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Leasehold vs. Freehold in Bali: A guide for property buyers, with examples

When exploring the Bali real estate market, one of the essential decisions investors face is choosing between leasehold and freehold property ownership.

Choosing to invest in Bali property brings you face to face with a critical decision: should you buy leasehold or freehold? Each option presents distinct advantages, legal frameworks, and financial considerations, making it vital for buyers to understand the details.

In this article, we will explain what leasehold and freehold properties mean in Bali, highlight their key differences, and provide guidance to help you determine the best ownership structure for your goals.

What are Leasehold Properties?

In Bali, leasehold ownership means acquiring the right to use and occupy a property for a fixed period, which typically ranges from 25 to 30 years. When the lease term concludes, the property reverts to the original owner unless an agreement for an extension is in place.

Leasehold ownership is often more accessible in terms of initial cost, making it a popular choice for foreigners, who are legally restricted from full land ownership in Indonesia. The primary appeal of leasehold properties lies in their affordability and their suitability for those who are not seeking a permanent residence or who plan to establish a real estate business in Indonesia.

What are Freehold Properties?

Freehold ownership traditionally refers to full ownership rights over the land and any structures on it, granting the owner complete control. Unlike a leasehold, a freehold property can be inherited, sold, or developed at the owner’s discretion. This stability often leads to higher property appreciation over time, making it appealing for long term investments.

However, Indonesian law restricts freehold ownership, known as Hak Milik (SHM), exclusively to Indonesian nationals. Foreigners cannot hold SHM titles directly. Instead, a foreign investor can establish a specific type of company (a PT PMA) to obtain a property title known as Hak Guna Bangunan (HGB). This title grants the right to build on and use the land for a specified term of up to 80 years. While it provides a long term and secure ownership structure, it does not grant indefinite ownership like an SHM title.

Property Value Over Time

Select an ownership type to see its projected value. Hover over the chart for year-by-year details.

Key Differences for Foreign Investors

Feature	Leasehold	Freehold (via PT PMA)
Ownership	Right to use for a fixed term (e.g., 25 years). Held in your personal name.	Long-term right to own and build for up to 80 years. Held via a PT PMA company.
Value Over Time	Value decreases as the lease term gets shorter. A shorter lease means a lower resale price.	Value generally increases over time, making it a strong long-term investment.
Upfront Cost	Lower initial payment makes it easier to enter the market.	Higher upfront cost due to ownership rights and company setup fees.
Legal Simplicity	Very simple. Can be done directly by a foreigner with no company required.	More complex. Requires setting up and maintaining a foreign-owned company (PT PMA).

Selecting the right property type ultimately depends on your investment goals and timeline. Here are some factors to consider.

Investment Horizon

If your goal is long term appreciation and stability, a freehold property is likely the better option. A leasehold, conversely, is well suited for investors with shorter term plans, especially those aiming to establish a rental business for a specific period.

A Visual Guide to Property Value

Drag the slider to see how property values change over time under different ownership structures in Bali.

Years 0

Leasehold

For Foreign & Indonesian Buyers

Estimated Value $0

Freehold (HGB)

For Foreigners via PT PMA

Estimated Value $0

Freehold (SHM)

For Indonesian Citizens Only

Estimated Value $0

Budget Considerations

Freehold properties generally come with a higher price tag but can offer better value per square meter over the long run. If you’re looking to start with a lower initial investment, a leasehold might be the most practical route.

Legal and Residency Status

Foreign investors often lean toward leasehold due to the simplicity of Indonesian land ownership laws. However, those serious about long term investment may opt for the freehold route through a PT PMA. Consulting with legal experts in Bali can clarify the best approach for your specific situation.

Rental Income Potential

For those focusing on Bali’s robust rental market, leasehold properties can be very attractive. Their lower entry cost can provide a quicker path to profitability. Freehold properties offer the same flexibility for rentals, with the added benefit of long term security.

Conclusion

Choosing between leasehold and freehold properties in Bali involves balancing financial, legal, and personal considerations. Leasehold offers affordability and accessibility for foreign investors, while freehold provides stability and long term value for those able to purchase it through the proper legal channels. Each has its place in the market, and selecting the best option will depend on your individual needs and goals.

The Bali Homes team can assist in assessing the best course of action in consideration of your goals, time horizon and budget.

Reach out to agency@thebalihomes.com, send us a WhatsApp message, learn more about investment opportunities available to you here or explore villas to get started.

Read Faq

Frequently Asked Questions

What is the main difference between Leasehold and Freehold in Bali?

The primary difference is ownership. Leasehold is the right to use a property for a fixed term (e.g., 25 years), much like a long-term rental. Freehold is full, indefinite ownership of the land and buildings, but this is legally complex for foreigners to obtain.

Can a foreigner buy a freehold property in Bali?

No, foreigners cannot directly own a freehold (Hak Milik/SHM) title under their personal name. To achieve secure, long-term ownership, a foreigner must set up a specific Indonesian company called a PT PMA, which can then legally hold a "Right to Build" (HGB) title for up to 80 years.

Which option is more affordable upfront?

Leasehold properties are significantly more affordable upfront. Their lower initial cost makes them a more accessible and popular entry point into the Bali property market, especially for first-time investors or those with a limited budget.

What happens when my leasehold contract ends?

At the end of the lease term, the property and any buildings on it legally revert back to the original Indonesian landowner. It is crucial to have an extension clause negotiated in your initial contract if you plan to continue using the property beyond the original term.

Which property type appreciates more in value?

Freehold properties generally appreciate more consistently over time. This is because the ownership is secure and long-term. In contrast, a leasehold is a depreciating asset, as its value naturally decreases as the end of the lease term gets closer.

What is the easiest way for a foreigner to invest in Bali property?

The most straightforward method is buying a Leasehold property. The legal process is simple and can be done under your personal name with just a passport, without the need to establish a company or secure special residency visas.

Which ownership type is better for a rental business?

Both can be excellent for rentals, but Leasehold is often preferred for starting a rental business due to its lower entry cost, which can lead to a quicker return on investment. Freehold offers the same rental potential but with a higher initial investment and greater long-term security.

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