Freehold vs Leasehold: Buying property in Bali as a foreigner
Are you looking to purchase property in Bali? Are you confused about the difference between freehold and leasehold? In this article, we will explore both options and their respective pros and cons so that you can make an informed decision. Read on to find out more about the legal distinctions between freehold and leasehold in Bali.
What is a leasehold? (Hak Guna Bangunan/HGB)
Leasehold ownership of land in Bali is becoming increasingly popular among foreign investors. This type of ownership allows you to purchase the right to use a property for a specified period of time, usually between 20 and 25 years. At the end of the lease term, you can renew your lease with the same landlord or find another interested party to take over the lease. The main benefit of this arrangement is that you do not need to commit to an indefinite period of ownership as with freehold properties. You will also avoid taxes or legal fees associated with transferring title deeds.
Leasehold property acquisition in Bali is a great solution for those who have a limited budget but still wish to benefit from property ownership. It lets you own the land title for an initial period of 25 years, with a potential to extend it up to 80 years and also have access to all rights of freehold such as selling, passing on inheritance and subleasing or renting out the property. Additionally, leasehold is usually more cost-effective than buying freehold. However, having fewer years left on the lease will diminish the sale value when the time comes.
What is Freehold? (Hak Milik/SHM)
Freehold means that you will own the title deed and have full rights of ownership for the property. This type of ownership gives you the most control over what you can do with your property and provides security should any legal disputes arise. Freehold owners are also able to transfer, rent out, and sell their property as they please.
On the other hand, leasehold properties are those which are rented from an owner who holds the title deed. A lease agreement is signed between the two parties determining how long the lease will last (usually 25 years) and outlining all of their responsibilities during this period. Leaseholders enjoy a number of benefits including lower upfront costs and no tax obligations on rental income generated from subleasing the property.
Both freehold and leasehold properties have their pros and cons, but ultimately it is up to you to consider which one best fits your individual needs and budget. In this article, we will outline all of these points so that you can make an informed decision before purchasing real estate in Bali.
Is it possible to buy a property in Indonesia, or Bali in particular, for a foreigner?
Indonesian regulations now permit foreigners to purchase landed properties, apartments and other real estate in Jakarta, Bali and Batam, as well as other regions in Indonesia. To invest in these lands, a KITAS or passport is required for access to a land rights certificate (HGB) with a valid time period of 30 years extendable up to 80 years. Additionally, when foreign investors decide to set up a limited local company the HGB certificate can be extended for 20 years.
The Pros and Cons of Leasehold vs. Freehold
In terms of property investment, it appears that the freehold is the best option. However, there are few pros and cons to these property rights. Make your decision based on what is right for you.
First, let's take a closer look at the advantages of freehold property in Bali.
Freehold title grants you full ownership rights and flexibility to do what you want with your villa such as make architectural improvements or use it as your residence. Additionally, because there is no lease with freehold property, you won't have to worry about expensive ground rent or service costs associated with leasing. Furthermore, if you own a freehold property in Bali, you may be eligible for numerous tax benefits that come from owning real estate in this beautiful tropical paradise.
Ownership: When you purchase a freehold property, you own it outright - both the land and the building. This provides you with a sense of security and stability that is hard to find when renting or leasing.
Flexibility: Freehold property ownership allows you greater freedom and flexibility in terms of design and improvements, as there are no restrictions from landlords or other tenants. You can also sublet or resell the property at any time.
Tax Benefits: Owning your own freehold property could also provide tax benefits such as lower stamp duty taxes, capital gains tax exemption for certain properties, and deductions on home loan interest payments.
Now that we've discussed the advantages of buying a freehold villa in Bali, let's dive into some of the potential drawbacks. One major disadvantage is that purchasing a freehold property requires a significant upfront investment, and if you don't keep up with mortgage payments or fail to pay off your loan on time then you could lose your ownership rights.
Benefits of Investing in leasehold Property
Leasehold properties can provide an investor with the opportunity to purchase a property at a lower cost and benefit from the potential appreciation in value of the property. Leasehold properties also offer investors the ability to benefit from rental income and tax incentives.
Leasehold ownership is restricted, as leaseholders rent from the freeholder and do not have the title to either the property or the land it sits on.
No matter which type of ownership you choose, it's important for investors, landlords and tenants alike to do their research before investing in any kind of real estate in Bali. All parties involved should be familiar with the regulations and conditions of their respective property investments, and make sure to keep up to date with any changes in the country's laws regarding Freehold or Leasehold property ownership.
Furthermore, research the areas where you would like to invest and make sure that they offer a good return on investment. If you're unfamiliar with particular local markets, it is worth consulting with an experienced real estate agent for more information.
Once you have identified a reliable property manager and have decided on the area in which you wish to invest, it is time to make the appointment. Take your time and ask plenty of questions about the process so that you are aware of all aspects of your investment strategy. Make sure that you feel comfortable with your chosen property manager before signing any contracts or agreements. With proper planning and preparation, investing in Bali can be both rewarding and enjoyable.