6 Ways To Manage a Leased Property in Bali

Leasing a property in Bali can be a wise investment for foreign investment. It is helpful to anyone for generating passive income or expanding their real estate portfolio. However, owning a leased property comes with responsibilities beyond simply collecting rent. 

In this context, it’s essential to understand why regular maintenance of a leased property is crucial and how it can benefit both the owner and the tenant.

What is The Meaning of Lease Property?

A leased property refers to real estate or tangible assets acquired through a legal agreement called a lease. In this agreement, two parties are involved:

• Lessor (Landlord): The owner of the property who grants permission to use it for a specific period in exchange for rent payments.
• Lessee (Tenant): The party who receives the right to use the property for the agreed-upon timeframe.

Terms and conditions of the lease agreement

• Rental rate: The amount of money the lessee pays the lessor for the right to use the property.
• Lease term: The specific duration for which the lessee has access to the property.
• Permitted uses: The activities the lessee is allowed to conduct on the property.
• Maintenance responsibilities: Who is responsible for repairs and upkeep of the property.

Types of Leased Properties

• Residential properties: Apartments, houses, and condos.
• Commercial properties: Office buildings, retail spaces, and warehouses.
• Equipment: Machinery, vehicles, and other business assets.

Leasing property can be a good option for both lessors and lessees depending on their needs. For lessors, it provides a steady stream of income and frees them from managing the property themselves. For lessees, it offers the flexibility to use a property without the upfront cost of ownership.

Types of Leases in Property

Property leases in Indonesia offer various structures to suit your needs and risk preferences. Here’s a breakdown of common lease types you’ll encounter:

1. Hak Guna Bangunan Lease

This lease grants the lessee (tenant) the right to construct buildings and own them on a designated plot of land. The land itself remains under the ownership of the lessor (landlord). Hak Guna Bangunan leases typically range from 25 to 30 years, with the possibility of renewal upon negotiation with the lessor and relevant government authorities. This type of leases is ideal for long-term investments where building ownership is desired (e.g., residential properties, commercial developments).

2. Hak Sewa Bangunan Lease

Hak Sewa Bangunan lease grants the lessee the right to use existing buildings on a plot of land for a specific period. Ownership of both the land and buildings remains with the lessor. HSB leases are typically shorter than HGB, often ranging from 1 to 10 years, with potential for renewal based on agreement with the lessor. Therefore, it’s a good option for situations where long-term ownership isn’t necessary (e.g., temporary office space, renting an apartment).

3. Hak Pakai Lease

This lease grants the lessee the right to use the land itself, including any existing structures, for a specified period. The lessor retains ownership of both the land and buildings. HP leases can vary significantly in duration, ranging from short-term agreements to longer arrangements depending on the purpose (e.g., agricultural land use, construction projects). It’s suitable for projects requiring land usage without building ownership (e.g., farming, temporary structures).

Leasehold vs. Freehold

It’s important to understand the distinction between leasehold and freehold property ownership in Indonesia:

• Leasehold: As mentioned, most property leases in Indonesia fall under categories above, granting leasehold rights for a defined period.
• Freehold (Hak Milik): This ownership type grants complete and indefinite ownership rights to both the land and any buildings on it. However, freehold ownership is typically restricted to Indonesian citizens. Foreigners can invest in Indonesia through long-term leasehold options.

Considerations for Property Leasing in Indonesia

Leasing property in Indonesia can be a strategic move, but careful planning is essential for a smooth experience. Here are some key considerations to navigate the process effectively:

Purpose

Clearly define the intended use of the property. Residential living requires different considerations from a commercial space or industrial area.

Lease Duration

Determine the ideal lease term for your needs. Short-term options might be suitable for temporary projects, while long-term leases offer stability for established businesses.

Budget

Establish a realistic budget that incorporates rent, potential additional costs like maintenance or property taxes (depending on the lease type), and moving expenses.

