What Is Freehold Property?

Freehold vs. Leasehold Property in Bali: A Comprehensive Guide for Prospective Investors

Bali is a popular destination among tourists, making it an attractive location for property rentals. Stunning beaches, lush greenery, vibrant culture, and welcoming locals make it an ideal place to live or invest in real estate. However, before you put your money into Bali real estate, it’s crucial to understand the difference between freehold and leasehold properties—especially if you’re an investor from outside Indonesia who wants to make sure you’re well-prepared before making a substantial and important investment.

As one of Bali’s leading property managers, we frequently discuss and collaborate with legal experts to stay updated on changing regulations. Recently, I met with Florent, our branch manager, and legal consultants from Emerhub to talk about the process of acquiring leasehold property and other legal considerations in real estate.

Freehold property refers to land fully owned by an individual or a legal entity, with no restrictions on the duration of ownership. In other words, once you purchase this type of property in Bali (or anywhere else), you own it indefinitely until you choose to sell it or pass it on as an inheritance.

Pros:

• Full control over your property (and your investment)
• No usage restrictions
• Can be passed down through generations

Cons:

• Higher upfront cost compared to leasehold
• Sole responsibility for maintenance

This type of ownership is considered more secure because the property cannot be resold or taken away by anyone else. However, due to this high level of security, freehold property typically comes at a higher price, making it a more substantial financial commitment. In addition, in some countries—including Indonesia and the island of Bali—ownership regulations for foreigners have historically complicated the purchase process for non-citizens, further limiting availability. Despite these potential hurdles, investors may find that the long-term security and potential returns on a freehold property outweigh the upfront costs and difficulties.

What Is Leasehold Property?

“Leasehold” refers to property rights acquired from another party (often the government) for a specified period. Typically, this lease period is 25 years but can extend to as long as 99 years. Once this period expires, all rights revert fully to the original owner unless the lease is renewed for an additional fee.

Pros:

• Lower upfront costs compared to freehold
• Potentially fewer responsibilities for operational expenses
• Easier exit strategy if you need to terminate the contract

Cons:

• Usage and modification restrictions may apply
• Potential risk regarding lease renewal once the term expires

(emerhub freehold vs leasehold service)

Cultivation and Usage Rights in Indonesia

In Indonesia, there are two main rights that can be granted for land use: Hak Guna Usaha (the right to cultivate) and Hak Pakai (the right to use). These rights allow individuals or legal entities to use land owned by others for specific purposes—such as farming or building homes—without holding full ownership.

How Does This Affect Foreigners Buying Property?

As mentioned earlier, foreigners cannot directly purchase property in Bali. However, there are certain approaches that foreign buyers can use to facilitate investments. One common method is setting up a locally registered PT PMA (a company that can be 100% foreign-owned) which can then acquire property on behalf of its foreign owners. Another option involves leasing property from local owners under long-term contracts. In these cases, local residents remain the technical owners, while you enter into a contract that allows you to use the property for rentals in exchange for an agreed-upon fee paid to the actual owner.

Investing in Bali real estate requires careful consideration, whether you opt for freehold or leasehold. Before making a decision, it’s important to understand how the laws governing these investments work, so you don’t violate regulations, exploit local residents, or underpay the Indonesian government in taxes. While there are special rules and considerations for foreign investors in Bali, once you’ve navigated these aspects, you can focus on the real pleasure of earning returns on your investment.