Leasehold and Freehold Property Ownership in Bali for Foreigners: Guide
In Bali, Indonesia, property ownership is available for foreigners in two different types of ways; freehold and leasehold. This is about what each are and their differences.
As a real estate agent in Bali, Indonesia, I often encounter questions from foreign clients regarding property ownership options. When it comes to buying property in Bali, the terms “leasehold” and “freehold” are crucial to understand.
Let’s explore these two types of property ownership, explain the differences to help you determine the best option for your needs as a foreigner looking to invest in Bali real estate.
Leasehold Property Ownership
Leasehold ownership is a popular option for foreigners in Bali due to Indonesia’s strict property ownership regulations. With leasehold ownership, a foreigner essentially acquires the right to use and occupy a property for a fixed period, usually ranging from 25 to 30 years, with the option to extend the lease for additional periods.
The lease agreement is made between the foreign buyer and the Indonesian property owner, who retains the freehold ownership of the land. During the lease period, the foreigner can use the property as they see fit, including renting it out for profit or living in it themselves.
Advantages of leasehold ownership include lower upfront costs and relatively easier legal procedures compared to freehold ownership. However, it’s essential to understand that once the lease period ends and no further extension is agreed upon, the property rights revert to the original owner.
Freehold Property Ownership
Freehold ownership, also known as “Hak Milik” in Indonesian, grants the property owner complete and permanent ownership rights over the land and any structures built on it. However, according to Indonesian law, only Indonesian citizens and select legal entities can directly own freehold property.
Foreigners interested in freehold ownership can consider setting up a foreign-owned company (PT PMA) or entering into a nominee agreement with an Indonesian citizen. The latter involves the Indonesian citizen holding the property’s freehold title on behalf of the foreign buyer. It’s crucial to work with a reputable lawyer and notary to ensure the nominee agreement protects the foreigner’s interests.
The primary advantage of freehold ownership is the permanence of property rights, which can be passed down to heirs or sold without any time restrictions. However, freehold ownership entails more complex legal processes and higher upfront costs compared to leasehold ownership.
Bali Leasehold and Freehold Procedure
When acquiring a leasehold or freehold property in Bali, it’s crucial to follow the correct steps to ensure a smooth and legally compliant transaction. Here are the general steps for acquiring both leasehold and freehold properties:
Leasehold Property Acquisition Steps:
1) Research and select a property: Begin by researching available leasehold properties in Bali that meet your requirements and budget. Work with a reputable real estate agent to help you find the right property.
2) Perform due diligence: Conduct thorough due diligence to confirm the property’s legal status, ensure that there are no outstanding debts or disputes, and verify the lease terms and conditions.
3) Negotiate terms: Negotiate the lease terms, including the price, duration, and extension options, with the property owner. It’s advisable to seek legal counsel to ensure your interests are protected.
4) Draft and sign the lease agreement: Once the terms are agreed upon, a lease agreement will be drafted, reviewed, and signed by both parties. It’s crucial to work with a reputable notary or lawyer to ensure the lease agreement is legally binding and properly registered.
5) Make payment: Pay the agreed-upon lease price according to the terms of the agreement. Payment is typically made in installments, with a deposit, followed by the remaining balance upon signing the lease agreement.
6) Register the lease: The lease agreement must be registered with the relevant Indonesian authorities to be legally recognized.
Freehold Property Acquisition Steps:
1) Research and select a property: As with leasehold properties, start by researching available freehold properties in Bali that meet your requirements and budget. A reputable real estate agent can help you find the right property.
2) Choose an ownership structure: Since foreigners cannot directly own freehold property in Indonesia, you’ll need to choose an ownership structure that complies with Indonesian law. Options include setting up a foreign-owned company (PT PMA) or entering into a nominee agreement with an Indonesian citizen.
3) Perform due diligence: Conduct thorough due diligence to confirm the property’s legal status, ensure there are no outstanding debts or disputes, and verify the property’s ownership structure.
4) Negotiate terms: Negotiate the property’s purchase price and any additional terms with the property owner. As with leasehold properties, it’s advisable to seek legal counsel to ensure your interests are protected.
5) Draft and sign the sale and purchase agreement: Once the terms are agreed upon, a sale and purchase agreement (SPA) will be drafted, reviewed, and signed by both parties. A reputable notary or lawyer should be involved to ensure the SPA is legally binding and properly registered.
6) Make payment: Pay the agreed-upon purchase price according to the terms of the SPA. Payment is typically made in installments, with a deposit, followed by the remaining balance upon signing the SPA.
Remember that these steps are general guidelines, and specific requirements and procedures may vary depending on the property and the chosen ownership structure. Always consult with a reputable lawyer or notary to ensure a smooth and legally compliant property acquisition process in Bali.
When investing in property in Bali as a foreigner, understanding the differences between leasehold and freehold ownership is critical. Each option comes with its unique advantages and disadvantages, and the best choice will depend on your specific goals, budget, and risk tolerance. By carefully considering the differences between leasehold and freehold ownership, you can make a well-informed decision and secure the perfect Bali property that meets your needs and preferences.