- Posted by Bali Legals
- On March 19, 2019
Buying a Bali Property for Holiday Rentals
The holiday rental market can achieve very good returns, but it does have some aspects that need to be taken into consideration.
You will need something called a Pondok Wisata license. This entitles you to conduct a legitimate business in the holiday rental space. However, the areas that this is allowed are limited to “Tourism Zones” only.
Holiday rental business will generally cost more because of their prime locations in the “Tourism Zones” and some owners of these properties will be wanting to up-sell future profits and therefore charge higher prices. In that sense it’s just like buying/selling a business.
Management, maintenance and promotion can be handled by dedicated management companies in Bali but be they will expect a large part of the revenue generated.
If that doesn’t appeal, the other option is to self manage, maintain and promote.
Buying a Bali Property for Yearly Rentals
The yearly rental market can also achieve strong returns although these will usually be a little less then a holiday rental villa.
Although there are some big advantages of acquiring a yearly rental villa;
- It will cost less to invest because it isn’t necessary to have a Pondok Wisata license.
- You have a much wider area to choose from because the villa doesn’t need to be in a designated “Tourism Zone”.
- The rent is paid upfront on a yearly basis and there are no general monthly costs.
- Every year there is a growing population of expats moving to Bali, which leads to a growing demand for good quality yearly rentals.
Investing in Bali Property
Ownership structures in Indonesia state that foreigners are not allowed to directly own a property on a freehold title.
But there are ways that you can buy a freehold property and begin investing in Bali property. The most common forms are:
- Through setting up a fully foreign owned company (PMA) which then acquires the property. This is called an HGB structure and allows you to have the property for 70 years. During this time you can resell it on a freehold basis again.
- Acquiring a work permit for Indonesia (KITAS) and acquiring a property under a HAK Pakai structure, which also allows you to have the property for 70 years and in that time you can resell it on a freehold basis again.
It’s important to note here that properties with Hak Pakai titles can only be used for yearly rentals.
When it comes to returns, a freehold/HGB/Hak Pakai property should attain an ROI of around 8%, which includes capital appreciation of the land.
With leasehold properties the ROI should really be around 10-12% as a starting point.
For taxes you should count on paying at least 10% on the profit generated.
Bali Legals can assist with all the property documents and legalities.
Contact us to discuss your requirements.