader Review Process

The updated environment requires a more comprehensive due diligence approach. Investors must review not only land ownership and price but also:

• Zoning classification and suitability
• Land-use limitations
• Required environmental category
• PBG requirements for the proposed structure
• Operational licensing pathways
• Infrastructure feasibility (access, utilities, drainage)
• Local administrative constraints

This type of due diligence reduces the risk of stalled projects and unexpected redesign costs.

A Practical Perspective for Foreign Investors

The increasingly structured investment environment in Bali requires a different type of planning. The pathway is clear and predictable when the project’s documentation, land position, building plans, and business intentions are aligned. Challenges arise when investors attempt to combine inconsistent elements or rely on legacy practices that no longer apply.

Investors should anticipate:

• More documentation
• Increased coordination between approvals
• Firm zoning enforcement
• Higher expectations for technical and environmental standards
• Greater linkage between digital records and physical operations

The outcome is a more reliable regulatory environment, but one that requires disciplined execution.

Common Failure Points in Bali Property & Hospitality Projects (and How to Prevent Them)

This section expands the article with practical issues that frequently derail foreign‑owned projects under the current compliance framework. Each point includes the underlying cause, typical consequence, and a corrective action that aligns with 2025–2026 requirements.

1) Starting Design or Marketing Before Zoning (KKPR) Is Confirmed

Cause: Architects and sales teams proceed on assumptions, or rely on verbal statements about “commercial potential.”

Consequence: Designs that conflict with spatial plans; rework, redesign fees, and delays. In some cases, the site is fundamentally unsuitable for the intended use.

Preventive action: Run KKPR suitability at the outset and obtain formal confirmation before commissioning concept design, launch materials, or presales.

2) Lease or Title That Does Not Permit Commercial Use

Cause: Long-term leases or company-held rights omit explicit clauses allowing income-generating activity.

Consequence: Downstream licensing is blocked; OSS records conflict with land permissions; operational licenses cannot be issued.

Preventive action: Ensure contracts and land records clearly authorize the intended hospitality use and that they align with KKPR outcomes.

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3) Incorrect KBLI Selection for the PT PMA

Cause: Choosing general or unrelated KBLIs to speed up incorporation.

Consequence: OSS rejects subsequent permits; inspectors flag the mismatch between declared business scope and real operations.

Preventive action: Map the exact operating model (e.g., serviced accommodation, managed villas, co‑living) to the correct KBLIs during entity planning.

4) Treating Environmental Documentation as a Formality

Cause: Assuming SPPL is sufficient regardless of scale, or postponing environmental review until after design.

Consequence: Requirement is upgraded to UKL‑UPL or AMDAL midstream; design and MEP systems must be revised; timelines extend.

Preventive action: Determine the correct environmental category early; integrate wastewater, drainage, and waste systems into technical design before PBG.

5) Building Without PBG or Modifying Plans Without Re-Approval

Cause: Starting construction first and attempting to “catch up” on paperwork, or changing layouts/height/uses without updated approvals.

Consequence: SLF is denied or delayed; the building cannot be legally operated; insurance and financing are affected.

Preventive action: Obtain PBG before ground‑breaking; if design changes, file revisions and maintain an as‑built trail that can be verified for SLF.

6) Residential Approvals Used for Commercial Rentals

Cause: Constructing as “residential” to simplify permits, then operating as hospitality.

Consequence: Conflicts in OSS records; potential sanctions; difficulty obtaining operational licenses.

Preventive action: Align the declared building function, technical standards, and operational licensing with actual commercial intent from the beginning.

7) Fragmented Documentation Across Systems and Contracts

Cause: Data in OSS, contracts, marketing materials, and on‑site reality do not match.

Consequence: Red flags during review; requests for clarification; stalled submissions.

Preventive action: Maintain one master compliance register where zoning, land use, environmental docs, PBG drawings, SLF, and sectoral licenses are synchronized.

8) Platform Listing Ahead of Licensing

Cause: Going live on booking platforms before operational permits are complete.

Consequence: Increased regulatory visibility; higher probability of inspection; potential takedowns.

Preventive action: Sequence commercial launch after SLF issuance and final sectoral licensing; ensure tax and reporting setup is ready.

9) Underestimating Access, Utilities, and Setbacks

Cause: Focusing on the parcel alone without confirming road width, utility capacity, flood risk, or cultural and shoreline setbacks.

