One of the key debates you hear (aspiring) property investors having in Bali is whether you should invest in freehold vs. leasehold properties in Bali.
The correct answer is obviously that it depends on your business plan and budget. As your independent advisor, our goal is to make sure you make an informed decision since both titles come with their own set of pros and cons.
Leasehold in Bali
If you buy a leasehold property, you will have the rights to the property until your lease expires. For example, if you buy a 25-year leasehold, the property will belong to the land owner once the lease runs out.
You do have the right to sell the leasehold property (i.e. pass on the lease) but the new owner will have the rights only until the end of the original lease period.
This is very common in Bali and leaseholds tend to be cheaper than freehold properties. Also, due to tropical weather, a villa is unlikely to be in a marketable condition for longer than 15-20 years anyway.
However, make sure you factor it into your business plan. Unlike a freehold property, you will not benefit from the land appreciation and you essentially need to earn your money back in the rent you receive during the leasehold period.
Benefits of a leasehold property investment in Bali
As mentioned above, leasehold investments are very common in Bali and can generate a good return on investment as long as you pick a good location and build something that generates solid rental revenue.
Most small-scale property investors start with leasehold properties since it generally requires less investments and you can often find good locations where the owner is not interested in selling the freehold since they count on the land appreciation in the long term.
Freehold in Bali
Freehold is a more sustainable property right if you want to outright own the property. There are several types of freehold licenses, but only the right to use (hak pakai) allows foreign ownership through an Indonesian-registered company called PT PMA.
There are a few key benefits to freehold license over the leasehold. You are not bound by the leasehold duration and you can sell it as a freehold.
Most large-scale developers use freehold licenses. This gives you the chance to earn both the rental revenue and benefit from the appreciation of the land. Combined, this has generated substantial returns (10-20% annually) in Bali in recent years, especially in popular and rapidly growing areas such as Canggu, Ubud, and Tabanan.
Financing freehold deals in Bali
One of the often overlooked aspect of property investments in Bali is the ability to use bank financing for your future developments. Freehold certificates can be used to build up your line of credit and used as collateral for your next projects.
Combining rental revenue, land appreciation, and financial leverage, the investor can aim for even more significant returns. However, the risks are obviously higher as well and this route is recommended for experienced investors.
Consult with an Emerhub property consultant to discuss your options for investing in Bali property and how to do it safely.