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EPISODE 5:
Leasehold Extensions in Bali

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Killer Tips for Investors: Leasehold Extensions in Bali

🎙️ Welcome to a new episode of the @BaliBusinessClub Podcast!

Join Gawain Blizzard and Omri Ben-Canaan as they dig into the intricacies of leasehold agreements in Bali. Whether you’re an investor or a property owner, understanding the lease extension process is crucial for securing the best possible deal for your property investment in the tropical paradise of Bali. 🌴✨

In this shorter Podcast, you will learn about the key negotiation steps, legal considerations, and benefits of having an extension period for your leasehold purchase. Don’t miss this opportunity to gain valuable insights from the Bali property experts!

As mentioned in Podcast, take a look at REID – Bali Real Estate data: https://www.realinfo.id/

Watch now to ensure your property investment in Bali remains a solid asset for when you want to sell it in the future

Timestamps:

00:00 Intro
00:04 Guest Introduction: Omri Ben Kanan
00:38 Leasehold Concepts Explained
01:42 Extending Lease Desires
02:44 Negotiating Optimal Extensions
03:30 Bali Property Rules Discussed
04:17 Agents’ Influence on Deals
05:35 Market Price Extension Strategy
07:04 Appraisal-Based Pricing Insights
08:14 Fixed Price Land Strategy
10:23 Validating Extension Options
12:30 Crafting Sensible Offers
14:54 Techniques for Respectful Negotiation
16:31 Closing Remarks and Future Topics

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Summary

Omri Ben-Canaan and Gawain Blizzard share their expert tips on negotiating leasehold extensions in Bali, emphasizing the importance of securing favorable extension terms before signing contracts.

Highlights

  • 🏝️ Leasehold Basics: Leasehold is renting property for many years, often with a significant upfront payment.
  • 📈 Market Conditions: 80% of Bali property transactions are leasehold, highlighting its prevalence.
  • 🤝 Negotiation Importance: Always negotiate extension terms before signing to avoid future issues.
  • 🤑 Extension Schemes: Beware of “market price” extensions, which can leave you at the landlord’s mercy.
  • ⏳ Timing Strategy: Consider fixed-price extensions with time limits to maintain negotiation power.
  • 🌍 Seller’s Market: Landowners generally hold more power in Bali’s property market.
  • 😃 Happy Relationships: Aim for a win-win situation in negotiations to ensure a positive relationship with landowners.

Key Insights

  • 🏘️ Understanding Leasehold: Leasehold agreements require substantial upfront payments for long-term rentals, differing from traditional rental agreements, which can lead to misunderstandings if not clearly defined.
  • 📊 Market Dynamics: With 80% leasehold transactions in the Bali real estate market, investors should prioritize understanding local market trends to make informed decisions and stay competitive.
  • 📝 Negotiation is Key: Successful negotiations hinge on securing advantageous extension terms before finalizing contracts, which can prevent future financial strains and disputes.
  • 🚫 Avoid Market Price Extensions: Opting for market price extensions can lead to unpredictable costs and loss of control, making it vital to negotiate fixed terms upfront.
  • ⏱️ Set Time Limits: Implementing a time-sensitive extension option allows investors to maintain leverage and avoid being locked into unfavorable terms long-term.
  • 💼 Respect in Negotiations: Building respectful relationships with landowners can facilitate smoother negotiations and foster goodwill, essential for long-term success in property investments.
  • 🔄 Adaptability Matters: Each property deal is unique; being flexible and adapting strategies based on specific circumstances will enhance negotiation outcomes and investment success.

Transcript:

Bali Business Club podcast. We’re here with Omri Ben Canaan. Hi, Gawain. Hi, everyone. Nice to see everybody, and we’re talking about extensions today. Not property or construction, extensions specifically on lease and how to best negotiate your lease agreement when buying a property in Bali. Omri, obviously, our fifteen year Bali property expert and been living here for thirty years. So he has all the expert answers and insights.