Lease Types

In Indonesia, leases come in various structures, such as Hak Guna Bangunan (HGB) for building ownership on leased land, Hak Sewa Bangunan (HSB) for using existing buildings, and Hak Pakai (HP) for land use. Each offers distinct rights and responsibilities regarding maintenance, ownership, and renewal options.

Legal Counsel

Consulting a property lawyer familiar with Indonesian real estate regulations is highly recommended. They can explain the intricacies of different lease types and ensure the agreement aligns with your needs.

Area Research

Thoroughly investigate the surrounding area’s safety, accessibility to essential services, and amenities. Consider factors like proximity to transportation, markets, and potential zoning restrictions that might impact your business operations.

Property Inspection

Conduct a detailed inspection of the property itself, including its condition, available amenities, and any potential maintenance needs. This will help you negotiate the lease terms and budget for any necessary repairs or upgrades.

Clarity and Transparency

Ensure the lease agreement is clear, concise, and translated into English if necessary. Don’t hesitate to ask for clarification on any unfamiliar terms.

Key Terms

Pay close attention to details like rent amount, payment schedule, security deposit terms, maintenance responsibilities, termination clauses, and subletting permissions (if applicable).

Local Regulations

Be aware of any relevant Indonesian property lease regulations that might impact your rights and obligations as a lessee. These regulations can address aspects like lease renewal procedures and limitations on foreign ownership.

Long-Term Considerations

If you envision potentially owning the property in the future, explore leasehold vs. freehold options. Freehold grants complete ownership, but it’s typically restricted to Indonesian citizens. Leasehold offers long-term use rights, and some lease types might allow for eventual purchase negotiations.

Why Should You Maintain Your Property?

While investing in a Bali property has the potential for significant long-term profits, substantial financial losses are also a potential risk to consider.

Using property management services from a local provider can be a wise decision to guarantee the proper upkeep of your investment at a high standard.

As a property owner, you may be responsible for various tasks, including handling financial audits, addressing guest inquiries and complaints around the clock, and locating dependable repair services for your property.

Being a property owner can be a 24-hour job that consumes your time. Your substantial investment may slowly lead to losses without adequate handling and management. 

Employing the services of a property management company is a prudent solution to ensure the proper maintenance of your property. The service usually comes with trained resources to give solutions for every problem you may face as a leased property owner.

Reasons to Maintain Your Leased Property

Maintaining a leased property is crucial for the property’s longevity and the satisfaction and safety of the tenants.  

Property owners ensure tenants have a safe, comfortable, and habitable living environment.

Regular maintenance and repairs ensure the property remains in good condition, reducing the likelihood of significant issues arising. 

Keeping the property well-maintained also shows your tenants that you care about their well-being and are committed to providing them with a high-quality living space. 

Additionally, regular maintenance can prevent minor problems from turning into costly repairs, saving you money in the long run. 

Maintaining a leased property is essential for both the owner and the tenants, creating a positive and productive rental experience for all parties involved.

What You Need to Know About Property Maintenance

Maintaining your leased property poses some challenges. This is because you must ensure that your investment reaches the potential market you sought. 

Therefore, here are the things you must consider about leased property maintenance. 

1. Marketing and Advertising Strategies

After preparing your rental property for occupancy, setting rental prices and expectations is a critical step before finding tenants. 

Researching the average rental price in the area and assessing the number of available properties is necessary before setting a rental fee. 

When choosing a location, it’s crucial to consider the area’s average income and family size, as well as any additional advantages or benefits that may be available, such as convenient access to public transportation or off-street parking.

Analyzing the competition in the market can assist in appropriately pricing your rental property.

2. Pricing Strategies

Ensuring a profitable rental property requires understanding your cash flow and keeping track of your finances. While hiring a property management company can provide comprehensive reports, it is essential to understand the requirements for keeping your books. 

