Things You Need to Consider When Preparing a Property Lease Agreement in Bali

Despite the hurdles created by the pandemic in the tourism sector, renting a property in Bali has shown signs of recovery due to a change in demand for luxury real estate.

As the nature of office work has changed over the pandemic, many businesses sought to migrate to the beautiful island of Bali. This, therefore, stimulated the demand for luxury housing. Previously, the ‘digital nomads’ movement in Bali was driven by hospitality and IT workers, but today it attracts a far broader range of businesses.

Employers are usually responsible for finding accommodation for their expatriate staff. Moreover, companies that are new to Indonesia will likely confront leasing methods that are different from what they are used to in their home country.

This article will provide important information regarding property leasing agreements in Bali.

Why Start A Villa Rental Business in Bali?

Bali, often referred to as the paradise island of Indonesia, is renowned for its stunning natural scenery, featuring beautiful beaches and mountains, a warm climate, and a unique cultural heritage. The island offers a tranquil atmosphere, perfect for those seeking a relaxing getaway. According to the Key Statistics Source (BPS), Bali experienced remarkable growth in tourism, with over 5 million international arrivals in 2023, marking a significant 144% increase compared to 2022.

Having successfully recovered from the economic impact of the Covid-19 pandemic, Bali now presents numerous opportunities for foreign businesses, particularly in property rentals. The growing market demand, coupled with modern infrastructure improvements, results in high rental yields for villas, especially in popular areas like Canggu, Seminyak, and Ubud. Additionally, the rising trend of remote working and the influx of digital nomads create a lucrative market segment for property businesses in Bali.

Opportunities of Bali Villa Rental Businesses for Foreigners

With the growing number of international tourist arrivals, Bali has seen a significant increase in the demand for villas for various occasions. The villa rental business has flourished not only for financial benefits but also for the serene lifestyle it offers to foreigners. Here are some key property business models that are currently popular and profitable among foreigners in Bali:

1. Short-term Rentals

These cater to tourists seeking temporary accommodations on a daily or weekly basis during their vacations. This model often results in relatively high rental yields, especially during peak tourist seasons.

2. Long-term Rentals

Ideal for expatriates, digital nomads, and those planning to stay in Bali for an extended period, Bali long-term villa rentals are typically offered on a monthly or yearly basis. This business model provides stable and consistent income.

3. Event Rentals

Villas in Bali are sometimes rented out with premium price for special occasions, such as wedding, corporate retreats, and other entertainment events.

4. Retreat and Wellness Centers

Given Bali’s peaceful and serene atmosphere, many villas are rented out and converted into spaces for yoga, wellness programs, and holistic healing, enhancing personal wellness.

Can A Foreigner Rent Houses in Bali?

Navigating the complexities of legal compliance in Indonesia, foreigners from any country can rent a house, particularly in Bali. Your visa and permit status significantly impact your ability to rent property in Bali. Holders of tourist visas are not permitted to sign long-term rent leases, as these visas are meant for short-term stays only. Therefore, it is essential to obtain an appropriate long-term stay visa, such as a work permit or residence visa, before renting properties in Bali.

When purchasing property in Bali, foreigners should be aware of the specific legal statuses available to them. Foreigners cannot own land on a freehold basis in certain locations in Indonesia. Instead, they can choose between two types of property statuses:

Leasehold

This type of agreement allows property leasing for a long term rent period, usually up to 25 years, and can be renewed for up to 70 years.

Right to Use (Hak Pakai)

Foreign property buyers residing in Indonesia can obtain the Right to Use (Hak Pakai) status for their properties. This status is valid for 25 years and can be extended for up to 70 years.

Is It Better to Buy or Rent Villa in Bali?

Both options offer different benefits based on the preferences of foreign buyers or renters. Both buying or renting villas also has its drawbacks that should be considered further by foreigners.

How Much Does It Cost to Rent Property in Bali?

The cost of long-term rentals in Bali varies depending on the location you choose. Popular tourist destinations like Seminyak, Ubud, and Canggu tend to have higher rental fees compared to other areas, while Sanur, Uluwatu, and Lovina offers more affordable options for villa rental. Typically, monthly long-term rental fees in Bali range from USD 300 per month for a simple homestay to USD 1000 per month for a villa with two or three bedrooms, depending on the location, size, and amenities provided.