I’ve I’ve had my fair share of mistakes in the in the early days of extensions. I know what I’m talking about here. Okay. Hi, everyone. Again, so, yeah, today, we’re going to talk about extension, specifically about leasehold, in Basa, we say. Lease. Lease hold. Hack. Okay. So lease hold again for those who don’t know but I’m sure everyone knows so lease hold is the the the act of renting land or a property or a villa or whatever, an office space or restaurant, whatever, for a certain amount of years. It’s not a yearly payment. Like, you could rent your apartment back in France or South Africa or anywhere, on a yearly, basis or monthly basis. It’s, you give a chunk of money to, the landlord or to whoever owns the master, lease lease contract. And that chunk of money is equivalent to the rent multiplied by so many years. You know? So usually, it’s like twenty years, twenty five years, thirty years, some big amount of years like that. You can there’s no, specific number. It can be any number. It can be fifteen years. It can be ten years, whatever. Yeah. Like this office, we rent it for ten years, for instance.

Yeah.

What about Big regret. Like, you don’t want because you wanna extend it. Yeah. It doesn’t wanna extend it.

Low extension.

Yeah. Exactly. Yeah. So, how does it work? So, basically so you have today. This is today. Yeah? Today. And then you have the period of the lease which is so many years. So let’s put years here. Okay. And years and then you have the extension, the potential extension that goes beyond that lease period. Okay. Now that extension period is always negotiated here before you sign the deal. Because once you are in the deal let’s say you rent a land and the the owner rents you the land and then you build a magnificent magnificent Palace. Palace, castle on it. And of course, when you go see the owner of the land and you want to nego, negotiate the extension. I mean, the guy He’s

gonna wanna he’s gonna wanna palace.

He’s gonna wanna make a Palace extension, you know, not a land extension.

Right.

So always negotiate, your land here, your your extension here, and always extend negotiate the best extension possible that serves your interest. So this is what we are talking about today. Okay?

But you don’t need to take this extension,

it’s optional for you. Yeah. Absolutely. Absolutely. You don’t have to. Some of the lands that I have, that we have, that I have and that we have in with the fund, for instance, with the Canemoo Fund. We don’t have an extension, because the owners didn’t want, to give us the extension. And I will look at it. It’s okay. It’s still a good deal, so we still take the map, you know. Mhmm. It really depends.

But then I presume it without extensions, it’s probably quite a long lease then. Or it’s all negotiable. It doesn’t really there’s no precedent. There’s no rule. Yeah.

There’s no rule. Yeah. There’s no rule.

And out of how many all the property transactions in Bali, what percentage is this lease hold compared to freehold more or less?

So it’s more or less twenty eighty. Twenty percent freehold versus eighty percent of these hold.

So vast majority. And

that number we know from yesterday. We, we met some guys that give us a

Actually, possibly a future podcast. Guys who run like data analytics on buying, selling prices, regional, what’s happening, rental market, everything. So quite interesting.

Great, great guys and, very interesting data. It’s called Raid, r e I d.

We’ll put the link in description actually. Yeah. Interesting to look at.

So basically so this is this is the theory. Yeah? So now I wanna talk about

Maybe just give us some context like so first time property buyer would go to an agent, I presume, and then they would

Very interesting. That’s the keyword. Agent. Agents don’t care. Most agents don’t care. I mean, the the good ones care but the bad ones a lot of bad ones don’t care about you having the best deal on extension. Why? Because agents make their money here. They don’t make money on potential extension. So if you have a let’s say I don’t know two hundred thousand to two billion rupiah deal here, so two m then and this is worth something else, They will make a five percent commission on these amounts, not on money on hypothetical money in the future. So what do what agent will do, they will make it they will make this as easy for them to manage within the scope of that deal. Which means like they will not fight for it. They don’t want to lose the deal agents. Actually, they don’t want

it at all because it’s an obstacle. It’s totally an obstacle. Yeah.

