Bali has long been a dream destination, not just for travelers but also for investors looking to tap into its booming tourism market. With its stunning beaches, vibrant culture, and affordable yet luxurious lifestyle, it’s no surprise that Bali consistently ranks as one of the top global tourist destinations.
For those considering getting into the villa rental business, now is the perfect time. Whether you’re an expat, retiree, or foreign investor, renting out a property in Bali can be highly profitable—if you do it right.
In this guide, we’ll walk you through everything you need to know about renting out your Bali property, from understanding the real estate market to legal requirements, maximizing your profits, and avoiding costly mistakes.
Own your COCO property in paradise with benefits for life
- +200 properties in construction
- +250 properties in full operation
- Pay 20% of your property straight from rental profit
Understanding the Bali Real Estate Market
Before diving into the villa rental business, it’s essential to grasp how Bali’s property market operates—especially if you’re a foreign investor. Indonesian law prohibits foreigners from directly owning freehold property (Hak Milik), which can be a hurdle for those unfamiliar with the legal landscape. However, that doesn’t mean investing in Bali is out of reach.
On the contrary, there are several well-established legal frameworks that allow foreigners to participate in the market—whether through long-term leases, setting up a foreign-owned company, or investing in approved property developments. Understanding these pathways is key to building a compliant and profitable real estate venture on the island.
1. Lease Land for Development
For foreign investors looking to establish a long-term presence in Bali’s property market without owning land outright, leasing is one of the most practical and legally accessible options. Since direct ownership of freehold land (Hak Milik) is restricted to Indonesian citizens, a long-term lease agreement provides a legal workaround that still grants you control over the land. Lease durations typically span 25 to 30 years, with extension options for another 20 to 30 years, depending on the agreement. These extensions should be clearly stated in the original contract to protect your investment and avoid renegotiation issues later.
This strategy is particularly attractive for investors aiming to build and operate a villa rental business from the ground up. With the right location, design, and marketing strategy, the potential for long-term profitability is significant.
Key Advantages include:
- Development flexibility: You can construct villas or commercial accommodations that cater specifically to the tourist market.
- Capital growth: Properties in strategic areas such as Canggu, Uluwatu, or Ubud are likely to appreciate in value, boosting your investment potential.
- Lower upfront cost: Leasing is often more affordable than purchasing a completed villa, making it an accessible entry point for new investors.
When considering this route, due diligence is absolutely essential. Not all land in Bali is zoned for tourism-related development, and failing to verify the zoning can result in costly legal complications down the road. You’ll need to ensure the land is located in areas zoned for commercial or tourism use—commonly known as pink zones (commercial) or specific parts of yellow zones (residential with business allowances).
It’s also critical to confirm the authenticity of the land certificate, typically a Sertifikat Hak Milik (SHM), and check that there are no outstanding disputes, liens, or encumbrances on the property. Engaging a reliable notary (notaris) or legal advisor with experience in Indonesian property law is highly recommended.
The lease agreement should be drafted with clarity and precision. Make sure it includes:
- Lease duration and clearly defined extension terms
- Specific land use permissions (e.g., tourism, commercial, residential)
- Provisions for transfer of lease rights, if needed
- Clauses detailing what happens in case of disputes or breach of contract
Overall, leasing land gives foreign investors a legitimate and flexible way to establish a strong foothold in Bali’s booming villa rental market. With thorough research, the right legal support, and strategic planning, this model can lead to sustainable income and long-term capital appreciation.
2. Invest in Off-Plan Projects
If you do not want to start from scratch and build your own villa, you can opt to invest in off-plan projects—properties that are still under construction or in the pre-construction phase. This investment model involves purchasing a villa based on architectural plans, digital renderings, or model units, with the expectation that the developer will complete the property as promised and on schedule.
