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You’ve probably heard us talk about leaseholds a lot around here. There’s a good reason for that. Since foreigners can’t own a property in Bali outright, doing a leasehold investment in Bali is a great option for getting profit.
When executed correctly, a leasehold doesn’t require years to understand Bali’s property market. But what exactly is leasehold? Let’s break it down!
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What Is a Leasehold Property?
Leasehold means you’re renting the property for a set period—usually 25 to 30 years, with an option to extend.
You own the building on the land, but the land itself still belongs to the original owner. Once the lease expires, ownership of the land goes back to the landowner unless you negotiate an extension.
This setup is ideal for foreigners investing in Bali, where property laws can be tricky for expats to own land directly.
Read More: Freehold vs Leasehold: Which Ownership Type is Right for You?
Why Leasehold Investment Bali Is a Great Option
Going for a leasehold property is practical for foreigners who want to dive into Bali’s property market. It’s more than just a long-term rent; you enjoy the property as if it were your own. You can even make money from it by renting it out to others.
The key is to pick a lease that fits your plans. If you want to stay safe and have options for the future, you might choose a lease for 30 years with the chance to extend it for another 30. This way, you can profit if the property’s value increases.
Here are some benefits of investing in a leasehold villa:
1. Easy for Foreigners to Get Started
If you’re from another country, getting a leasehold property in Bali is much simpler than buying land outright. Indonesia has some rules that make it tough for foreigners to own land directly.
But with a leasehold, you can sign up for a deal that lasts up to 25 years and extend it later. This way, you avoid all the complicated legal stuff that comes with trying to own land.
2. More Affordable
Choosing a leasehold villa means you don’t have to spend as much money initially as buying a property outright. This makes it easier for more people to jump into the Bali real estate game, even in popular spots that usually cost much more.
3. Flexible Deals
When you choose leasehold properties, you can often renew or extend your lease once the initial term is up. This is great because it means keeping your investment safe longer without immediately committing to owning the property.
4. Great for Rental Returns
Bali is a popular tourist destination, meaning you can make good money by renting out your leasehold villa. If your villa is where many tourists like to go, like Seminyak or Ubud, you could earn a lot from rent, especially when many people visit Bali.
Finding and Buying a Leasehold Villa in Bali
Buying a leasehold villa in Bali requires careful planning and understanding. Here’s how to do it: cover all your bases without getting caught up in too much complex jargon.
1. Do Your Homework
Start by checking out popular areas in Bali for leasehold properties. Places with many tourists, like Seminyak or Ubud, are great if you consider renting your villa. This research helps you find a spot where your villa won’t just sit empty.
2. Get to Know the Rules
It’s important to understand how leasehold ownership works in Indonesia. This includes knowing how long you can lease a property and what rights you have. It’s slightly different from buying a house outright, so ensure you get the hang of these rules.
3. Start Looking for Your Dream Villa
You can search online or contact local real estate agents who know the area well. Say you want a villa close to the beach; an agent can help find you a perfect spot in places like Canggu or Jimbaran that match what you’re looking for.
4. Work with Experts
Finding a good agent and legal advisor who knows leasehold properties is key. They’ll help you understand your lease agreement and ensure everything’s in order. They can also point you to a trustworthy notary or legal advisor who’ll review the lease agreement to protect your investment and check on extending the lease.
5. Due Diligence
When you’re serious about doing a leasehold investment in Bali, here’s what to look into:
- Legal Check-Up: Make sure the property’s lease agreement is clear, especially about how long the lease lasts, options to make it longer, and any rules you need to follow.
- Who Owns It: Check the land title to avoid any surprises about who owns the land or if there are any legal problems.
- Inspect the property: Visit the property to see its condition. You want to avoid spending extra on fixing things up after you’ve bought it.
- Prepare a buffer: Understand all costs, not just the villa’s price. This includes taxes, upkeep, and any community fees.
- Following the Rules: Ensure the villa follows local building and land use rules, especially if you consider changing it.
For instance, if you’re eyeing a villa in Seminyak with a 30-year lease, you’d want to make sure you can extend the lease so that there’s no disagreement about the land’s ownership, inspect the villa’s condition, know about any taxes or fees, and ensure it’s built according to local laws.
