25-Year vs. 80-Year Leasehold in Indonesia: ROI Math Explained

25-Year vs. 80-Year Leasehold in Indonesia: Which One Makes More Sense?

Indonesia, particularly the island of Bali, continues to be a top destination for overseas real estate investment. However, foreigners are prohibited from owning land outright. The most common legal structure is a leasehold (Hak Sewa), where property is leased for a fixed term. Investors typically choose between a 25-year lease or a package with contractually renewable terms up to 80 years. Both options come with distinct risks, benefits, and financial implications. In this article, we break down which lease duration offers better returns and long-term investment stability.

What Is Leasehold in Indonesia?

Leasehold (Hak Sewa) is a long-term rental agreement that allows foreigners to own buildings (but not land) in Indonesia. It is formalized through a notarial deed and registered with government agencies such as the land office (BPN). The lease term often starts at 25 years and may be contractually extended to 70–80 years. However, note the following:

Lease renewal is not automatically guaranteed by law. Renewal is only possible if explicitly agreed upon and stated in the contract in advance.
Leasehold transfer is possible—either via contractual assignment or transfer of ownership in a holding structure (e.g. company)—but inheritance is not always straightforward.

Lease Duration Comparison: 25 Years vs. Up to 80 Years

Two leasehold structures dominate the Indonesian market:

Category	25-Year Lease	80-Year Package (25+25+30)
Investor Profile	First-time investors, short-term rental focus	Long-term investors, family-run businesses
Lease Cost	40–50% of freehold market value	60–70% higher upfront, but more cost-effective annually
Renewal Guarantees	May not be contractually defined	Staged and fixed in contract (each phase requires renegotiation)
Payback Period	10–11 years	13–15 years
Inheritance	Complicated—usually via assignment or company structure	Easier to structure through a company or family trust
Exit Flexibility	Challenging to sell near lease expiration	Higher liquidity over the 20+ year horizon

Financial Model and ROI: Sample Calculations

Returns on Resort Properties

According to research by Seven Stones Indonesia and Invest Islands, annual ROI on Bali real estate can reach 20–30%, especially for professionally managed villa rentals.

Sample Calculation: 25-Year Lease

Assumptions:

Villa price (25-year leasehold): IDR 3 billion (~USD 190,000 at IDR 15,800/USD)
Annual ROI: 25%
Annual income: IDR 750 million

Payback occurs in about 11 years max. The remaining 14 years provide pure profit. The asset can be rented, resold (within the remaining lease), or used personally.

Sample Calculation: 80-Year Lease Package

Assumptions:

Total cost (80-year lease, staged payments): IDR 5.2 billion (~USD 330,000)
Same ROI assumed: 25%
Annual income: IDR 1.3 billion

Payback occurs in 13–15 years. Over 60 years of lease term remains, making it a valuable asset for inheritance, business operations, or resale—especially as the market grows.

Pros and Risks by Lease Duration

Short-Term Lease (25 Years)

✅ Lower entry cost: Ideal for market testing or budget-conscious investors.
✅ Faster ROI: Returns often realized within 10 years or less.
⚠️ Lease duration limitation: Property value decreases as the end of term approaches.
⚠️ Renewal not automatic: Requires renegotiation with the landowner, who may not agree to favorable terms.

Long-Term Leasehold (Up to 80 Years)

✅ Long-term stability: Crucial for hotels, retreats, and family-run ventures.
✅ Lower cost per rental year: Up to 15–20% savings annually.
✅ Easier to sell or transfer: Retains value over a longer horizon.
⚠️ Higher upfront cost: Requires more capital or financing partnerships.

When to Choose a Short-Term Leasehold?

You prefer to start small and minimize risk.
You plan to actively manage the property (e.g., on Airbnb).
You are considering an exit within 5–7 years.

When Is an 80-Year Lease More Suitable?

You are building a long-term enterprise—hotel, boutique villas, or a retreat center.
You can structure your investment via a company or fund.
You want to pass the asset to children, partners, or retain it long-term as family property.

Legal and Market Considerations

Leasehold in Indonesia is governed by Agrarian Law, which prioritizes Indonesian citizens. Foreigners can only lease—not own—land.
Lease renewal, even with stated options, depends on changes in ownership, legal reforms, and market dynamics.
Always use a qualified legal advisor experienced in foreign-owned transactions to structure leases properly.

Conclusion

Leasehold is a legal and flexible property ownership model in Indonesia for international investors. The choice between short and long-term lease depends entirely on your goals:

25-year lease: Ideal for quick entry, fast payback, and flexibility.
80-year structure: Designed for stable, strategic investments and intergenerational asset transfer.

Before committing, evaluate not only expected returns but also legal aspects, long-term plans, family priorities, and available capital. With the right approach, Bali real estate can deliver reliable income, liquidity, and capital appreciation—under either model.

Frequently Asked Questions

Can a 25-year lease be renewed?

Yes, but only with the landowner’s explicit agreement. Renewal should be pre-agreed in the original contract or executed as an entirely new agreement.

Can leasehold be inherited?

Technically no. However, it can be structured via share transfer of a company holding the lease, or reassigned contractually. Always seek legal advice.