Off-plan investments are especially popular in Bali due to their lower entry costs and the potential for significant capital appreciation. Since these properties are priced below market rates for completed villas, early investors can benefit from the price difference once the construction is finished and the property is ready for rental. This makes off-plan buying not just a cost-effective strategy, but also a smart way to maximize return on investment (ROI) in a booming tourist destination like Bali.
In addition to being budget-friendly, off-plan purchases often come with flexible payment schemes, such as staggered payments tied to construction milestones. These arrangements can ease the financial burden, especially for investors looking to manage cash flow during the build period.
Another major perk is customization. Buying early means you may have the opportunity to influence design elements—such as layout, finishes, and even furniture packages—so the final property can better match market trends or target demographics (e.g., digital nomads, honeymooners, family vacationers, etc.).
However, like any investment, off-plan projects come with risks—and these must be carefully managed. The most critical factor is the developer’s reputation. Always do a background check and ask for a portfolio of previously completed projects. Speak to past clients if possible, and verify whether the developer has met deadlines and maintained construction quality.
It’s also essential to ensure that the developer has secured the appropriate permits, including the IMB (Izin Mendirikan Bangunan) or the new PBG (Persetujuan Bangunan Gedung)—a building approval required in Indonesia. Without proper permits, you may face serious legal or operational issues later on.
In addition, consider the location and market demand. Bali’s tourism market is dynamic, so make sure the project is situated in a high-demand area like Canggu, Seminyak, Uluwatu, or Ubud, and that the villa design appeals to your intended rental audience.
In the end, investing in off-plan projects can be a smart and rewarding entry into Bali’s rental market—but success hinges on careful research, legal due diligence, and working with reputable professionals.
Invest in Bali’s #1 Lifestyle Property Brand
Discover high-yield villa investments starting at just $50,000 with average returns of 17–20%—all in one of the world’s most sought-after destinations.
3. Buy a Ready-to-Rent Villa
Aside from investing in off-plan villas, you can also opt to buy a ready-to-rent villa if you’re after immediate returns. This strategy is ideal for investors who want to skip the construction phase and begin earning from day one. These are fully constructed, operational properties—often with a proven rental track record—that allow you to step into a functioning business with minimal setup.
By purchasing a villa that is already active in the rental market, you significantly reduce risks tied to construction delays, cost overruns, or uncertain project delivery. Moreover, these properties typically come with established property management systems, staff, and online booking platforms, allowing for a smoother transition and fewer operational headaches.
Additionally, many of these villas are already listed on major booking platforms like Airbnb, Booking.com, and Agoda, giving you access to an existing customer base and digital presence. This established market presence helps reduce the time and effort typically needed to build visibility and credibility.
However, buying a ready-made villa doesn’t mean bypassing due diligence. It’s vital to thoroughly inspect the property to assess its physical condition, including the structure, electrical systems, plumbing, roofing, and furnishings. Any signs of wear and tear or needed renovations should be factored into your budget, especially if you want to maintain high guest satisfaction and positive reviews.
Just as importantly, ensure the villa is fully compliant with Indonesian property laws. This includes verifying the land title (typically leasehold for foreign buyers), checking if the property has the correct zoning classification for tourism, and confirming the presence of key permits like the PBG (building permit) and TDUP (Tourism Business License). Operating without these can expose you to legal penalties or forced closure.
You should also request to see historical rental performance data, such as occupancy rates, average nightly rates (ADR), seasonal trends, and operational costs. This will help you accurately project future earnings and understand what marketing or service adjustments may be needed post-purchase.
What is a Short-Term Villa Rental Business Like in Bali?
Investors are often reluctant to enter Bali’s villa rental business, as the Indonesian government has yet to fully welcome the idea of allowing foreigners to fully own property on the island. But does this mean it’s impossible or difficult to take advantage of this booming investment opportunity? The answer is no. While it may seem daunting due to regulations and legal restrictions, there are several pathways that foreign investors can pursue to legally and profitably participate in Bali’s vibrant short-term rental market.
