If you are amongst many investors that are falling in love with Bali and plan to add your property investments portfolio on this small island, maybe you need to understand more about freehold and leasehold properties law in Indonesia.
There are some dos and don’ts regarding property ownership by expats in Indonesia, and we want to cover this issue in this oversimplified article for you.
In this article, we want to underline these matters, thus you could have a better view of property investment strategy.
Property Ownership Types in Indonesia – A Brief Overview
Owning a property in Indonesia, and Bali in particular, is an exciting prospect for many people. But before you decide to buy one, there are several things that you should consider.
This section will give you all the information you need to know about owning a property in Indonesia.
What is a Leasehold in Indonesia? (Hak Guna Bangunan/HGB)
According to Article 34 Government Act No. 18/2021, one person or a legal entity in Indonesia could possess the right to lease land and use the land for purposes of the building by paying the owner a sum of money as leased.
The right belongs to Indonesian citizens and legal entities registered in Indonesia.
The Meaning of Freehold (Hak Milik/SHM)
Can be said, freehold rights are the highest right among the other property ownership rights. This right is given to the rightful owner of a plot of land or property.
Unfortunately, this type of certificate can be granted to the Indonesian citizen only, foreigners can not own an SHM or Right of Freehold.
Cultivation Right on Land (Hak Guna Usaha/HGU)
According to Article 22 of Indonesian Government Act No. 18/2021, the right is valid for 25 years and can be extended for another 35 years, and it must be registered with Indonesian National Land Agency (Badan Pertanahan Nasional), which is responsible for land measuring, registration of the extent of land rights, and issue of certificates to lenders.
Indonesian citizens and legal entities registered in Indonesia are among those who may hold land cultivating rights.
Rights of Use (Hak Pakai)
The right of use is essential to use and exploit the land yielding. The land is owned by the government or other private parties in this case.
As long as the obligations and rights are not in violation of the act’s provisions, they are stated by government decision or agreement with the owner.
The rights term is based on the same Government Rule No.18/2021 in Article 52, which permits foreigners who are legally present in Indonesia to hold a landed residence for up to 80 years.
Is it Better to Have Leasehold or Freehold?
In terms of property investment, it appears that the freehold is the best option. However, they have their own benefits. Learn more about it and choose what fits you most.
Freehold Property Benefits:
Among the benefits of purchasing a freehold property are:
Full Ownership: If you keep up with your mortgage payments and/or pay off your mortgage, you will have total ownership of the property and land.
Flexibility: You could do whatever you want with your property, such as make architectural improvements or make it into your residence or rent it out as your income source. As long as you follow the local authority’s or council’s rules.
No Lease: You won’t have to worry about keeping track of when your lease expires or paying to extend it, which can be costly. The landlord will not require a monthly ground rent, service costs, or administrative expenses.
Leasehold Property Benefits:
The following are some of the benefits of purchasing a leasehold property:
Affordability: Leasehold properties in Bali are often more affordable than freehold properties. This makes them an attractive option for buyers who want to invest in Bali real estate but have a limited budget.
Location: Leasehold properties in Bali are often located in desirable areas, such as beachfront or hillside locations. These locations may be more expensive or unavailable for freehold ownership, making leasehold properties an attractive option for buyers who want to enjoy the benefits of these locations without the high cost.
Flexibility: Leasehold agreements can be structured to provide flexibility for both the buyer and the landowner. For example, the lease term can be negotiated, and provisions can be included for renewing the lease or buying the land outright after the lease term expires.
Investment potential: Leasehold properties in Bali can still appreciate in value over the lease term, providing the potential for a good return on investment. Additionally, Bali’s tourism industry continues to grow, which can increase demand for Bali real estate and drive up property values.
Lower taxes and fees: Bali properties with leasehold title often have lower taxes and fees associated with ownership than freehold properties. This can make them a more affordable option for buyers who want to invest in Bali real estate without incurring high ongoing costs.
Buy a Property in Bali as a Foreigner: What You Need to Know
Here are a few things to consider as a foreigner if you are willing to begin your investment strategy in Indonesia.
Understanding Indonesia Government Law about Property Ownership
Foreigners could purchase property in Indonesia, however the property’s certificate is a used right certificate (Sertifikat Hak Pakai) with a 30-year term. This can be lengthened by 20 years, renewed in 30 years.
Can a foreigner buy a property in Indonesia, or Bali Especially?
Foreigners nowadays can own landed houses and apartments in Indonesia, especially Bali.
One way to acquire a property in Indonesia is by establishing a PT PMA (Penanaman Modal Asing).
If foreign investors invest in Indonesia through a local limited company, the certificate is a land right certificate (called HGB) with a maximum term of 30 years that can be extended for an additional 20 years.
The certificate name for all property purchased by foreign investors is a land rights certificate (HGB) issued by the national land agency. It is valid for the periods stated above.
The Best Location to do Property Investment in Bali
If you are searching for a beautiful villa in Bali, the best places to look would be closer to the tourism hotspots, because there is the higher potential to rent out your property for tourists and the property value tends to appreciate more in those areas.
Our favorite areas are the following:
Well-known Destinations
Seminyak: In the heart of Bali’s entertainment and shopping district, Seminyak offers a rental property profit potential that’s hard to match. This bustling area attracts tourists and vacationers with its vibrant nightlife, renowned dining scene, and array of boutiques.
Learn more about Seminyak’s demand.
Canggu: Discover a rental property profit potential like no other in the vibrant and dynamic enclave of Canggu. With its trendy cafes, lively beach scene, and continuous influx of travelers, this area presents a golden opportunity for lucrative returns.
Learn more about Canggu’s demand.
Ubud: Amidst the lush landscapes and artistic allure of Ubud lies a distinct rental property profit potential. Beyond its iconic rice terraces and spiritual charm, this cultural heart of Bali draws a niche crowd of long-term renters. Expats, writers, and artists seek the serenity and inspiration that Ubud provides.
Learn more about Ubud’s demand.
Uluwatu: With Uluwatu’s reputation as a surf and wellness destination, your rental property becomes a gateway to a lifestyle of relaxation and adventure. Embrace the allure of Uluwatu and capitalize on its upscale appeal to make your investment dreams a reality.
Read more about Uluwatu’s demand.
Rising Destinations
Pererenan: Pererenan’s tranquil surroundings, rice fields, and proximity to the beach make it a sought-after destination for travelers seeking a balance between relaxation and exploration. Families, surf enthusiasts, and nature lovers find solace in Pererenan’s slower pace and picturesque landscapes.
Learn more about Pererenan’s potential.
Cemagi: Compared to its neighbors, land and property in Cemagi are still affordable. But with rents rising up to 200% since 2021, this won’t last long. It’s a golden opportunity to invest before prices soar.
Learn more about Cemagi’s potential.
Seseh: As more investors and tourists look for alternatives to Bali’s more crowded destinations, Seseh stands out for its natural beauty and exclusivity. The area’s potential has not gone unnoticed, leading to a surge in demand and, consequently, a spike in property values.
