Acquiring Bali property is something that is not quite possible (or desired) option for many individual and companies comes down to leasing or renting. While both have similarities, getting access to an asset for limited period, there are significant difference as well.

Many will argue that a long-term rental property is the same as a leasehold property during acquiring Bali property and in some way they are until you sign the contracts.

In Bali, there are many property titles to acquire, such as:

• Freehold (Hak Milik)
• Leasehold (Hak Sewa)
• Right of Use (Hak Pakai)
• Right to Build (HGB)
• Rental properties, be it daily/weekly/monthly or yearly.

So, when it comes to signing the contract for a long-term rental property, generally you will sign a ‘rental agreement’, which is not to be confused with a ‘lease agreement’, which is usually drawn up by a notary.

Yes, they are both lease, but generally a long-term rental property is anything from 1 year up to 5 years. Whilst a leasehold property can be more than 5 years, and is usually around 25-30 years. Both will have more less similar clauses in the contracts, with options to extend before contract expires.

So then, how do you decide which would be best for you?

Do you test the waters first and take out a long-term rental contract or plunge in head first and take on a leasehold property contract, which can have benefits in the long run?

Below, we have given a general outline of the differences between a long-term rental and leasehold property.

Long-term rental property

A long-term rental is usually anywhere from 1-5 years. The owner of the property rents out his premises, typically receiving up front yearly rental payments. The landlord and the tenant should be signing the ‘rental agreement’, accompanied by the signature of a withness (generally the property agent).

A long-term rental is often the best solution for families or groups who regularly travel to Bali if:

• You are planning an extended vacation
• You often travel on business trips
• You are large family and intend to relocate to Bali
• You have a higher but no plans to purchase a villa at this time

Is a long-term rental the right solution for your needs?

There are many advantage to a long-term villa rental, for example:

• No contract renewal or return required for the rental period
• In most cases, the owner will give a discount the longer you rent
• Many villas provide 24-hours manager assistance
• Personal cook, maids and butler services, nanny daycare (if under management)
• Fully furnished, quality interiors and amenities
• Additional free services, such as wifi internet access & satellite tv
• Having the privacy of your own villa, without the maintenance costs
• If permitted by owner, the tenant can sub-let

Leasehold property

This is a long-term lease contract when you are acquiring property in Bali. The land title is not under the foreigner name and remains under the ownership of the original owner. However, leased land for an initial period of around 25 years can then be extended up to 70 years, though very rare owners willing to lease up to 99 years. The legal transfer of owner’s title will begin after signature of agreements.

Under the lease contract, the property is able to sub-leased (rented out to other people). This is how many foreigners turn leasehold property into a lucrative investment and source of passive income.

For most investors, the beauty of lease is that their focus is immediate cash flow and a passive income, allowing freedom from the burden of watching market conditions as the actual value of the property is of no huge concern. In a low market there will be an increased number of long-term renters, and in a high market when everyone is purchasing, there is still the benefit of short-term holiday rentals.

If the leasehold is not renewed once it expires, all rights go back to the original owner and it becomes a freehold (Hak Milik) property again.

Drafting of any leasehold agreement should be carried out with the assistance of a third party legal advisor, since guaranteeing renewals and limiting rent increases is the key to cost-effective leasehold structure.

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