Bali Freehold vs. Leasehold: Explained for Investors
If you are a foreign investor looking to invest in property, the choice between leasehold and freehold property would depend on your specific requirements. Although purchasing a freehold property in Bali Island would require the use of an Indonesian entity (nominee) as a titleholder for the land certificate, foreigners still prefer this type of property as it is the most popularly requested and purchased, despite the fact that Indonesian law and land regulations deem it illegal for foreigners to purchase property in Indonesia.
When considering property investment, it is essential to comprehend the difference between freehold and leasehold ownership. Both types of ownership have their own set of advantages and disadvantages, and it is crucial to select the type that aligns with your needs.
What is Bali Freehold Ownership?
Freehold ownership, also known as fee simple ownership, is when you own both the land and the property on it. This means that you are the sole owner of the property and have complete control over it. Freehold ownership is usually the most desirable form of ownership as it gives the owner complete control over the property.
Purchasing Bali freehold property allows you to enjoy over time, land value appreciation, which has been fairly dramatic in Bali in past years. With freehold, any appreciation in the value of the property, either through improvements you have made to it or through the rise in land prices, you gain the benefit of any increase in value.
Hak Milik or Freehold is the most complete and strongest form of land title ownership in Indonesia. Only individuals of Indonesian Nationality are entitled to own land under a Hak Milik title. Consequently, neither limited liability companies (PT/Perusahaan Terbatas) nor foreign individuals may obtain land with a Hak Milik title. Subject to zoning restrictions, the Hak Milik title owner can use the land for any purpose, although it does not entitle the owner to exploit the natural resources found on or under the land. The title has no limit and may be sold, gifted, exchanged and bequeathed and may also be used in the form of a mortgage.
Foreigners may, however, acquire land under a Hak Milik title in another form of entitlement called Hak Pakai or Right of use.
Advantages of Freehold Ownership:
One of the main advantages of owning a freehold property is that you have complete control over the property. You can renovate, remodel, or expand the property as you see fit. You also have the peace of mind of knowing that you own the property outright and can pass it on to your heirs.
Another advantage of freehold properties is that they tend to appreciate in value over time. In Bali, the demand for freehold properties is high, and the supply is limited. This means that the value of freehold properties is likely to continue to increase over time.
- No lease to worry about
- Complete control over the property
- Ability to sell or lease the property as you see fit
Disadvantages of Freehold Ownership:
One of the main disadvantages of freehold properties is that they are typically more expensive than leasehold properties. This is because you are buying the land and any structures on it outright. You will also be responsible for paying all taxes and fees associated with the property.
Another disadvantage of freehold properties is that they can be more difficult to sell. This is because the pool of potential buyers is smaller than it is for leasehold properties. Additionally, there are restrictions on who can own freehold properties in Bali. In general, only Indonesian citizens and companies can own Hak Milik properties. Foreigners can only own freehold properties under certain conditions.
- Typically more expensive than leasehold ownership
- More difficult to sell compared to leasehold, especially to foreign buyers
- Less attractive for Indonesian buyers
Leasehold, on the other hand, means that after a certain period of time, the property and whatever improvements the leaseholder may have made, revert to the owner.
You lease the land from the freeholder for a fixed period of time. The lease will typically be for a period of 99 or 125 years, but can be shorter or longer depending on the terms of the lease.
In very simple terms, as time passes, your investment in leasehold property depreciates in value, because as the term of the lease gets shorter, the lease is less attractive to a buyer, should you want to sell the remainder of your lease.
Advantages of Leasehold Ownership:
One of the main advantages of leasehold properties is that they are typically less expensive than freehold properties. This is because you are only buying the right to use the property for a set number of years, rather than buying the property outright. You will also be responsible for paying less taxes and fees associated with the property.
Another advantage of leasehold properties is that they can be easier to sell. This is because the pool of potential buyers is larger than it is for freehold properties. Additionally, foreigners can own leasehold properties in Bali without restrictions.
- Typically less expensive than freehold ownership
- Easier to sell to foreign buyers
- Ability to extend the lease, subject to the terms of the lease agreement
Disadvantages of Leasehold Ownership:
- You may be limited in the changes you can make to the property
- If the lease expires, the property will revert to the freeholder
- The price for leasehold properties will depreciate over time, since fewer people are willing to buy homes on a short lease
Choosing the Right Ownership Type
When choosing between freehold and leasehold ownership, it is important to consider your individual circumstances and needs. If you are looking for complete control over your property and don’t mind taking on additional responsibility for repairs and maintenance, freehold ownership may be the best option for you. However, if you are looking for a more affordable option and are willing to share responsibility for repairs and maintenance, leasehold ownership may be a better fit.
Bali Freehold vs Leasehold: Conclusion
In summary, freehold and leasehold ownership each have their own advantages and disadvantages. Ultimately, the decision of which type of ownership to choose will depend on your individual needs and circumstances. We hope this article has provided you with a comprehensive understanding of the differences between freehold and leasehold ownership, and will help you make an informed decision when it comes to investing in property.