Bali, with its pristine beaches, vibrant culture, and year-round tourist appeal, has become a prime destination for travelers and investors alike. The short-term rental business, particularly through platforms like Airbnb, offers high returns for those willing to navigate the complexities of local regulations. Despite the restrictions, there are still numerous opportunities for foreign investors to tap into Bali’s lucrative property market.
Let’s break down how you can successfully navigate the legalities and make profitable investments in Bali’s short-term villa rental business.
Regulatory Framework
In March 2021, Indonesia introduced the Positive Investment List, replacing the previous Negative Investment List. This reform opened numerous business sectors to increased foreign investment, notably in tourism and accommodation. Consequently, foreign investors can now fully own businesses in these sectors, provided they meet specific criteria and adhere to local regulations
| Category | Considerations | Details |
|---|---|---|
|
Foreign Ownership |
Hotels and Apartments |
Foreign entities can fully own 5-star hotels and apartment complexes, offering opportunities for international hotel chains to invest. |
|
|
Homestays (or those with Pondok Wisata license) |
Foreigners can own homestays under specific conditions, such as establishing a PT PMA and adhering to local regulations (e.g., zoning, permits). |
|
Local Government Guidelines |
Hotel and Apartment Permits |
Local regulations may impose requirements like minimum plot sizes and zoning restrictions based on the area of Bali. |
|
|
Minimum Plot Sizes |
Requirements for plot sizes vary, especially for villas and hotels, depending on the location and type of the project. |
|
|
Environmental Regulations |
Environmental Impact Assessments (EIA) may be required, depending on the location and the scale of the project. |
|
Laws and Regulations |
Labor laws |
Compliance with Indonesian labor laws, including fair wages, working conditions, and employee benefits, is necessary for business operations. |
|
|
Tax Regulations |
It’s important to stay tax-compliant, particularly when managing financial planning, and consulting a tax professional is advised. |
By comprehensively understanding these investment avenues and adhering to Bali’s legal frameworks, foreign investors can effectively navigate the real estate market, optimizing their ventures in this sought-after destination.
How to Start Renting Out Villas in Bali
As mentioned, renting out a villa in Bali can be a lucrative business venture, especially with the island’s booming tourism industry. However, before you start generating income from your property, it’s important to lay a solid foundation. Here are the key steps to ensure a successful villa rental business:
1. Secure Capital for Your Investment
Before you begin your villa rental business in Bali, it’s crucial to assess your financial situation. Although property prices in Bali are generally lower than in Western markets, the costs involved—such as land acquisition, villa construction or purchase, permits, and furnishing—can quickly accumulate. To ensure you’re fully prepared for the financial commitment, consider your available funding options and explore different avenues to secure the capital you need.
Explore financing options such as:
- Personal Savings or Investment Funds: If you have sufficient personal savings or access to investment funds, this could be the most straightforward option to finance your villa rental business.
- Loans from International Banks: Since local banks generally do not provide loans to foreign nationals, exploring loan options from international banks with a presence in Bali is an alternative. Make sure to review the terms and interest rates to understand your long-term financial commitment.
- Joint Ventures with Business Partners: Partnering with a local or international investor can be an effective way to spread financial risk and bring in additional expertise. Joint ventures can also help you navigate local regulations and market dynamics more efficiently.
Regardless of where you’re securing your funding, be very mindful of these additional considerations, as they can greatly impact your long-term success:
- Currency Fluctuations: Currency exchange rates can affect the cost of your investment and return on investment. Be prepared for potential fluctuations in the value of your home currency relative to the Indonesian Rupiah.
- Tax Implications: Ensure you fully understand the tax obligations associated with foreign property ownership in Bali. Rental income, capital gains, and property taxes may differ from what you are used to in your home country. Consulting with a local tax expert will help you navigate the tax landscape.
