Is it Worth Investing in a Leasehold Property in Bali?
Investing in real estate in Bali can be a lucrative opportunity, but it is important to understand the nuances of leasehold properties. If you are not an Indonesian citizen, a leasehold is the only fully legal and secure way to hold an above-ground building in Bali. This article will provide a comprehensive guide to help you decide whether investing in a leasehold property in Bali is worth your time and resources.
Understanding Leasehold Properties
A leasehold property in Bali is a long-term rental agreement that allows you to hold the building for a specific period, usually up to 25 years. It is important to note that if the lease is registered on the deeds, no one can buy the ground freehold without notice. This makes it a legally valid and secure investment option.
The length of the lease can vary, with some leases allowing for extensions once or twice. However, the maximum legal duration for a leasehold property in Bali is 25 years. This means that, depending on the length of the lease, it can be a valuable investment, with a lease of 25 years being more valuable than one with only 5 years left.
Evaluating the Investment
Is a leasehold property in Bali a good investment? The answer depends on the wording of the lease and the remaining duration. A long lease should offer better value than buying the land outright. The owner might be banking on his heirs getting the land back at the end of the lease or on the ability to sell the land freehold from under you without notice.
To ensure that you make a sound investment, it is crucial to consult a good lawyer to make sure the registration is done correctly. Once you have a long lease and have ensured legal compliance, you can proceed with obtaining the necessary permits and documents to start the building process.
Leasehold Property and Renting vs. Living
Once you have secured a leasehold property, you can either rent it out or live there. However, achieving a good return is often challenging. Many property owners require effort to make their leasehold property pay. For instance, a friend of mine who has a long lease on a villa makes it pay by renting parts of it on a nightly and weekly basis.
Simply living in the property can be very satisfying and may be worth more than just financial returns. For many, owning property in Bali provides a special quality of life and experiences that go beyond monetary value.
Challenges and Considerations
If you are not a permanent resident of Indonesia, owning a leasehold property can be beneficial but also challenging. While it can be a worthwhile investment, simply buying a leasehold property does not entitle you to permanent residency. This can potentially make the property difficult to live in or sell in the future. If you ever want to sell the lease, the pool of potential buyers is small, and you may have to accept a loss to move it.
As the term of the lease decreases, the property's value also decreases. This is more significant for shorter leases, with a 20-year lease being more appealing than a 5 or 10-year lease. Additionally, as the leasehold decreases in years, the pool of buyers for shorter leases diminishes further.
Some leasehold properties on the market are listed at prices that are equal to rental rates, tying up 20 or 30 years' worth of rent upfront. In my opinion, a leasehold should be around half the value of a freehold property. However, the current market does not reflect this value.
In conclusion, investing in a leasehold property in Bali can be a worthwhile venture, but it is essential to weigh the risks and rewards carefully. Understanding the legalities, potential returns, and the challenges of long-term leasehold ownership can help you make an informed decision that aligns with your financial and lifestyle goals.