Freehold vs Leasehold: Meaning, Differences, and Key Considerations

In property transactions, there are two terms that are frequently encountered: 'Leasehold' and 'Freehold'. Understanding the difference between the two will greatly assist you in comprehending their impact on the purchase, budget, and sale of property.

What is the meaning of Leasehold and Freehold?

Freehold means you have full ownership rights over the property, including the land on which it is built, with no time limit. On the other hand, Leasehold means you own the property for a specific period, renting it from the land or building owner who holds the ownership of the entire land and building on which the property is located.

What is a Freehold property?

Freehold is a type of property that you own without a time limit, including both the building and the land. If you purchase a Freehold property, you will also be responsible for maintaining the property and land, so be sure to budget for maintenance costs. Most houses are Freehold, although some are Leasehold, especially in shared ownership schemes. You can also share Freehold ownership with other individuals or parties.

What are the benefits of owning a Freehold property?

The benefits of owning a Freehold property are:

• No time limitations
• No landlord to deal with
• You won't have to pay land rent or other service charges.

What is a Leasehold property?

A Leasehold property is one that you own for a specific period. In Bali or Indonesia, Leasehold properties often use the Building Use Rights (HGB) system, which has a limited duration, typically between 20 and 30 years, and can be extended according to the applicable regulations. This lease period will be clearly stated in the agreement between you and the landowner (the holder of the land rights).

When the lease term expires, the property will revert to the landowner. Many properties in tourist areas or development zones use the Leasehold system. This means you only have rights to the building, but not the land on which the property stands. You may also need to pay monthly or annual maintenance fees, depending on how the property is managed. Some houses are sold with a Leasehold status. In this case, you own the property but not the land, so you might need to pay land rent to the landowner (Freeholder).

What are the benefits of owning a Leasehold property?

The benefits of owning a Leasehold property are:

• More affordable prices
• Flexibility for temporary investment
• Lower risks

What to consider before purchasing a Leasehold property:
When you buy a Leasehold property, you are purchasing the right to own the property for a specific period. Before making an offer, consider the following factors:

• Remaining Lease Period
  If you purchase a Leasehold property that is still within its lease term, make sure to check how much time is left on the lease. The shorter the remaining lease term, the lower the property’s value. Properties with a short remaining lease term will be more difficult to sell or finance, and the cost of lease extension can be quite expensive
• Budget for Service Fees, Rent, and Other Costs
  You need to consider the monthly or annual maintenance costs, land rent, and any other expenses that may arise while you own the property.
• Potential Cost Increases in the Future
  Check if the lease agreement includes the possibility of future increases in land rent or other costs. If you own a Leasehold property, repairs and maintenance of the property will be your responsibility as the owner.

If you own a Leasehold property, repairs and maintenance of the property will be your responsibility as the owner. However, you will typically need to obtain permission from the landowner to carry out such work.

Looking for a more detailed explanation of leasehold property? Explore our full leasehold property guide.

Summary

Understanding the difference between Leasehold and Freehold properties is crucial in real estate transactions, especially in Bali. Whether it’s Freehold property, which offers full ownership, or Leasehold, which is more affordable and flexible, each has its own advantages, particularly in popular areas like Canggu and Kerobokan. If you’re looking for property in Bali, whether for investment or living, Bright Solution Property is ready to be your trusted partner. We specialize in property buying, selling, and management, including luxury villas, and will provide clear guidance on property status, associated costs, and profitable investment options.