Are you looking to invest in Bali’s thriving real estate market? Understanding the differences between freehold and leasehold properties is essential for making the right decision on your property purchase, whether it’s for a dream holiday home or a long-term investment. With this guide, Tipi Estate helps you navigate the intricacies of Bali’s property ownership laws and make informed choices about which type of ownership best suits your needs. From legal rights to potential tax implications, here’s everything you need to know about freehold vs. leasehold properties in Bali.

What is Freehold Property Ownership?

Freehold ownership refers to complete ownership of both the property and the land it is built on, with no time limitations. As a freeholder, you have full rights to sell, transfer, lease, or pass the property on to heirs. However, under Indonesian law, freehold ownership is only available to Indonesian citizens.

Foreigners are restricted from owning land outright, but there is a legal way to approximate freehold ownership through a “Hak Guna Bangunan (HGB)” title. The HGB title allows a foreign-owned company (PT PMA) to control land use for a long-term period. Specifically, the HGB title grants usage rights for up to 80 years, broken down into an initial 30-year term, with extensions of 20 years and 30 years, respectively.

At Tipi Estate, we work closely with trusted legal partners to help foreign investors set up their PMA (Foreign-Owned Company), ensuring a seamless and legally compliant process for acquiring HGB properties.

What is Leasehold Property Ownership?

Leasehold ownership refers to a contractual agreement where an individual or entity leases the right to use the land and the property on it for a specified time, typically ranging from 25 to 30 years. Leasehold agreements often include an option to renew, usually at the prevailing market price, and are a common option for foreigners due to the restrictions on freehold ownership.

Under leasehold, the foreign buyer enters a lease agreement with the Indonesian landowner, outlining the terms of the lease, payment, and renewal options. Typically, foreigners pay a one-time upfront lease payment for the entire lease term, although in some cases, periodic payments can be negotiated. During the lease period, the lessee has the right to use, occupy, and manage the property. Depending on the contract, they may also be able to transfer or sell the remaining lease term, with the landowner’s consent.

Looking for freehold properties, have a look at our best options here!

Pros and Cons of Freehold vs. Leasehold Properties in Bali

Freehold Properties:

Pros:

• Complete ownership: Full rights to the land and property without time restrictions.

• Long-term investment potential: Ownership is indefinite, allowing for capital appreciation and rental income.

• Inheritance rights: The property can be passed down to heirs.

• Financial leverage: Freehold properties can be used as collateral for loans (although it’s not common for foreign).

• Greater control: Freeholders can develop or use the property without needing external approval.

Cons:

• Higher upfront costs: Freehold properties are more expensive, with higher taxes and legal fees.

• Restricted access for foreigners: Requires setting up a PMA to obtain an HGB title.

• Scarcity of freehold land: Available freehold land is limited, particularly in prime locations.

• Increased legal complexity: Setting up a PMA involves navigating Indonesia’s legal system, which can be intricate and time-consuming.

• Full responsibility: Freeholders bear full legal and financial obligations for the property’s taxes, maintenance, and regulatory compliance.

Leasehold Properties:

Pros:

• Lower upfront costs: Leasehold properties are generally more affordable than freehold ones.

• Quick return on investment: Leasehold is often more financially accessible and offers faster payback periods compared to freehold.

• Flexibility: Lease terms may offer renewal or exit options, giving owners flexibility to plan ahead.

• Simpler for foreigners: Foreigners can lease property in their own name without needing to set up a company.

• Availability: Leasehold options are more readily available, particularly in prime locations.

Cons:

• Limited ownership rights: The land remains under the ownership of the Indonesian lessor, and control is defined by the lease terms.

• Lease expiration: Leases typically last 25-30 years, with renewal dependent on market prices at the time of renewal.

• Inheritance limitations: Transferring leasehold properties to heirs can be more complex compared to freehold ownership.

Fees/Costs Associated with Freehold and Leasehold Properties in Bali

When purchasing a freehold property, be prepared for higher upfront costs, including the purchase price, land taxes, notary fees, and other legal expenses. Additional ongoing costs may include maintenance and property taxes. Acquiring a freehold as a foreigner also involves setting up and maintaining a PMA, which adds to the costs and legal requirements.

Leasehold properties come with a one-time lease payment or periodic payments, depending on the contract terms. While leasehold agreements generally carry fewer upfront costs, renewal prices at the end of the lease term may increase significantly as they are subject to market rates.

Factors to Consider When Deciding Between Freehold and Leasehold

1. Investment Horizon: If you plan to hold the property for several decades or wish to pass it on to your children, freehold (through an HGB title) may be the better option. However, if your goal is a shorter-term investment or vacation home, leasehold could be more suitable.

2. Level of Involvement: Freehold ownership through an HGB title involves more legal setup and responsibilities, such as forming and managing a PMA. If you prefer less involvement, leasehold allows you to lease the property in your own name without such complexities.

3. Budget: Leasehold properties offer a more affordable entry into Bali’s real estate market, whereas freehold comes with higher costs but offers full ownership benefits.

4. Project: If you plan to build a few villas to use for rental or to sell, then leasehold might be an easier option, however, if you plan to build a hotel or any large-scale project, it might be interesting to look into freehold, as exits are generally easier for business owners and investors.

Why Choose Tipi Estate?

At Tipi Estate, we understand that navigating Bali’s real estate market can be complex, especially for foreign buyers. Whether you’re interested in freehold or leasehold properties, our experienced team is here to guide you through every step of the process. We work with a trusted network of legal experts, notaries, and financial advisors to ensure that your investment is secure and that all transactions are compliant with Indonesian law.

Ready to explore your Bali property options? Contact us today to discuss how Tipi Estate can help you find your perfect piece of paradise, whether through freehold or leasehold ownership.

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