What Needs to Be Considered When Renting a Property in Bali?

Purchasing a property with a leasehold title implies that one owns the property for a certain time but not the land on which it is built. Annual land rent payments or full payment for the life of the lease will be required to maintain property ownership.

The certificate might last anywhere from one to 80 years. When your lease certificate expires, you may either renegotiate for a longer period or, in certain cases, a lease extension is already included in the lease purchase.

The property will return to freehold title and ownership of the Indonesian after the lease has expired without being extended. You won’t have to put up much money, but your options for using the property will be limited. Furthermore, the physical structure’s value will not rise as much as freehold property, which is in higher demand among foreigners.

If you decide to acquire a leasehold property, the preparation of the agreement should be made by a third-party legal counsel. This is because the key to a cost-effective leasehold structure is ensuring renewals and controlling rent rises.

6 Items to Check Before Renting a Property in Bali

Quotation and Payment

Rent is usually quoted in US dollars per month but must be paid in Indonesian Rupiah, meaning fluctuations in exchange rates can affect your initial budget for property rent. Additionally, you need to understand any additional fees, such as transfer fees for international transactions and tax implications, before proceeding with your rental payment. It’s advisable to consult with a financial advisor or tax specialist to gain a better understanding and mitigate risks.

Duration of Lease Terms

The normal lease term is 20-30 years, and it might include land or an existing structure. Ensure and determine the length or your villa lease with the landlords to align with your initiated plans.

Items Covered in the Leasing Contract

Maintenance costs, such as air conditioning, water pumps, and small repairs (generally under $100), are normally borne by the renter. Tenants should budget for running expenditures that are not included in the rent, such as electricity, water, internet, and telephone.

Security Deposit

Renters are typically required to pay a booking fee or deposit upfront, which usually ranges from one to three months’ rent, after signing a letter of intent. This security deposit is generally refundable when you choose not to renew your property lease agreement.

Renewal Right

In most cases, the renter has the option to renew their lease at the market rental rate. During a renewal, apartment rent normally rises between10% and 15%, whereas house rental hikes are chosen at the will of the proprietor. Some agreement may include automatic renewals, while others require negotiation based on the terms of conditions set by the landlords.

Sublet Right

If the lease agreement allows it, tenants are usually entitled to sublet the premises throughout the lease period with the landlord’s consent. Embassies may include a provision in their leasing agreement that permits them to cancel the lease if the expatriate is relocated outside of Indonesia.

Do You Need to Conduct Property Due Diligence?

It is imperative to conduct thorough due diligence before the execution of a contract while renting a property in Bali. This is because the results may serve as a foundation for negotiating the contract’s terms and conditions (eg. condition precedence, representation, and warranty, indemnity).

Due diligence would normally cover the following:

• To guarantee that the seller is the legal owner of the land and has the authority to transfer the title. Depending on whether the land is certificated, the documentation must be inspected.
• To determine if the current land licenses are relevant to the buyer and whether they have secured the necessary licenses for the land and any structures placed on it. Also, the buyer must additionally verify the validity of the appropriate licenses.
• All applicable agreements connected to the land must be reviewed by the buyer (eg. lease agreement, financing, or loan agreement making the land an encumbrance).
• If the seller is a business, the buyer will need to examine the seller’s articles of organization, authorized representative, and other applicable corporate documentation.
• Evidence of tax payment (eg. land and building tax, land purchase tax, and duty), zoning and spatial layout studies at the relevant government institution, and a map of the land.

How InCorp Indonesia Can Help?

InCorp Indonesia will assist you in setting up your land and property investment plan in the most secure way. Our consultants provide you with a hassle-free legal agreement preparation, conducting due diligence and background check. Here are the key reasons to choose our services for a seamless start to your property investment journey in Bali:

• Professional Experts: Our team of trustworthy and capable professional experts excels in property management and ownership.
• Effective and Seamless: Leveraging our expertise in land and property ownership, we help property owners navigate complexities, ensuring a seamless and hassle-free property management experience.
• Cost Efficient: We offer a one-stop solution for property management services, tailored to match your business goals and initial costs.

Let’s start by filling out the form and talking to one of our professional consultants.