Totally an obstacle. So don’t trust your agent on this. Impose what your rules. Yeah. Okay. So what does everyone do? Everyone does, market price extension. This is the very, very common, extension scheme there is out there. What does that mean? Market price extension means, like, okay, you rent your property for so many years, twenty, twenty five, thirty years, and then you have like a let’s say a ten year extension on based on market price. So that means at some points, within your lease period, let’s change color, around the year for instance, you’re gonna go see your owner and you’re gonna say, hey, I want to take I want to take that that extension that we mentioned in the contract and I would like to pay it now so I can market this I can put this, house or whatever on the market for future, buyer. Yeah? Yeah. So your your owner, the owner of your your landlord is not stupid. Yeah? Market price so first of all, when you have a market price extension, you have zero guarantee that you will get an extension. It’s not because it’s at the market price

Yeah.

That it means it’s okay to give it to you. Yeah. Yeah. So you have zero guarantee. So it’s really at the discretion of the owner to say, yeah, no. Okay? And then if he says so it means if you guys don’t agree on the price It doesn’t happen. It’s not gonna happen. Right? So market price basically is, is defined by you do you take three agencies, okay, three real estate agencies. You ask for an appraisal of, that specific land, by three different agencies. And the average or the median price is decided as being the price that is used for the extension.

Then the the the property owner would be forced to accept that price which then would mean that would go through. No. Unless there’s a Usually right for rejection.

Usually the the very very common scheme is that you have a priority on extension.

Oh, yeah.

Which means the only right you have is to basically, the property owner has to give you give it to you at least at the same price or lower than the any person that would take it, if you would say no.

For a party. Yeah.

Yes. So it’s right right of first refusal basically. Yeah. So that’s no good. Don’t do that. Everyone does that. No one knows. They don’t understand that they are making a huge mistake mistake you know. Why? Why is

it a huge mistake?

Because then they it’s a hostage situation. They have they have no control or no power whatsoever on what’s happening here. Because it’s all up to the to the landlord. You know? And we know these guys. How they can be handled.

Also, Bali property price is escalating so much, you would rather not leave it up to market price

this is what everyone does. Now I’m gonna try to teach you guys here something that, it’s a little bit better than that. Yeah? That I’ve been doing for long time. Okay. So this is what I do. Okay? Let’s take an example of a land. Let’s take we acquired this land, at ten million rupiah per per year. Okay? What I do is I ask for an extension usually around extension, usually around five to ten years. Okay. At a fixed price fixed of original price so ten million plus thirty percent more or less of course this is more or less. It can be twenty percent, can be fifteen years. I mean it’s just make you understand the idea. Yeah. So in that case, I will be thirty million per hour per year. Okay? And now the the the deciding factor is that I only I always say to the owner, I say, okay. This is what I want. Okay? Mhmm. And then if you say just that, they will say, no way, you know, because they know in twenty years, the price is gonna be, like, you know, off the charts. So this doesn’t make sense. But I say, look, you know, I I’m gonna I’m gonna ask this from you. However, the the validity of this option is only five years. So again this is an example, it can be three years, it can be ten years, it can be whatever. Yeah. So basically, just to sum up, I take your land for so many years, let’s say, thirty years. Okay? And then I asked for an extension of let’s say five years or ten years at thirteen million rupiah per ada per year, so around thirty percent more than the original price. And I said to the owner, okay, give that to me. However, if I don’t buy that extend that option, that extension option within the next five years, then we go back to a new negotiation. Then it’s market price and your usual BS scheme. Yeah. Okay? And in believe me or not, but in, let’s say, seventy percent of the cases that on the land that I deal with, that works. Seventy percent to eighty percent. So most of the land we have in the fund for example have this scheme. So now what’s important let’s look at those numbers yeah. So you’re gonna tell me, okay. Why don’t you say, fifteen years or twenty years? Because that’s pure greediness, my friend. The thing is

Need a balance. Otherwise, somebody who will deal with this one.

It’s a negotiation between two human beings. Okay? Sure. And a lot of buyers feel like they have the money so they have the power. They don’t.

Not in this market.

Not in this market. Not in this country. Yeah. The land owners have the have the power. Because the the offers and the demand are not equal. Yeah.

Yeah. It’s a seller’s market. Absolutely.

