Typical Lease periods and what to know

Leasehold Property in Bali is one of the most common foreign ownership methods. As a foreigner you can't own freehold land in Indonesia so the lease system is the next best thing. Leasehold can be registered in your own name with full rights of the property going to you for the period of lease.

Typical Lease period is between 20-30 years and this can be of land or of an existing building. If you are leasing directly from a Balinese/Indonesian land owner the transaction is fairly straight forward in a sense you discuss the deal and if agreed you can get the Notaris to draft your agreement then proof it before signing. Agreeing to the same things is often the more complicated part of the transaction.

When leasing Land it is wise to discuss the right of extension (known as first right of refusal) If at the end of the agreed lease time you still wish to extend your time on the property the owner must give you the first option to do so. 

Over contracting, You will find many people buying lease land developing it then reselling the lease to a 3rd party. This is called over contracting and when doing this you must check that the agreements between the owner and who you are contracting from allows for this and what the stipulations are to do so. Often it requires an introduction to the Land Owner or sometimes compensation of profit share. Using a good Notaris they will inform you of these details. 

How land is priced when leasing is based off per Are(100sqm) per year. For example if you want to lease 5 Are land for 20 years and the price of land was 8million per are per year you would go 5 X 8million X 20years which would make the land worth 800million. This is normally paid with a deposit to the Notaris first while they do the due diligence then full payment upon signing the lease agreement. Some owners will allow payment terms but often they ask for cash..

The way we like to calculate the value for lease land in an area is by using the 1% rule. The yearly value of a property we base off the freehold price of the property time 1%. If the land is valued at 1billion Freehold then the per Are per year price should be 10million or less.

It's always important when purchasing anything to get solid advise about the property. Asking people who have already bought land in the area along with using reputable Agents is always recommended. There is alot of people that will tell you what you want to hear instead of the truth so be aware and get sound advise from professionals so you can enjoy a stress free dream investment property..

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