Consequence: PBG objections, design downgrades, or the need for costly infrastructure upgrades.

Preventive action: Include technical site due diligence (road access, drainage, water, power, setback overlays) in early feasibility.

10) Relying on “Ownership Loopholes”

Cause: Using nominee structures or informal arrangements marketed as foreign ownership solutions.

Consequence: Legal exposure; inability to align permits with true control; risk in audits and disputes.

Preventive action: Use permissible structures (PT PMA, leasehold, company‑held use rights) documented to match operational licensing.

11) Treating Tax and Reporting as Separate From Licensing

Cause: Delaying tax setup or assuming it can be added after operations begin.

Consequence: Mismatch between reported activity and licensed scopes; complications in financial audits; platform payouts questioned.

Preventive action: Align tax registration and reporting categories with KBLI and operational licenses; ensure systems can produce required reports.

12) Contractor Selection Without Permit Literacy

Cause: Awarding construction to teams unfamiliar with PBG/SLF documentation and inspection standards.

Consequence: Non‑compliant details (fire safety, egress, materials) that obstruct SLF issuance.

Preventive action: Engage contractors and consultants who can build to PBG‑approved specs and document compliance for SLF.

13) Ignoring Community and Cultural Requirements

Cause: Proceeding without local coordination on access, setbacks relative to temples, ceremonies, or cultural corridors.

Consequence: Delays, objections, and reputational damage that can influence administrative reviews.

Preventive action: Include local engagement as a formal step; confirm cultural constraints early and reflect them in design and operations.

14) Misaligned Phasing: Trying to Operate Part of a Site Early

Cause: Attempting to open a subset of units before the whole project meets approvals.

Consequence: Partial operations lack complete licensing; inspections identify scope creep.

Preventive action: If phasing is necessary, plan distinct approvals (zoning confirmation, PBG segments, SLF per block) with clear boundaries.

15) Inadequate Records for “As‑Built” Compliance

Cause: Poor documentation of materials, fire systems, and deviations during construction.

Consequence: SLF verification becomes difficult; additional inspections and remedial works.

Preventive action: Keep an auditable trail: revision logs, shop drawings, test certificates, and commissioning records aligned to the PBG set.

16) Overlooking Coastal, River, or Slope Stability Constraints

Cause: Prioritizing views and proximity over geotechnical and setback rules.

Consequence: PBG refusal, mandatory design changes, higher structural costs, or reduced buildable area.

Preventive action: Conduct geotechnical assessments and apply shoreline/river setback overlays before concept finalization.

17) Marketing Claims That Exceed Licensed Scope

Cause: Promoting services (events, F\&B, wellness) not included in the permitted KBLI or operational license.

Consequence: Inconsistencies visible to reviewers; potential need for additional KBLIs and permits mid‑operation.

Preventive action: Align the offer with licensed scope; if expanding services, update KBLIs and sectoral licenses first.

18) Assuming Legacy Buildings Can Be “Regularized” Quickly

Cause: Belief that older IMB-era structures can be converted to PBG/SLF with minimal effort.

Consequence: Structural or fire safety gaps, undocumented expansions, and layout inconsistencies complicate SLF.

Preventive action: Commission a compliance audit on existing assets; plan for upgrades or redesign to meet current standards.

19) Weak Contractual Protections in Land or EPC Agreements

Cause: Missing conditions precedent linked to regulatory outcomes, unclear penalties for non‑compliant work.

Consequence: Financial exposure when approvals fail or works must be redone.

Preventive action: Tie payments and milestones to verifiable approvals (KKPR, environmental acceptance, PBG issuance, SLF), with clear remedies.

20) No Single Point of Compliance Control

Cause: Multiple parties handle separate approvals with no central oversight.

Consequence: Sequencing mistakes, duplicated submissions, contradictory data.

Preventive action: Appoint a compliance lead to manage the full chain—zoning, land, environment, PBG/SLF, licensing, tax—using one source of truth.

Summary of How to De‑Risk Execution

• Confirm KKPR before contracts or design.
• Align title/lease terms with commercial use.
• Select accurate KBLIs for the actual operating model.
• Scope environmental requirements early and design to them.
• Obtain PBG before construction; document for SLF.
• Keep all records synchronized in OSS and consistent with on‑site reality.
• Phase projects only with clear, separate approvals and documentation.

This approach reduces the main causes of rejection, redesign, and delayed operations under the 2025–2026 compliance regime.