Leasehold or Freehold? Key Considerations for Bali Property Investors

When investing in property in Bali, one of the most crucial decisions you’ll face is whether to choose leasehold or freehold ownership. This fundamental choice impacts not only the legal framework of your investment but also its long-term value, profitability, and resale potential. While Bali’s stunning landscapes, booming tourism industry, and high demand for rental properties make it an attractive real estate market, Indonesia’s property laws add a layer of complexity, especially for foreign investors. Unlike many other countries where outright property ownership is straightforward, Bali enforces strict regulations regarding land ownership, particularly for non-Indonesians.

Freehold ownership grants full rights over the land and property indefinitely, making it the preferred option for Indonesian citizens and long-term investors with local business interests. Leasehold, on the other hand, allows buyers—especially foreigners—to secure property for a fixed term, usually 25 to 30 years with an option to extend, making it a more flexible and accessible choice. However, both ownership structures come with distinct financial, legal, and practical implications that should be carefully weighed before making a decision. Whether you’re planning to build a luxurious villa for personal use, start a rental business, or simply hold property as a future investment, understanding the pros and cons of leasehold versus freehold will ensure you make an informed and strategic investment in Bali’s dynamic real estate market.

What is Freehold Property?

Freehold property is the most straightforward form of ownership in many parts of the world, where the buyer holds complete ownership of the land and property. In the context of Bali, freehold means that the buyer has full legal rights over the property for an indefinite period. This is the most secure form of ownership because the property rights are permanent, and you are free to do anything you like with the property (within the local zoning and building regulations).

Advantages of Freehold Property

1. Full Ownership Rights: As the titleholder of a freehold property, you own both the land and the building. There are no time restrictions on your ownership, and you can pass the property on to your heirs.
2. No Renewal Fees: Unlike leasehold agreements, which often require renewal after a set period, freehold ownership is permanent.
3. Investment Security: Because of the permanence of freehold ownership, freehold properties typically have higher resale values. They are more likely to attract long-term investors, offering better capital appreciation.
4. Freedom to Build or Modify: As a freehold owner, you can modify your property, build extensions, or even demolish and rebuild, subject to local regulations.
5. Stability and Control: Freehold ownership provides greater control over your property, reducing the potential risk of eviction or lease non-renewal.

Also read: 7 Best Property Development & Contractors in Bali for Your Next Project

Disadvantages of Freehold Property

1. Limited Availability for Foreigners: Foreigners cannot directly own freehold property in Bali due to Indonesian law, which restricts land ownership to Indonesian nationals. However, there are ways to secure freehold property through a nominee structure, which can be complex and carries some legal risks.
2. Higher Initial Cost: Freehold properties tend to be more expensive than leasehold properties, making the initial investment higher.
3. Land Ownership Complexity: While you may be able to hold the freehold title through a nominee agreement, this arrangement can be complicated, and you should consult legal experts to ensure compliance with Indonesian law.

What is Leasehold Property?

Leasehold property, on the other hand, refers to a situation where you, as the buyer, lease the land for a set period. The lease is typically between 25 to 50 years, with the option to extend. Leasehold ownership grants you the right to use and enjoy the property during the lease term, but it does not give you full ownership of the land. You own the building on the land, but the land itself remains owned by the Indonesian national or company.

Advantages of Leasehold Property

1. Easier for Foreigners: One of the major benefits of leasehold property in Bali is that it is more accessible to foreign buyers. Since foreign nationals cannot own freehold land, leasehold provides an opportunity to invest in property on the island legally.
2. Lower Initial Investment: Leasehold properties are typically cheaper than freehold properties. This makes them a more affordable entry point into the Bali property market.
3. Security of Long-Term Tenure: With leases often extending for up to 50 years, leasehold properties can still provide a sense of long-term security. Some contracts may even allow for automatic renewal.
4. No Land Ownership Risk: Since the land remains in Indonesian ownership, you don’t need to worry about the complexities of land ownership laws or nominee structures.

