Leasehold vs Freehold: Lease or buy property in Bali?

If you are unsure whether to lease or buy property in Bali, it is worth mentioning that the Indonesian law on foreign investment has become more relaxed in recent years. This has made it easier for foreigners to buy land or a villa in Bali. However, despite the following development, many foreigners are still uncertain whether it’s better to lease or buy property in Bali. To make an informed decision, it is crucial to consider the consequences of purchasing land as either freehold or leasehold, particularly evaluating the potential worth of your investment.

Lease or buy property in Bali? The difference between freehold and leasehold

Foreigners can lease or buy property in Bali. Choosing between leasing or buying property in Bali means choosing between freehold or leasehold property. Hak Milik (HM) is Indonesia’s freehold title and grants complete property ownership, giving the owner full authority over the use and transfer of the land or property. However, the Hak Milik land title is only available to Indonesian nationals.

Many foreign investors choose to lease land or property in Bali. A leasehold agreement (Hak Sewa) allows the lessee to use the land or villa in Bali for a specific period, mostly 25 or 30 years. After that, the leasehold agreement can be extended up to 80 years. The leasehold agreement is similar to a rental agreement, although a lease agreement gives the lessee more rights.

Freehold or leasehold in Bali?

The choice between freehold and leasehold in Bali ultimately depends on your preferences, as both options have pros and cons. Finally, deciding between buying and leasing in Bali depends on what aligns best with your needs and requirements.

Freehold in Bali: Advantages

Hak Milik provides the owner with complete control over their property. The owner can use the property as they wish and transfer it to whomever they choose. With the potential for properties to appreciate over time, owning a Hak Milik allows the holder to benefit from any increase in land value and sell the property in Bali when the market is favorable.

A summary of the advantages of freehold property in Bali:

1. Complete control over the property
2. Possibility to utilize the property according to your wishes
3. Option to transfer the property to whomever you want
4. Benefit from any increase in Bali land value
5. Sell the property whenever the market is favorable

Freehold in Bali: Disadvantages

While freehold title holds the most substantial property right, only Indonesian nationals can acquire this land title. Besides that, freehold property is generally way more expensive than leasehold. Earning the investment back can take longer than leasehold, where the initial investment is usually lower.

A summary of the disadvantages of freehold property in Bali:

1. Only Indonesians can acquire freehold property through Hak Milik
2. Freehold property is more expensive than leasehold
3. It can take longer to earn your investment back

Leasehold in Bali: Advantages

Foreigners and foreign-owned companies (PT PMAs) can own property in Bali through the Hak Sewa leasehold title. It is beneficial for those seeking temporary settlement as it requires less commitment to the property. It allows individuals to own property without taking on the full responsibility that comes with it, making it an attractive option for those who may not want to commit to a property fully. Leasehold property is cheaper than freehold property, making earning the investment back in less time easier.

A summary of the advantages of leasing property in Bali:

1. Foreigners and PT PMAs can buy a property through a leasehold agreement
2. Leasing is especially beneficial for those who want to settle temporarily in Bali
3. Use the property without taking full responsibility
4. Leasehold property is cheaper, so it’s easier to generate a high return on investment

Leasehold in Bali: Disadvantages

One significant drawback is the limited control over the property. The use and maintenance of the property are subject to an agreement reached between the leaseholder and the freehold owner. Also, the Indonesian Civil Code states that leaseholds in Bali only last for a limited period, usually 25 to 35 years, but extendable up to 80 years. As the property value increases over time, the owner may increase rent charges, which means that the leaseholder may not benefit from the increase in land value. Evaluating these factors carefully is essential before buying a leasehold property in Bali.

A summary of the disadvantages of leasehold property in Bali:

1. Limited control over the property
2. It’s needed to set up an agreement on the maintenance
3. It only lasts for a limited period
4. Most of the time, the leaseholder doesn’t benefit from the increase in land value

How can foreigners buy freehold property in Bali?

Foreigners can only buy freehold property through a PT PMA, as they can’t buy property under the Hak Milik title, which is only available to Indonesian nationals. The PT PMA, a foreign-owned company in Indonesia, can buy freehold land or freehold property. Owning a building on leased land can be done under the Hak Guna Bangunan (HGB) land title. Only PT PMAs can own a building under HGB.

Even though PT PMAs can buy freehold property in Bali, many foreigners still choose to lease a piece of land or a villa in Bali. The main reason is the low initial investment capital needed, making investing in Bali real estate easier.

Establishing a PT PMA usually takes between six and ten weeks, and costs between IDR 25 million ($1,575) and IDR 35 million ($2,205).

Buy property in Bali with Own Property Abroad

It is highly recommended to seek the guidance of a real estate agent or lawyer in Bali, such as Own Property Abroad. We can help you find your dream property, establish a PT PMA, and obtain the required land titles and permits. For further information on how we can assist you, kindly drop your details below or email us at [email protected]. Let’s start working on your success story today!

Conclusion

Whether it’s better to lease or buy property in Bali depends on several factors. Buying a freehold property in Bali is typically more desirable due to their exclusive ownership rights over the land and property. However, they often come with a higher cost than leasehold properties. In conclusion, foreigners can lease or buy property in Bali, but the choice between the two types of properties ultimately depends on the purchaser’s intentions and finances. 

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