- Legal Structure: It’s crucial to determine the right legal structure for your investment. Whether you set up a local company or operate as an individual investor, the chosen structure can influence everything from liability to tax obligations and ease of property transactions. A local attorney or legal expert will help ensure you comply with Indonesian laws and regulations.
why investors choose
coco development group?
Passive income on full auto pilot
Profit Maximization
We do not just put your property on Airbnb hoping for a guest to book it. More than 40% of our bookings comes today through our own medias, a strong community and a digital and data driven management approach.
A Convenient and fast payment system
The investors receive net profits currency that is convenient for them. we transfer the money once every three months
No need to handle taxes
High Liquidity
Fast Payback
Oceanside villas in Bali are in High demand for daily rentals. You will earn about 5000 USD per month
2. Find and Buy the Right Villa
When it comes to purchasing a villa for rental purposes in Bali, not all properties are suitable for generating income. The key to a successful villa rental business is choosing a property that aligns with legal requirements and market demand. This means considering several factors such as location, title status, zoning regulations, and property type.
- Know Your Ownership Options: Foreigners cannot own freehold property in Bali but can legally invest through options like land leases or by setting up a foreign-owned company (PT PMA). A PT PMA allows foreign investors to own and operate a villa rental business under Indonesian law, while leasing land provides long-term control without ownership.
- Check the Zoning Laws: Short-term rentals are only permitted in pink zones (tourist accommodation areas) and some yellow zones (mixed-use areas). Buying a villa outside these zones means you won’t be able to legally rent it out.
- Location Matters: When selecting a villa, its location plays a critical role in attracting tourists. Popular areas like Seminyak, Canggu, Ubud, and Uluwatu are consistently in demand, making them ideal choices for rental properties. However, properties in quieter, less tourist-heavy locations may also offer opportunities, especially if they are near scenic spots or unique cultural experiences.
- Property Title and Status: Verify the property’s title status to ensure that it is legally transferable and free from encumbrances. A certified legal title ensures that the property can be sold or leased without issues in the future. Always seek professional help to ensure the title is clear, and the property’s legal documents are in order.
3. Obtain Proper Licensing
In Bali, running a rental business involves complying with strict local regulations, and obtaining the proper licenses is crucial for legal and smooth operations. Without the required permits, you could face fines or even the closure of your business. Below are the key permits and licenses you’ll need to secure:
PBG (Building Approval) & SLF (Feasibility Certificate)
These are fundamental documents that ensure your villa is legally constructed and meets all the necessary safety and environmental standards. Before renting out your property, you must obtain both the PBG, which verifies that the building has passed technical inspections, and the SLF, which certifies that the building complies with local building codes.
Accommodation Licenses
For properties used as rental accommodations, you must apply for the appropriate license depending on the size and nature of your villa:
- Pondok Wisata: This is required for villas with up to five rooms. It allows you to legally operate a small-scale rental business targeting short-term guests.
To obtain a Pondok Wisata license, you must submit the following documents to the local government office, Dinas Penanaman Modal Pelayanan Terpadu Satu Pintu (DPMPTSP), and pass a site inspection:
| Required Documents | Details |
|---|---|
|
Valid Property Ownership |
Proof that you legally own the property or have a valid lease agreement. |
|
Building Permit (PBG) & Feasibility Certificate (SLF) |
Required to ensure the property meets local construction standards. |
|
Zoning Approval |
Verification that the property is located in an area zoned for tourism or accommodation. |
|
Environmental Impact Analysis (UKL-UPL) |
Required if your property may have an impact on the environment. |
|
Health & Safety Compliance |
Proof that the property complies with health and safety regulations for guest accommodations. |
|
Community Approval (Letter from the Banjar) |
A letter from the local village community (Banjar) granting approval for the business. |
|
SITU/HO Business Documents |
Local business licenses such as SITU (Business Location Permit) and HO (Operational Permit). |
|
Tax number |
Taxpayer registration number for tax compliance. |
- Hotel or Apartment License: If your villa has more than five rooms, you will need a hotel or apartment license. However, this is only available for Indonesian-owned companies and applies to properties under 4,000 sqm. This license enables you to operate larger-scale rental businesses like boutique hotels, offering flexibility for bigger projects.
