Understanding Investing in Leasehold vs. Freehold Properties in Bali
A common discussion among property investors in Bali revolves around choosing between freehold and leasehold properties. The right choice depends largely on your business plan and budget. As your independent advisor, The Agency Bali aims to ensure you make an informed decision, as both options have their own advantages and disadvantages.
Leasehold in Bali
When you invest in a leasehold property, you have the rights to the property only for the duration of the lease. For example, with a 25-year leasehold, the property reverts to the landowner once the lease expires.
You do have the option to sell the leasehold (transfer the lease), but the new owner will only hold rights until the end of the original lease period.
Leaseholds are quite common in Bali and are typically less expensive than freehold properties. Additionally, due to the tropical climate, villas may not remain in marketable condition for more than 15-20 years.
However, it’s important to incorporate this into your business plan. Unlike freehold properties, you won’t benefit from land appreciation, and you need to recover your investment through the rental income generated during the leasehold period.
Benefits of Leasehold Property Investment in Bali
As mentioned, leasehold investments are widespread in Bali and can yield good returns if you choose a prime location and develop a property that attracts substantial rental income.
Many small-scale property investors start with leasehold properties as they generally require less capital. Often, you can find desirable locations where the landowner prefers not to sell the freehold, anticipating long-term land appreciation.
Freehold in Bali
If you wish to have outright ownership of a property, freehold is a more sustainable option. Various types of freehold licenses exist, but only the hak pakai (right to use) allows foreign ownership through an Indonesian-registered company, known as a PT PMA.
Freehold licenses have several key advantages over leaseholds. Unlike leaseholds, they are not limited by a lease term, and you have the flexibility to sell the property as a freehold.
Most large-scale developers in Bali opt for freehold licenses. This allows them to earn rental income while also benefiting from the appreciation of the land. In recent years, especially in popular and fast-growing areas like Canggu, Ubud, and Tabanan, this combination has resulted in significant returns, ranging from 10-20% annually.
Financing Freehold Deals in Bali
A frequently overlooked aspect of property investment in Bali is the ability to use bank financing for future developments. Freehold certificates can be leveraged to establish a line of credit and used as collateral for new projects.
By combining rental income, land appreciation, and financial leverage, investors can aim for even higher returns. However, this approach carries increased risks and is typically recommended for seasoned investors.
Consult with a Property Advisor at The Agency BaliIf you’re considering investing in property in Bali and want to do it safely, consult with one of our property advisors at The Agency Bali to explore your options and get personalized advice tailored to your investment goals.