Leasehold vs Freehold: What are The Differences?
There are two common types of property ownership in Indonesia – Leasehold titles and freehold titles. Sometimes, it’s confusing to understand leasehold vs freehold for individuals who want to start their property investment journey, as laws and regulations need to followed and considered when making any property investment plans.
In this article, we’ll learn what are the differences between leasehold and freehold, and the pros and cons. Let’s get started!
Leasehold vs Freehold – The Definitions
In order to understand the difference between leasehold titles and freehold titles, it’s essential to know about the definition of leasehold and freehold. Let’s explore these definitions.
- Leasehold: A title that gives you the right to lease a property after having a deal with the lessor for a certain period of time as agreed to.
- Freehold: The highest title that you possibly have. You can have this title through Hak Guna Bangunan or Hak Pakai. But, not for Hak Milik.
Leasehold Title
Leasehold title lets you generate money through property investment in Indonesia.
You can have a leasehold title for a certain period of time. It means you won’t have the title permanently. The duration of leasehold rights is usually set up for 25 to 80 years, depending on your agreement with the lessor/landlord, or the contract that you purchase from a current lessee.
Some leases can be much shorter, but keep in mind that there are extensions based on land value at the time the contract expires.
This kind of title allows you to have the option to extend your lease period, preferably closer to the expiration date of the current lease. This property investment option is open for non-Indonesian individuals and legal entities (PT. PMA).
All you need to know about leasehold rights are completely explained in our article titled “Leasehold in Bali: A Pocket Guide for Foreigners”. Click here to access the article!
Freehold Title
Freehold titles have a higher hierarchy than leasehold titles. If you have freehold titles, it means you can use your property for any purpose.
Sometimes, there’s a misunderstanding about freehold rights in Indonesia. Many people think that foreigners have a zero chance to buy freehold rights.
However, both non-Indonesian individuals and legal entities like PT. PMA can have the title if they want. Freehold rights like Hak Pakai and Hak Guna Bangunan are accessible to foreigners. Whereas, freehold rights like Hak Milik are for Indonesian citizens only.
Learn more about freehold titles, here!
Leasehold vs Freehold – Pros and Cons
Now, you’re expected to have insights into both leasehold and freehold rights. This will make it more straightforward and easier for you to know what are the pros and cons when comparing leasehold vs freehold.
1. Leasehold
Pros
- Less expensive – If you want to have a property through leasehold rights, it will be cheaper than the freehold titles.
- More leasehold villas are available in Bali than freehold titles as Bali is very rich in foreign investors.
- Newer built villas are available to leasehold clients, with larger land areas than freehold titles.
- Some of the most in demand areas in Bali with great commercial real estate properties offers investors a great return on their leasehold investments with a staggering 5 Year payback period. – For more information on leasehold commercial real estate, our property agent would be able to run you through the best of the best in each location.
Cons
- More limitations – Leasehold rights ownership doesn’t “own” the land.
- Ownership – The rights holder is not the owner of the property.
- You’ve to always make sure that should you wish to run the property as a rental business. You‘ll need to make sure that the property is in the correct zoning that allows you to obtain or have a “pondok wisata” license for daily rentals.
2. Freehold
Pros
- More authorities – You’ll have more flexibility to control the property, such as doing renovation for building improvements.
- Business – The holder of this rights has access to run a business through Hak Guna Bangunan should the land zoning permit you to do so.
- Greater resale value as freehold titles have a steady incline.
Cons
- More expensive – If you compare it to leasehold title, the freehold is more expensive.
- Fewer freehold properties available in investment areas.
- Most freehold properties are older than leasehold villas.
When you’re comparing leasehold vs freehold, there are pros and cons between them. Now, it’s up to you which one is better or more suitable for your needs.
Let’s Make a Right Choice!
Knowing the definition, pros, and cons when comparing leasehold vs freehold helps you to have a deep understanding of those property ownership titles in Indonesia.
As the pros and cons we’ve pointed out previously, it’s your turn to choose your dream title wisely. Make a choice that fits your needs and goals of having property in Indonesia.