These include monitoring rent payments to cover expenses like mortgage and property maintenance, collecting rent on time, tracking monthly mortgage payments, and accounting for costs such as advertising fees, property maintenance, insurance, taxes, and unexpected fines. 

Setting apart tenant security deposits in compliance with local laws is also essential.

Maintaining accurate paperwork is crucial, including proof of property and property owner insurance, rental applications, lease agreements, rent receipts, walkthrough checklists, and other relevant documents. 

Setting aside money for expenses and considering hiring an accountant to maximize deductions and stay updated on tax laws is also essential.

3. Guest Management

Additionally, it is essential to determine tenant requirements before advertising your property. 

It includes identifying the ideal tenant profile and considering minimum income, smoking preferences, employment history, credit score, past rental history, and the required references.

It is essential to be careful when screening potential renters for your property. 

One way to do this is to thoroughly check their social media profiles, booking account history, and other relevant information.

4. Maintenance and Repairs

Property owners must perform regular maintenance tasks in their rental properties to prevent costly damage and keep tenants safe. 

These tasks involve replacing HVAC air filters biannually, arranging for professional exterminations to prevent pest infestations, testing smoke and carbon monoxide detectors regularly, draining water heaters annually, and cleaning gutters at least twice a year.

Property owners should also inspect their rental property’s bathrooms yearly and replace the caulk if necessary to prevent water leaks and mold growth.

5. Hire a Property Manager

Property owners hire a property manager or management company to manage their properties, collect and deposit rent, handle delinquent payments and evictions, and ensure regular maintenance. 

They can also help owners create a competitive pricing strategy based on real-time data and market the property effectively. By hiring a property manager, owners can save time and money and provide better tenant experiences. 

A property manager helps with rent fee collection and budgeting and creates a competitive pricing strategy. Aside from that, property managers are also responsible for conducting regular maintenance and marketing the property to the desired target market.

InCorp Indonesia (formerly Cekindo) is a platform where property owners can obtain assistance, specifically with land & property ownership and company registration, ensuring that their property and business affairs are well managed. 

6. Have a Source for Your Legal Needs

Even if you have a good relationship with your tenant, it’s crucial to comprehend the legal rights of property owners and tenants and document everything. 

This measure is essential to safeguard both parties in the event of any complications that may arise.

Lease Property Agreement in Indonesia

A lease property agreement, known as “Perjanjian Sewa Menyewa” in Indonesia, is essential for any rental situation. It lays out the rights and responsibilities of both the landlord (lessor) and the tenant (lessee). Here’s a breakdown of the key things to include for a smooth leasing experience:

• Identification: Clearly identify the landlord and tenant with their full names, addresses, and ID numbers (KTP).
• The Property: Describe the property accurately, including the address, size, building details, and any existing features. Mention the land certificate number (Sertifikat Hak Atas Tanah) for verification.
• Lease Term: Specify the lease duration, starting and ending dates. Include any renewal options and the process for requesting them.
• Rent: Clearly state the monthly or yearly rent amount, currency used, and payment schedule (due date and method).
• Security Deposit: Outline the security deposit amount, its purpose (e.g., covering damages), and the terms for its return at the lease end.
• Responsibilities: Define who is responsible for what regarding maintenance, repairs, and utilities. Specify who handles routine maintenance, repairs due to wear and tear, and repairs caused by the tenant’s negligence.
• Terminating the Lease: Outline the conditions under which either party can terminate the agreement early. Specify the required notice period and any associated penalties.
• Subletting: Indicate whether subletting (renting the property to someone else) is allowed. If permitted, define the process and any restrictions.

Ready to Invest in Bali’s Thriving Property Market?

Bali’s property market offers exciting opportunities, but navigating the legalities can feel overwhelming. InCorp Indonesia can help.

With over a decade of experience, we specialize in simplifying market entry for foreign investors. Our services are designed to address your specific needs, whether it’s understanding land ownership regulations, registering a company, or finding the perfect investment property.

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