Disadvantages of Leasehold Property

1. Limited Tenure: The most significant downside of leasehold properties is the limited ownership period. Once the lease expires, you may lose access to the land unless you negotiate a lease renewal.
2. Higher Renewal Costs: When a leasehold agreement is nearing its expiration, renewing the lease can come with significant costs. In some cases, the renewal price can be higher than the initial purchase cost.
3. Less Control Over the Property: Leasehold agreements can have more restrictions than freehold properties. You may need the landowner’s approval to modify or sell the property.
4. No Inheritance Rights: Since you do not own the land, you cannot pass on the property to your heirs as a freehold property owner can. Instead, the lease may expire with your passing.

Comparing Leasehold and Freehold in Bali

When considering property in Bali, one of the key decisions you’ll face is choosing between leasehold and freehold ownership. Both options come with their own set of benefits and challenges, especially for foreign buyers. While freehold offers permanent ownership and greater control, leasehold provides a more accessible and cost-effective solution for those looking to invest in Bali’s thriving real estate market. We’ll compare the two, highlighting their differences to help you make an informed decision based on your needs and investment goals.

Legal Framework for Foreigners

One of the most important things to consider when purchasing property in Bali is the legal framework for foreign ownership. Indonesia has a strict legal framework that does not allow foreigners to directly own land.

• Freehold Ownership for Indonesians: Freehold ownership in Bali is reserved for Indonesian citizens or Indonesian legal entities. Foreign nationals can acquire freehold property only indirectly, using nominee structures or by establishing a local company that holds the freehold title.
• Leasehold Ownership for Foreigners: Leasehold is the most common way for foreigners to acquire property in Bali legally. Foreigners can lease land for a period of up to 25 or 30 years, with the possibility of extension.

Pricing Differences

• Freehold Properties: These properties are often more expensive because of the permanent ownership rights and the scarcity of land available for foreigners. If you’re able to acquire freehold rights through a nominee or company structure, you should expect to pay a premium.
• Leasehold Properties: Leasehold properties are typically more affordable, especially for short-term investors or those looking to spend a few years in Bali without a long-term commitment. However, the long-term costs can add up, especially if the lease needs to be renewed.

Long-Term Investment and Resale Value

• Freehold Properties: As mentioned earlier, freehold properties are considered more secure investments with long-term value retention. These properties tend to appreciate over time, especially in sought-after locations.
• Leasehold Properties: Leasehold properties can still appreciate in value, but this depends on the terms of the lease and whether or not it can be renewed. Buyers should be cautious of leasehold agreements nearing the end of their term, as their value might decrease.

Also read: 7 Best Architect Firms in Bali You Should Know in 2025

Key Considerations Before Buying Property in Bali

Before buying property in Bali, there are several key factors to consider to ensure a smooth and successful investment. From understanding the legal restrictions on foreign ownership to evaluating the location and potential for long-term returns, it’s essential to do thorough research and seek expert advice. Whether you’re eyeing a freehold or leasehold property, being well-informed about the local market and the details of your purchase will help you avoid common pitfalls and make the most of your investment in this tropical paradise.

1. Understand the Lease Terms: If you are purchasing a leasehold property, it’s essential to fully understand the terms of the lease agreement. Look for leases that offer long terms (at least 25 years) and the option for renewal.
2. Consult Legal Experts: Property ownership in Bali can be complex, especially for foreigners. Ensure you work with reputable legal experts to navigate the process and avoid potential pitfalls with nominee agreements or leasehold contracts.
3. Research the Property Market: The Bali property market can fluctuate. It’s essential to understand the current market trends, the location of the property, and future development plans in the area.
4. Consider Future Costs: Whether you’re looking at a freehold or leasehold property, consider the long-term costs involved, including maintenance, taxes, and possible renewal fees for leasehold properties.
5. Location: The location of the property can significantly affect its value. Areas like Seminyak, Ubud, Canggu, and Uluwatu are more expensive but offer higher returns on investment. Less touristy areas may offer better value for money.

Conclusion

When it comes to purchasing property in Bali, both freehold and leasehold offer distinct advantages and disadvantages. Freehold property provides full ownership rights and long-term security, but it is typically more expensive and harder to acquire for foreigners. Leasehold properties are easier for foreign nationals to acquire, offer a more affordable entry point, and still provide long-term security in many cases, though they come with the risk of expiring leases and potential renewal costs.

Before making a decision, it’s essential to understand the legal landscape, your long-term plans, and your financial situation. Whether you choose freehold or leasehold, working with trusted legal and real estate professionals is key to ensuring a smooth and secure property transaction in Bali.