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For properties for sale in Bali, you may ask about the ROI of freehold vs leasehold, and what property business should you do. Read more to find answers.

When choosing a property for sale in Bali, these questions may come to mind: Should you buy freehold or leasehold? What is the yearly yield and return on investment for either of them? What are the laws associated with holiday or yearly rentals?

In this article, we will share with you an insight on the most recent trend to help you make a sound investment decision.

What does the property market look like in Bali?

There are two distinct ways people can invest in the property market:

1. Holiday rental (monthly rental)
2. Yearly rental

Holiday rentals, as the name suggests, is reserved for tourists who would rent the property for at least one month for purposes that are likely not for long-term living. On the other hand, yearly rentals are most likely reserved for housing or commercial purposes (i.e. office spaces, not for hospitality businesses).

Holiday rentals will require a license called a Pondok Wisata for villas and houses to be used as accommodation for tourists, however yearly rentals do not. Holiday rentals may only receive the permit if they are in the tourism zone.

Although in the past, people were able to sell / rent out their property for a variety of purposes, even switching between yearly rentals to holiday rentals without reporting and obtaining the right permits, recently the government has become more involved in reinforcing the zoning policies.

With a permit requirement, holiday rentals tend to have high operational costs and taxes, due to them playing a role in the hospitality sector. However, this is balanced by high revenue, especially if the property suits the taste of the market segment, located in a high-demand location, managed, maintained and marketed well.

Holiday rentals tend to demand more attention than yearly rentals, so if you cannot invest in time for your properties, we highly suggest to operate in the yearly rental market or hire a property management service.

Buy which properties for sale in Bali, freehold or leasehold?

According to a property trend examiner, Andrzej Barski from Seven Stones Indonesia, there is a growing trend among Indonesian investors to buy leasehold properties for sale, rather than freehold, even if they have the national right (read more: Ownership of Land in Indonesia, for Mixed-Marriage Couples).

High prices of freehold properties drive this decision. A rule of thumb suggests that the average price of a yearly rent on freehold value is 1% – this means one will only make a substantial profit from exit selling the property. This yields an ROI of 8%, according to Barski.

Meanwhile, buying leasehold properties is a safer bet. A 30-year lease costs at least 30% of the total freehold value, but the extra cost of convenience and lower commitment is a great choice for “short-term” property players. As much as 10-12% of ROI can be obtained from a leasehold yearly rental business. An added benefit is the ease to sell the property to the next leasehold holder.

There is more to discuss about choosing the right properties for a sound investment. Drop us an email [email protected] or message us on Whatsapp for a quick response. Bali Coconut Living is ready to provide any information that you need.