Who owns the villa you built on leased land?

You lease land for thirty years and spend USD 250,000 building a villa on it. In year thirty, who owns the villa?

The default answer is: the landowner. And most leases do nothing to change it.

The default position

Indonesian law separates land rights from building rights — they are distinct, which is exactly why HGB, a building right over land held by someone else, exists as a category.

But in the absence of a provision to the contrary, a building erected on leased land is generally treated as passing with the land when the lease ends. Your thirty years of use ends and the structure stays.

This is not a trap or a scandal. It is the ordinary operation of a lease, and it is why leasehold is priced below other routes. The problem is that buyers fund a build believing they own a villa, when what they own is thirty years of using one.

What it means for the arithmetic

A leasehold villa is a wasting asset and the building is part of what wastes.

If you build for USD 250,000 on a thirty year lease, the building has to earn its cost back within thirty years along with everything else. It has no residual value to you at the end. There is no asset to sell in year thirty-one.

That changes the underwriting completely. The calculation is not "what will this villa be worth in thirty years". It is "what will this villa earn me over thirty years, and does that exceed what I put in".

It is also why the extension clause is worth more than the build quality. An extension converts a building you were about to lose into a building you keep using. That is the single largest value event in the life of a Bali leasehold, and whether it happens is decided by wording agreed decades earlier.

What to write into the lease

Ownership of improvements during the term. State that buildings and improvements erected by the lessee remain the lessee's property during the lease. This matters for insurance, for financing conversations, and for establishing what you are assigning if you sell.

What happens at expiry. Three options, in descending order of preference.

The building becomes the landowner's, with compensation on a stated basis — an agreed valuation mechanism, or a formula.

The lessee has a right to remove the building or its materials. Rarely practical for a villa, but it can be a negotiating lever.

The building passes without compensation, which is the default, and should be reflected in the price you pay.

An express right to build, describing what you intend, with an obligation on the landowner to sign every permit application within a defined time and a power of attorney so you are not dependent on their cooperation at each step.

Insurance and risk during the term. Who insures, for what, and who receives the proceeds if the building is damaged.

The PBG sits in the landowner's name

A related and separate problem. The building approval on leased land is generally applied for by or with the consent of the party holding the land right — the landowner, not you.

So even during the term, the permit for your building is in someone else's name. The lease must oblige them to cooperate on every application, renewal and variation. Without that obligation, a landowner who becomes difficult mid-build holds close to absolute leverage.

What to check before you build

Whether the lease grants an express right to build at the scale you intend. Whether it obliges the landowner to sign permit applications. Whether there is a power of attorney. Whether improvements are stated to be yours during the term. What happens at expiry and whether compensation applies. Whether the extension clause is a guaranteed extension or merely a right of first refusal. And how many years actually remain, because a build on a fifteen year remainder rarely makes sense at any quality.

The honest framing

None of this means you should not build on leased land. Most foreign-funded building in Bali happens exactly this way and most of it is fine.

It means you should underwrite it as what it is: a defined period of use, funded up front, that has to pay for itself inside the term. Buyers who understand that build sensibly and do well. Buyers who think they are building an asset for their children are the ones who are surprised.