Read More: Due Diligence in Real Estate: Meaning, Checklist and Report Example
Taking each step seriously and working with knowledgeable professionals will help you navigate the process of finding and buying a leasehold villa in Bali.
It’s all about being well-informed and cautious to ensure your Bali villa dream comes true without any unexpected hitches.
Leasehold Investment Bali Fees
Investing in a leasehold property in Bali comes with several types of fees that buyers should be aware of. Here’s a breakdown of the most common costs involved:
- Lease Payment: The main cost paid to the landowner. The amount is negotiated and can be paid either upfront or in scheduled terms, depending on the agreement.
- VAT (PPN): If you’re leasing from a business entity, VAT applies. The current rate is 11%, increasing to 12% starting January 1, 2025 for non-luxury goods.
- Lease Extension Costs: At the end of the lease term, you’ll need to renegotiate with the landowner. Costs may increase based on the current market value and land appreciation.
- Ongoing Costs: While leasehold properties typically aren’t subject to property tax, some costs may arise depending on your lease terms—such as maintenance fees or contributions to shared facilities.
- Tax on Lease Income (PPh): If the landowner receives rental income, a 10% income tax (PPh) is usually applied. This can affect the total cost of the lease.
Read More: Cost of Property in Bali: What You Need to Know
Leasehold Villa Challenges and Consideration
Like any investment, there are a few key things to think about before buying a leasehold villa in Bali:
- Limited Ownership Duration: Leasehold agreements usually last 25-30 years, with possible extensions. However, extensions are not guaranteed and must be renegotiated.
- Extension Uncertainty: When your lease term ends, you’ll need to renegotiate with the landowner—who may increase the price or refuse altogether.
- Resale Value Drops Over Time: The shorter the remaining lease, the harder it is to sell. Properties with less than 10 years left can be much less attractive to buyers.
- Landowner Risk: You don’t own the land—just the right to use it. If the landowner passes away or decides not to renew, your control over the property may be affected.
- Legal Complexity: Navigating lease agreements and extensions can be complicated. It’s crucial to work with a reputable notary and legal advisor.
- Tax and Compliance Obligations: Lease agreements may come with tax responsibilities, like VAT or PPh, especially if you’re earning rental income from the property.
- Limited Financing Options: Banks and lenders are less likely to finance leasehold properties, especially for foreigners, compared to freehold.
Here’s a real-life example: a foreigner leasing a villa on a long-term basis. The length of the lease can significantly impact how much profit you make and what your property will be worth in the future.
A longer lease generally makes your investment more secure and can even boost the property’s value, as buyers and renters tend to prefer properties with more years remaining on the lease.
Securing an option to extend the lease from the beginning can also help maintain your property’s value, preventing it from dropping as the lease term shortens.
Of course, a longer lease also means you’ll need to account for ongoing upkeep and maintenance costs over time.
Leasehold Might Be Your Best Investment Option
Leasehold villa investment can be a great way for foreigners to earn income—it’s relatively easy, more affordable to start, and offers plenty of flexibility. Even though these types of properties aren’t permanent, they still provide strong returns with fewer legal complications.
For first-time buyers entering Bali’s property market, leasehold can be a smart and profitable option. Just make sure to do your research, consider the pros and cons, and remember: a secure and rewarding overseas investment is well within reach.
Still unsure whether leasehold or freehold is the right fit for your situation—or what steps to take next? We’re here to help!
Let’s chat and talk about your first property investment in Bali. Book your free, no-obligation session below or email us at [email protected].
FAQ
1. Can foreigners buy leasehold in Bali?
Foreigners are allowed to purchase leasehold property in Bali. This ownership type is legally recognized and provides full protection to the lessee, even if the landowner sells the freehold title.
2. Can you sell a leasehold in Bali?
A leasehold can be sold in two ways: either by subleasing it to the buyer, or by terminating the current lease and creating a new lease agreement directly between the landowner and the new tenant.
3. Can you airbnb a leasehold in Bali?
Renting out a leasehold villa as a holiday rental is a common and profitable strategy. By listing it on platforms like Airbnb, owners can benefit from Bali’s strong tourism demand through short-term rentals.
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