Leasehold and Freehold – Bali!
Bali, with its breathtaking landscapes and vibrant culture, remains a top destination for property buyers seeking a slice of paradise. Understanding the nuances of property ownership in Bali is crucial for making an informed decision. Here’s a breakdown of the two primary property options available: leasehold and freehold.
Leasehold
Duration and Rights:
Typically 20-30 Years: Leasehold agreements in Bali generally last between 20 and 30 years. This period can often be extended, providing a long-term solution for those looking to secure property for a substantial duration.
Full Usage Rights: As a leaseholder, you have full rights to use, sell, and enjoy the property as specified in the lease agreement. This includes the ability to make alterations and improvements, subject to lease conditions.
Considerations:
Extension Flexibility: While leasehold offers the flexibility to extend the lease term, it’s important to negotiate these terms clearly with the property owner to ensure future rights.
Transferability: Leasehold agreements can be transferred to other parties, offering potential for resale if needed.
How Does Leasehold Work? Let Me Explain with Examples
Example 1:
You purchase a property with a 25-year leasehold. After 10 years, you decide to extend the lease for another 25 years. The market price at that time will determine the cost of extending your lease.
Example 2:
You have a 25-year leasehold, but after 10 years, you decide to sell the property. You can either sell it with the remaining 15 years of leasehold or extend the lease by 10 years and sell it with a new 25-year leasehold.
Example 3:
You hold a 25-year leasehold but decide not to extend it. After 25 years, the property returns to the original owner. Do you lose out? Not at all—thanks to an ROI of 15–20%, you can recoup your investment within approximately 6 years, and any additional earnings are pure profit.
What Ensures the Extension Price Isn’t Exorbitant?
The purchase agreement includes detailed provisions about lease extension pricing. The cost is always based on the market price, calculated as the price per square meter per year multiplied by the number of years you wish to extend.
Freehold
Duration and Acquisition:
Maximum 80 Years: In Bali, freehold ownership is limited to a maximum duration of 80 years, which can be renewed. This arrangement offers a more permanent ownership solution compared to leasehold.
Company Structure: To acquire land in freehold, you need to set up a local company (a PT PMA). The company holds the land title, while you can buy and own the building on the land in your name.
Shareholder Requirements: The company must have at least two shareholders, but neither needs to be Indonesian. This allows for more flexible ownership structures while complying with Indonesian property laws.
Considerations:
Complexity: The process of setting up a company to hold freehold land can be complex and may require legal and administrative support. It’s essential to work with local experts to navigate this process.
Renewal and Compliance: Ensure you understand the renewal process for the freehold title and comply with all local regulations to maintain ownership rights.
Choosing Between Leasehold and Freehold
When deciding between leasehold and freehold in Bali, consider your long-term plans, the duration of stay, and the level of control you desire over the property. Leasehold offers flexibility with a clear end date and renewal options, while freehold provides a more permanent solution through company ownership, though it comes with more complex legal requirements.
Whether you’re looking for a temporary retreat or a long-term investment, understanding these property options will help you make a choice that aligns with your goals and ensures a smooth and successful property acquisition in Bali.