Obtaining these licenses is essential for ensuring compliance with Bali’s local laws, which helps you avoid potential legal implications while maintaining your business’s reputation. It’s advisable to consult with a local legal expert or property consultant to guide you through the application process and ensure that all necessary permits are in place before you start renting out your villa.
4. Register Your Property on Booking Platforms
Once your villa is set up, list your property on multiple online platforms to maximize your villa’s visibility and attract a diverse range of travelers. This strategy increases your reach and enhances booking opportunities.
Some of the most popular Online Travel Agencies (OTAs) in Bali offering extensive global exposure are:
- Airbnb: Known for its user-friendly interface and community feel, it’s ideal for attracting travelers seeking unique stays.
- Booking.com: Offers a vast selection of accommodations, appealing to a broad audience, including business and leisure travelers.
- Agoda: Popular in Asia, it connects you with travelers from key markets like China and Southeast Asia.
- Expedia: Provides comprehensive travel services, including flights and car rentals, attracting a wide range of travelers.
Beyond OTAs, you can also establish a direct booking website to bypass commission fees from platforms like Airbnb and Booking.com, allowing you to retain more of your profits. This gives you full control over pricing and booking policies, while also fostering stronger relationships with guests, encouraging repeat business. Additionally, registering your property on Google My Business enhances its visibility in local search results, making it easier for potential guests to find and contact you directly. While OTAs remain essential for global reach, these strategies can complement your efforts and increase direct revenue.
Pay 25% of Your Property Straight From Rental Profit
Reduce the financial burden. Use your own villa’s rental income to pay down your investment cost for optimal cash flow and long-term returns.
5. Guest Registration Requirements
When running a villa rental business in Bali, ensuring that every guest is properly registered with local authorities is essential, even though some regulations have been relaxed in recent years. Traditionally, villa owners were required to process a Surat Tanda Melapor (STM), a police report confirming a foreign guest’s stay. While the national law no longer mandates this, many villa owners in Bali still choose to comply with local practices, which can include submitting an STM or registering guests for visa extensions or residency purposes.
For this purpose, the following documents are typically required:
- Passport copy
- KITAS/KITAP (Temporary or Permanent Stay Permit) Copy
- Local Domicile Letter from the Banjar (Community Association)
- Police Report Card (STM)
- Photographs (4×6 cm, Yellow Background)
Overall, it’s advisable for villa owners to stay in touch with local authorities to ensure they comply with any updated regulations.
6. Stay Tax Compliant
Lastly, operating a villa rental business in Bali requires compliance with local tax regulations, including the 10% hotel tax (Pajak Hotel) on accommodation revenues. It’s essential to:
- Register for an NPWPD (Local Taxpayer Number): This number identifies your business for local tax purposes. Foreign-owned businesses must obtain this through their Indonesian company (PT PMA).
- Collect and Pay Taxes: Charge guests the hotel tax and, if applicable, VAT (currently 12%) on rental income. Payments must be made monthly to local authorities.
- Maintain Proper Records: Keep detailed financial records to support tax filings and avoid audits or penalties.
Non-compliance could result in fines or business closure, so it’s crucial to consult with tax professionals to ensure full adherence to local tax laws.
Maximizing Your Rental Income & Growing Your Business
To optimize your villa rental income in Bali, implementing effective marketing strategies, enhancing guest experiences, and establishing strong local partnerships are essential. Specifically, you can:
1. Leverage Online Platforms & Social Media
As mentioned, leveraging popular online platforms like Airbnb, Booking.com, Agoda, and Expedia is essential to reaching a global audience and maximizing bookings. In addition, investing in professional photography to showcase your villa with high-quality images can significantly elevate your listing’s appeal. If you’re looking to cut costs, you can also take high-quality photos yourself, ensuring that the images highlight the unique features and amenities of your property.
