5 minutes read

Bali investment: A Deep Dive into Leasehold Properties in Bali

Explore Bali's real estate potential, diving deep into the pros, cons, and intricacies of leasehold properties. Unlock savvy investment strategies today!

Leasehold contracts are a popular way to acquire property in Bali, especially for foreigners who are restricted from outright owning freehold land under Indonesian law. Whether you’re considering a leasehold villa in Bali or looking to invest in commercial or residential property, understanding how these agreements work is essential.

What is Leasehold in Bali?

A leasehold in Bali refers to a legal agreement where the property owner (lessor) grants the lessee (investor or tenant) the right to use and manage the property for a fixed period.

This duration is typically between 20 to 30 years, but it can be shorter or longer, depending on the agreement.

Leasehold agreements often include the option to extend the lease once the initial period ends, with terms negotiated between both parties or by appraisal companies.

How Leasehold Works in Bali

The Lease Agreement
The contract outlines the rights and responsibilities of both the lessor and lessee, including:

The lease duration
Payment terms (often upfront or in installments)
Usage rights, including construction or operational permissions

Property Development
This is valid both for leasehold villas and land in Bali: Lessees can develop/manage the land/villa to suit their needs, whether it’s building a private villa, a resort, or a commercial space.
However, it’s important to ensure the land zoning, permits and licenses comply with local regulations.
Renewal Process
If you wish to extend the lease, you’ll need to negotiate new terms with the landowner. This could include a lump sum payment or a revised annual fee.
Forecasting leasehold land prices in Bali for the future is not possible, so it is important that the future price of the leasehold extension has to be determined by multiple independent parties rather than a discussion between you and the landlord.

Pros of Leasehold Properties in Bali:

Leasehold contracts in Bali come with several advantages that make them appealing to investors.

They offer flexibility, with dynamic terms that can be tailored to meet specific needs, allowing for customized agreements.

Affordability is another key benefit, as leasehold properties typically require a lower initial investment compared to freehold options.

Additionally, the Bali tourism industry provides opportunities for high yields, with leasehold villas and properties often generating significant rental income.

Lastly, leasehold properties tend to offer greater liquidity, as they are often easier to transfer or sell compared to freehold properties, making them a practical and attractive investment choice.

Cons of Leasehold Properties in Bali:

The value of a leasehold property naturally decreases over time because the contract is time-bound, and you don’t own the land beneath your building. As the lease period shortens, the property's value becomes closely tied to the income it can generate rather than its inherent worth.

While this might seem off-putting to some investors, it’s essential to view a leasehold investment in Bali as a purchase of time and opportunity not as real estate.

You’re essentially buying the chance to capitalize on the property’s potential, whether through personal use, rental income, or business operations, during the lease period.

By approaching it with this mindset, a leasehold property can be a strategic and rewarding investment in Bali real estate market.

‍

‍

How to Profit from Leasehold Properties in Bali

Leasehold properties in Bali offer a range of opportunities for generating profit, whether through rental income, property development, or resale strategies. Investors can explore several lucrative models depending on their goals and the property's location.

Holiday Home Rentals

Turning a leasehold villa into a holiday rental is one of the most popular ways to profit. By listing the property on platforms like Airbnb, you can tap into Bali’s thriving tourism market, offering short-term stays to vacationers. Villas with unique features like private pools, ocean views, or proximity to tourist hotspots tend to command higher nightly rates, ensuring strong returns.

Monthly and Yearly Rentals

For a steadier income stream, leasing your property on a monthly or yearly basis can be a great option. This model appeals to Bali’s growing expat community, remote workers, and families looking for medium- to long-term accommodations. Monthly rentals often bring in higher per-day income than yearly contracts, while yearly leases ensure a stable and predictable cash flow.

Reselling for Profit

Leasehold properties can also be profitable through strategic resale.

Purchasing an off-plan villa or project at a discounted price allows you to benefit from market appreciation once the property is completed.

Alternatively, you can buy land under a leasehold agreement, develop it into a villa, and sell it at a significant profit.

Villas designed with modern amenities and appealing aesthetics often sell for much higher than their initial development costs.

Setting Up a Profitable Rental Business

Building a rental business and selling the property based on its income-generating track record is another effective strategy.

A well-managed property with strong rental returns can be highly appealing to investors looking for turnkey opportunities.

Documenting a proven history of rental income can significantly increase the property's resale value, offering a premium over standard market rates.

Conclusion

Ultimately, whether you aim to develop and resell, build a rental empire, or flip properties for a profit, leasehold investments in Bali can be highly rewarding when approached with a clear strategy. By capitalizing on Bali’s booming real estate and tourism sectors, investors can unlock multiple avenues of profit.