It’s a seller’s market. Yeah. So if you say something, and because it’s human being, there’s egos involved. Yeah. Mhmm. If you say something that doesn’t make sense, people are gonna start to close off, especially, local, landowners who are not business people. You’re gonna start to close themselves, you know, retrieve in a corner, and, and then you’re gonna end up with a worse deal than you could have had. Yeah. So it’s always better, in my opinion, from years of experience dealing with, with land owners here, it’s it doesn’t make sense to make an offer that doesn’t make sense, you know. Yeah. It doesn’t make sense to make an offer that you will refuse yourself.

Well, it just sets the time for negativity and immediate refusal.

Absolutely. So this is more once you’ve so what my my technique is I make go the price. I start I don’t talk about that. Okay? Tell me, they tell me, okay, the price is, ten million. I’m, okay, eight million. Yeah? Yeah. And once but I know it doesn’t matter. Yeah. Once they did say, okay, the price is fixed Yeah. And I let them win on this, I say, yes, but I want that. Mhmm. Okay?

But tell them.

In their mind in their mind, that’s they they feel they are selling an extra five years for thirteen million. So they feel psychologically, they feel they are making a good deal. Okay? When they actually don’t know that the price could arise much more, in a few years. But it is what it is. And as long as everyone has signed off on it, it’s fine. Yeah.

And everybody’s happy with this. I mean, but Everybody’s happy. Happy. You’re happy. Exactly. Okay?

So and the reason I do I do five years always because I never keep land or property more than five years because this is my turnover. You know, in my system where I I buy in emerging markets, blah blah blah. Yeah.

Yep.

So that way, when I, let’s say I have three years to start with. Yeah. When it’s time for me to, to to liquidate in, like, four years, four and a half years, something like that, then I just buy that extension and I’m back on thirty years. So the only thing I lost is four years at this price. But then when I when I sell, the the price is not ten million. It’s like forty million.

So it’s almost a brand new term of thirty years when you sell.

It’s yeah. I mean, the money you’ve lost is negligible. It’s it’s not relevant compared to the money you’re making. Except you are making a free not free, but like almost free five year extension, you know, at the time of the sale. Because that price when you sell your plots or your house whatever, it’s nothing. Yeah.

It’s really nothing. Wow. Genius.

Well, I don’t know if it’s genius man, but,

I don’t know. I don’t know.

Genius would be better than that. But that has worked for me. It works for me. It has worked for me for many years. I’ve been doing that for, for for a long time. I feel that it’s also respectful to them. Mhmm. Okay? Because you’re you’re not trying to squeeze them as much as you can, you know. Mhmm. I like to not neglect that much on the price. You know, it’s like in any negotiation, your business negotiation of sorts you know. You give something, you take something, both it goes both ways you know. And you want to have what you don’t want is to be on a land with an unhappy land owner. You want to have a happy land owner, happy neighbors, and so on

and so forth. Forth.

Yeah. So I feel I feel it’s important to have to find a compromise that suits everyone, you know. Mhmm. That works for everyone. So for me that has worked on every single deal that’s, I make. I I’m trying to get this. Sometimes I don’t. There’s a land for I mean, in the fund, there’s a land that we have, only for twenty years without extension. It’s a commercial land where we actually put the we built the, the shelter for the workers for the school

in on the

main street in Penungu. So five point six hour and then we only got the the guy didn’t want. He said, oh, it’s take it or leave it. Yeah. And, now, okay. It’s still good. It’s still a very good. Two two. Yeah. So we still took it. It. Yeah. So it’s really it’s on a case by case, you know, basis situation. Mhmm. But like generally speaking, this is what I try to do on every single occasion. Yeah.

Cool. Yeah. Well, thanks for that. I think you’re very informative and, wraps everything up and explains things quite easily. So thank you. Bye bye. Yeah. Next podcast, we’re talking about tax, I think. Yeah. We might tax implications. Yeah. Yeah. Yeah. Today or next week. But, yeah. Thank you, Omry. Or is it better?

better? Thanks, Owen.

Thank you, everybody.

Hi, everyone. Subscribe, follow, do this, that, share, comment, like, and, spread the word.

Yeah. And we’re on YouTube, Spotify, and iTunes. Very soon.

Yeah. Thank you. Thank you, guys. Bye bye.

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