To expand your reach even further, actively engaging on social media platforms like Instagram and Facebook allows you to connect with potential guests, share stunning visuals, and build a community around your villa, ultimately boosting visibility and increasing booking inquiries.
2. Create Detailed & Accurate Listings
Transparency in your listings is crucial for building trust and managing guest expectations effectively. Provide a thorough description of the property, including all amenities, features, and house rules. Highlight unique selling points like luxurious pools, scenic views, or special services. Make sure to update your listings regularly to reflect any new improvements, maintenance work, or changes in pricing. Keeping your information current ensures that potential guests have the most accurate details when booking. Remember, misleading descriptions can not only damage your reputation but also lead to negative reviews, refund requests, and even account suspensions on booking platforms.
Construction you can trust
We handle all the details – no hassle for you.
5 Years full warranty
20+ Finished developments in Bali by our team
25+ Years of shared experience
3. Encourage Direct Bookings
Establishing a personal website for your villa provides a unique platform to showcase your property, offering full control over the presentation and booking process. By allowing guests to book directly through your site, you can bypass third-party platforms and their often hefty commission fees, maximizing your profits. To incentivize direct bookings, consider offering special discounts for repeat guests or creating exclusive packages, such as complimentary services or special offers for longer stays. These incentives not only encourage return visitors but also help foster loyalty and long-term relationships with guests, ultimately boosting your business’s success and reducing dependence on OTAs.
4. Enhance Guest Experience
Providing exceptional guest experiences leads to positive reviews and repeat business. Consider offering:
- Welcome Gifts: Items like Balinese coffee or fresh fruit baskets create a warm arrival.
- Private Services: Offering services such as private chefs or unique experiences like floating breakfasts can enhance luxury.
- Luxury Amenities: Features like infinity pools and spa services add to the overall appeal.
5. Implement Smart Pricing Strategies
Adjusting your pricing based on demand and seasonality can maximize occupancy and revenue. Implementing strategies such as seasonal pricing, where rates are higher during peak seasons (July-August, December), and offering length-of-stay discounts for extended bookings can attract a diverse range of guests.
6. Collaborate with Local Businesses
Partnering with local tour operators, drivers, and spas allows you to offer exclusive packages, enhancing the guest experience and supporting the local economy. Not only does this boost guest satisfaction, but it also strengthens your ties with the community.
FAQ
Foreigners cannot own freehold property but can lease land or set up a PT PMA company to operate a legal rental business.
It depends on location and size, but budget at least $150,000 - $500,000 for property, permits, and setup.
No. Rentals are only allowed in pink zones and some yellow zones. Always check zoning laws before purchasing.
A 10% hotel tax must be collected from guests and reported monthly.
If you’re not living in Bali full-time, yes. A good manager will handle bookings, maintenance, and guest relations.
Experience Peace of Mind With Our 5-Year Warranty
Relax knowing your property is backed by a full 5-year warranty, supported by a team with over 25 years of shared real estate experience.
Start Your Bali Tourist Rentals Now!
Renting out a Bali villa can be an incredibly profitable venture if done right. By following the correct legal procedures, optimizing your marketing, and providing an unforgettable guest experience, you can turn your property into a high-yielding investment.
Thinking about investing in a Bali villa? Start with legal consultation and market research to ensure you’re making the best decision.
Rasmus Holst is a serial entrepreneur and Co-Founder of COCO Development Group, where he helps drive innovation and growth through strategic business development. He is also the Co-Founder of Estate of Bali and Regnskabshelten.dk, Denmark’s fastest-growing accounting firm, which grew to 35 employees and generated $2.5M in turnover in 2023. Rasmus is passionate about building businesses that create long-term value and impact.
