News / Events
How To Buy Property in Bali as a Foreigner: Freehold vs Leasehold
Bali’s investment market is still booming and the future looks bright for any foreigner thinking of buying property in Bali. From the legal aspect, it is good to know that Government Regulation No. 103/2015 on House Ownership of Foreigners Residing in Indonesia allows foreigners who legally reside in Indonesia to own property in Indonesia for a period of up to 80 years. Before you go ahead with investing your money, it is important that you first understand how to buy property in Bali as a foreigner. In the following chapters, we will discuss the difference between freehold and leasehold property and the titles/licenses such as hak milik, hak pakai, hak guna bangunan and hak sewa related to the land the property is located on.
Freehold
Buying property in Bali as freehold, inclusive of a right to own (hak milik) title on the land, has long been the most appealing option to many foreigners because this means that they can enjoy the potential rise in property value over time. Not only that, but also the ROI for renting out your villa pre-covid times was 7-8,5 % per year which means that you could’ve made the money invested in Bali property back in approximately 8 to 12 years. On top of this, subject to zoning restrictions, hak milik title owner can use the land for any purpose except for exploiting natural resources on or under the land. The title has no time limit and can be sold, gifted or exchanged or used to obtain a mortgage.
Unfortunately, Indonesian Constitution and Agrarian Law – Undang-Undang No.5 Tahun 1960 article 16 (1) restricts freehold land and property ownership to Indonesians citizens. This means that private foreign persons or foreign-owned companies cannot obtain land with a right to own (hak milik) title. To go around this regulation, many foreigners have used a “trusted” Indonesian nominee to act on their behalf to acquire the hak milik title. We do not recommend this unless that person is your legal spouse, as otherwise there is legally very little protection for the foreigner for their investment and the nominee can overtake the property at any point.
A better option for foreigners to acquire the hak milik title is through licenses/certificates called right to use (hak pakai) and right to build (hak guna bangunan or HGB). These licenses don’t make you the legal owner of the property but they give you the right to use the land in a certain way for an initial period of 25 years which can be extended until a total of 80 years. During the license period, you can sell or pass on the property to your family as inheritance. You are also allowed to sublease the property or rent it out short-term. With HGB, you are also allowed to build on the land and eligible to obtain a mortgage. To be eligible for hak pakai, a foreigner needs to have a limited stay permit (KITAS) or permanent stay permit (KITAP) and for a HGB, a foreigner should set up a foreign-owned company (PT PMA).
Leasehold
Buying property in Bali as leasehold is the best option for someone who has a limited budget and possibly also wants to make passive income from renting out their property but doesn’t want to go through setting up a company in Indonesia or applying for a residence permit.The name leasehold, as the name suggests, refers to buying the rights to the property for a certain period of time. This means that the land title remains under the ownership of the original owner and the foreigner leases the land for an initial period of 25 years that can be extended until a total of 80 years based on the original agreement. After the lease begins, the owner’s hak milik title will be legally transferred to the foreigner under the right to lease/rent (hak sewa) title.
Like with freehold, you are allowed to sell or pass on leasehold property as inheritance to your family or sublease or rent it out. If the leasehold is not renewed once it expires, all rights go back to the original owner and it becomes freehold property again. Price- and tax-wise, leasehold is usually a better option than freehold, but it also means that if you’d at any point during the lease wish to sell the property, the value will have declined due to there being less years left on the lease.
Whichever method you choose for buying property in Bali as a foreigner, Red Lotus Property can guide you through the process from beginning to the end and make it as easy as possible for you.
Red Lotus Property is headquartered in Bali, Indonesia, with a mission to help people interested in buying, selling or renting residential and commercial real estate as well as looking for villa management services. We are passionate about listening to and accommodating our clients’ requests. Because we apply the authentic local touch, you can always feel safe when doing business with us. We deliver solutions and peace of mind to our clients and help them find the best way to prepare for the future.
If you’re thinking about property or lifestyle investments in Bali and need some professional and friendly advice and guidance, feel free to visit our office in Ubud, send us an email to info@redlotusbaliproperty.com or check out our property website, villa rentals and management website, LinkedIN or Facebook.
