Leasehold and freehold are terms used to describe different types of property ownership. In Indonesia Leasehold is called Hak Sewa and Freehold is called Hak Milik. These terms define the extent of ownership rights and responsibilities that an individual or entity holds over a piece of real estate. Here’s an explanation of both concepts and their differences, along with the benefits associated with each type of ownership:
Leasehold
In a leasehold arrangement, an individual or entity (the lessee or tenant) obtains the right to use and occupy a property owned by another party (the lessor or landlord) for a specified period of time. This period is usually outlined in a lease agreement, which can vary from several years to several decades. Leasehold agreements can be extended, so long as this option is mentioned in the master lease.
Leasehold properties are often associated with residential, commercial, and even vacation properties and are the preferred option for foreigners to enjoy secure property investments in Bali. Mirah Investment & Development offer long leases ranging from 35 to 100-years.
Benefits to Leasehold ownership include:
- Lower Upfront Costs Leasehold properties typically have lower upfront costs and are generally more affordable and when they’re in areas of high rental demand, like in Bali’s popular tourist destinations, they tend to experience good capital appreciation and potential rental income during the lease period.
- Easier Transfer of Ownership Compared to other types of property ownership, leasehold agreements often involve simpler and more straightforward transfer procedures. This can be beneficial when foreigners decide to sell their leasehold property to another investor or local buyer.
- Developer Guarantees Many leasehold properties in Indonesia are developed by reputable companies like Mirah Investment & Development and come with certain guarantees, such as property management services, maintenance, and security, ensuring a hassle-free investment experience for foreigners.
- Flexibility and Exit Strategies Leasehold agreements also allow foreigners the flexibility to negotiate the terms of the lease, including options for renewal or exit strategies. This adaptability allows investors to align their investments with their long-term goals. It’s also possible for leases to be subleased to another party at any time, with the new lessee assuming the remaining time left on the lease. Typically, leasehold titles are for 25-years and can be extended so long as this is mentioned in the master lease. Mirah Investment & Development offer long leases ranging from 35 to 100-years, depending on the project.
Freehold
In Indonesia, Freehold, is granted under the Basic Agrarian Law of 1960. It’s considered to be the highest form of property ownership and grants the owner full rights and control over the property, including the land and any structures on it. This type of ownership is reserved for Indonesian citizens and Indonesian legal entities only, meaning it’s not available to foreigners. However, if you establish a foreign-owned company through a PT PMA, which Mirah Investment & Development will do for you, Freehold ownership is an option some investors prefer
Benefits to Freehold ownership include:
- Ownership Security Freehold ownership provides the highest level of ownership security and control over the property.
- Potential for Greater Appreciation Freehold properties generally have more consistent and potentially higher appreciation in value over time.
- Adaptability Freehold owners have the flexibility to make changes to the property, whether for personal use, investment purposes, or rental income.