FREEHOLD VS LEASEHOLD?

1 Introduction

If you are an investor or an expat interested in entering the Bali real estate market, you will find that this island offers not only an exceptional quality of life but also unique investment opportunities.

Taking your first steps in the Indonesian real estate market can be exciting, but at the same time stressful, if the proper preliminary analyses and considerations are not made. No one wants to lose their hard-earned money or get involved in illegal and risky investments.

In Bali, when considering a property purchase, you have two main options: Freehold and long-term rental (Leasehold), both of which come with specific advantages and challenges. This article will explore the differences between Freehold and Leasehold so you can make the best investment decisions.

2 Leasehold: long-term rental

Acquiring a property through Leasehold means entering into a long-term rental agreement where the duration is agreed upon in advance with the landowner; at the end of the term, the property reverts to the original owner.

This model offers ideal flexibility for investors who might want to change their long-term plans—such as relocating, modifying their investment strategy, or avoiding being tied to a single property for many years.

From an economic perspective, opting for a Leasehold represents a more accessible option compared to Freehold, significantly reducing the initial investment required to enter Bali’s dynamic real estate market. This aspect is particularly advantageous in premium locations, where the costs of Freehold properties can reach substantial figures.

3 Freehold: full ownership

Owning a property in Freehold is equivalent to having the "complete package": it guarantees you ownership of the land and any buildings on it forever. This option is ideal for those who desire total control over their property, allowing them to keep it in the family, sell it, or rent it out according to their needs.

It is fundamental to remember that only Indonesian citizens can directly hold Freehold properties. If you are a foreign investor, it is necessary to establish a legal entity, such as a PT PMA, which however involves minimum capital requirements. According to Regulation No. 4/2021 of the Indonesian Investment Coordinating Board (BKPM), a foreign-owned company must have a minimum capital of 10 billion IDR.

Despite the greater complexity, with appropriate legal assistance, investing in Freehold property can be an interesting option for long-term strategies.

Key Difference: Leasehold is comparable to a long-term leasing contract, while acquiring a Freehold means having full ownership.

4 The importance of choosing the right location

The various regions of Bali are characterized by specific regulations and cultural customs that influence the real estate market. In more traditional areas, there is often a preference—or a legal necessity—to keep properties in local hands, which makes Leasehold the prevailing option.

On the other hand, renowned tourist locations such as Seminyak, Canggu, Ubud, Uluwatu, and the Gili Islands, while offering high potential for short-term rental income, are characterized by a competitive and expensive Freehold market.

In these contexts, opting for Leasehold represents a more accessible solution for foreign investors interested in acquiring properties in premium locations to achieve rapid returns, thanks to lower initial costs and the possibility of generating high earnings from short-term rentals. Less touristy or developing areas may present opportunities for purchasing Freehold properties at lower prices, though one must consider that demand for short-term rentals and property value appreciation can vary significantly.

5 Conclusion: What to choose?

The decision to opt for Leasehold or Freehold is based on each investor's specific needs, yield objectives, and the type of property desired.

With long-term investment goals and the right support to navigate legal complexities, Freehold might be the most suitable option. Alternatively, for those who prefer a simpler solution with a lower entry cost, Leasehold might better meet your needs.

P.S. The use of "nominees" (prestanome) is absolutely discouraged. Although it may seem like an easy and cheap solution, it carries a concrete risk of losing the rights to your property.