Leasehold vs freehold in Bali: Which is Better for Investors?
Leasehold vs. Freehold in Bali: Which is Better for Investors?
Bali’s real estate market has long been a hotspot for investors, thanks to its thriving tourism industry, stunning landscapes, and high potential for returns. When considering investing in property here, one of the key decisions is whether to opt for leasehold or freehold. Each comes with its own advantages, but for foreign investors especially, leasehold properties in Bali offer compelling benefits.
Let’s dive into why leasehold might be the better option and how it stacks up against freehold property in Bali.
Understandings of Leasehold and Freehold
Before we explore the benefits, let’s define what leasehold and freehold mean:
– Freehold: This refers to outright ownership of the land and property. In Indonesia, however, only Indonesian citizens can legally own freehold property. For foreign investors, this can be a significant limitation.
– Leasehold: This means you own the right to use the land and property for a fixed period—typically 25-30 years—with options to extend the lease. Leasehold properties are legally accessible for foreign investors, offering a practical and financially viable entry into Bali’s real estate market.
Why Leasehold is More Attractive for Investors
- Lower Initial Investment
One of the most significant advantages of leasehold properties is the lower cost of entry. Bali’s leasehold villas are significantly more affordable compared to freehold properties. For example, a 1-bedroom leasehold villa may start at around €175,000, while a 3-bedroom villa could be priced at €550,000. This lower price point allows investors to enter the market without the substantial upfront costs required for freehold properties.
By comparison, freehold properties in Bali are priced higher due to the legal restrictions on foreign ownership, making it more expensive and complicated for international investors to purchase.
- Higher Return on Investment (ROI)
One of the key reasons investors choose Bali is its high rental yields. Bali’s booming tourism industry ensures strong demand for short-term rental properties. The average annual ROI on a leasehold property in Bali ranges from 15-20%, which is considerably higher than typical property investments in other markets like the Western markets, the ROI can hover between 2-4%.
This means that even though a leasehold property has a limited timeframe (25-30 years), the cash flow during this period is often significantly higher than a lifetime freehold investment in other parts of the world.
- Flexibility for Foreign Investors
Indonesia has strict regulations around foreign ownership of freehold property, making it virtually impossible for foreigners to own land outright. Leasehold, however, offers an alternative that allows foreign investors to benefit from Bali’s market legally. With a lease term of 25-30 years and options to extend, investors can enjoy the same benefits as freehold ownership without the legal barriers.
- Lower Long-term Commitment
For many investors, the thought of owning a property indefinitely may seem like a long-term burden. Leasehold properties offer more flexibility. With a 25-30 year lease, you’re not tied down for life. This can be a significant advantage for investors who want to reap the rewards of Bali’s booming market but prefer the option to exit when the lease term ends.
At the end of the lease, investors have several options, including renewing the lease or selling the property to another investor. This flexibility makes leasehold properties ideal for those who want to benefit from Bali’s market conditions without a lifetime commitment.
- Hassle-free Property Management
One of the greatest appeals of investing in Bali’s leasehold properties is the ease of property management. At Villa Ventures, we take care of everything—from bookings and marketing to maintenance and guest services. This means investors can enjoy a hands-off, hassle-free experience, while still reaping high returns on their investment.
- Tax and Legal Simplicity
Leasehold properties often come with fewer tax and legal complications compared to freehold. Freehold property in Bali, especially for foreigners, requires a complex legal structure, while leasehold agreements are more straightforward. All lease agreements are legally binding and notarized, ensuring that your rights as an investor are protected.
Additionally, leasehold properties typically come with lower property taxes and maintenance costs, further improving the cash flow and profitability of your investment.
Freehold: What are the Pros?
While leasehold has numerous benefits, freehold property does offer some advantages for certain types of investors:
– Lifetime Ownership: Freehold property provides indefinite ownership, which can be appealing for those who plan to pass the property on to future generations.
– Capital Appreciation: Freehold properties can appreciate in value over time, providing a long-term gain for those looking to hold onto their investment.
However, for most foreign investors planning to invest in Bali, it is best to keep in mind that only Indonesian citizens and entities established in Indonesia under the Indonesian law (PT. PMA) are able to obtain this title.
Freehold purchased by a PT must have its status downgraded from SHM (Sertifikat Hak Milik) to HGB (Hak Guna Bangunan) and needs to be renewed every 30 years. For investors, this is essentially the same as leasehold but more expensive because the initial cost is higher. They also need to be taxpayers with a registered NPWP in Indonesia.
Leasehold vs. Freehold: Which Should You Choose?
Ultimately, the decision between leasehold and freehold comes down to your investment goals. If you are looking for higher short- to mid-term returns, affordability, and a legally secure way to invest in Bali’s real estate market, leasehold is the better option.
On the other hand, if you are an Indonesian citizen or are able to navigate the complexities of freehold ownership and prefer lifetime control over the property, freehold may be worth considering.
Maximizing Your Leasehold Investment in Bali
At Villa Ventures, we specialize in guiding investors through the leasehold process and ensuring that they get the most out of their investment. From helping you find the perfect villa to managing the property from A to Z, we ensure high occupancy rates and transparent monthly reports to track your success.
With Bali’s booming tourism market and strong rental yields, now is the perfect time to invest in a leasehold villa. Whether you’re looking to enjoy high cash flow or make the most of your 25-30 year lease, we’re here to help you achieve your investment goals.
Ready to Invest in Bali?
Book a discovery call with us today to learn more about the benefits of leasehold investment in Bali and how we can help you maximize your returns!
