Freehold vs Leasehold in Bali: Which is Right for You?

Each option comes with its distinct advantages, legal implications, and financial considerations, making it crucial for buyers to understand the details of each. 

In this article, we'll delve into what leasehold and freehold properties mean in Bali, highlight the key differences, and provide guidance to help investors determine the best ownership structure for their goals.

What are Leasehold Properties?

In Bali, leasehold ownership means acquiring the right to use and occupy a property for a fixed period, typically ranging from 25 to 30 years. At the end of the lease, the property reverts to the original owner unless an extension agreement is made. 

Leasehold ownership is often more accessible in terms of initial cost, making it a popular choice for foreigners who are legally restricted from full land ownership in Indonesia.

The main appeal of leasehold properties lies in their affordability and suitability for those not looking for a permanent residence or those planning to establish their real estate business in Indonesia.

What are Freehold Properties?

Freehold ownership in Bali traditionally refers to full ownership rights over the land and any structures built on it, granting the owner complete control over the property. Unlike leasehold, freehold properties can be inherited, sold, or rented at the owner’s discretion, providing stability and often leading to higher property appreciation over time, making it appealing for long-term investments.

However, Indonesian law restricts freehold ownership (Hak Milik, or SHM) exclusively to Indonesian nationals. Foreigners cannot hold SHM titles directly; instead, they can obtain a property title known as Hak Guna Bangunan (HGB), which allows them rights over the property for a specified term. This title can be renewed, providing a long-term ownership structure of up to 80 years, though it does not grant indefinite ownership like SHM.

Key Differences Between Leasehold and Freehold for foreign

Understanding the distinctions between leasehold and freehold is essential for making informed investment choices. Here’s a breakdown of the primary differences:

Ownership Rights

• Leasehold: Temporary usage rights (25/30 years plus extensions), can be purchased under personal name.
• Freehold: Full ownership rights (for Indonesian citizens), Up to 80 years ownership (For foreign having a PT PMA Duration of Ownership

Value Appreciation

• Leasehold: Depreciates as the lease term shortens; resale value could diminish. The property value is as high as the amount of profit it can generate.
• Freehold: Generally appreciates over time, offering long-term growth potential.

Cost

• Leasehold: Often more affordable, making it a feasible option for many foreigners. Higher cost per square meter per year
• Freehold: Higher upfront cost due to full ownership rights. Lower cost per square meter per year.

Legal Restrictions

• Leasehold: Accessible to both foreigners and Indonesians.
• Freehold: Restricted to Indonesian nationals or foreign owning a PT PMA.

How to Choose Between Leasehold and Freehold for Your Investment Needs

Selecting the right property type ultimately depends on your investment goals and time horizon. Here are some factors to consider:

Investment Horizon

If your goal is long-term appreciation, freehold is likely the better option, as it tends to appreciate over time.

Leasehold, conversely, suits investors with shorter-term plans, especially those aiming to establish a rental business.

Budget Considerations

Freehold properties generally come with a higher price tag (but a better value per sqm), while leasehold is more accessible financially. If you’re looking to start with a lower initial investment, leasehold might be the best route.

Legal and Residency Status

Foreign investors often lean toward leasehold due to Indonesian land ownership laws, though some opt for freehold through partnerships or PT PMAs. Consulting legal experts in Bali can clarify the best approach given your residency status.

Rental Income Potential

For those focusing on Bali’s robust rental market, leasehold properties can be very attractive. Short-term rental businesses tend to thrive in Bali, with leasehold options providing a cost-effective entry point. Freehold offer the same flexibility and more on a longer time frame.

Conclusion

Choosing between leasehold and freehold properties in Bali involves a balance of financial, legal, and personal considerations.

Leasehold offers affordability and access for foreign investors, while freehold provides stability and long-term value appreciation for those able to purchase it legally. Each has its place in the market, and selecting the best option will depend on your individual needs and goals.

Read our guide containing all you need to know about properties in Bali.

For investors ready to take the next step, Kitn Estates is here to help you navigate Bali’s real estate landscape and find properties that meet your unique criteria.

Visit our website to explore available listings, and don’t hesitate to reach out for a consultation with our team to guide you through your investment journey in Bali.