Your Lease Doesn't Appreciate — Here's What Actually Happens to It Each Year

A piece of villa investment content we came across recently argues that leasehold properties in Bali can "defy depreciation" — that location growth and rental income can outpace the natural decline of a shortening lease term, and that a villa bought today could be worth more, not less, in five years. It backs this with a hypothetical: a villa generating a stated 12.5% "net annual income," plus an assumed 5% annual appreciation rate, compounding into extra value over time. Neither number is sourced. Neither is dated. And the appreciation figure in particular describes something that, mechanically, a leasehold interest cannot do on its own.

What a lease actually is

A leasehold isn't a share of the land. It's the right to use that land for a fixed number of years, sold today for a lump sum. A 25-year lease bought this year gives you 25 years of rights. Bought in year ten, the same lease gives whoever holds it only 15 years of rights, for whatever it's worth at that point — which is structurally less, because there's less use left to sell. That's not a market opinion. It's what a fixed-term instrument does as the term runs down, the same way a 25-year mobile phone contract is worth less with five years left than with twenty-five.

Land underneath the lease can genuinely rise in value over that period — that's real, and it's the location-growth argument leasehold-appreciation content leans on. But the lease itself, as a saleable instrument, is a separate thing from the land it sits on. Whether a buyer benefits from location growth depends entirely on how much of that upside the leasehold contract actually captures — and for most standard leasehold structures, the answer is: not the part that offsets a shortening term. Claiming the two effects simply cancel out, without showing the actual numbers, is an assumption dressed as a conclusion.

Why the extension doesn't rescue the argument either

The other thing leasehold-appreciation arguments tend to lean on, implicitly or explicitly, is the idea that a lease can simply be renewed near expiry, resetting the clock. It can — but only as a negotiated priority right with the landowner, at market pricing agreed at the time, not a guaranteed extension at a locked-in rate. That negotiation happens years from now, under land values and terms nobody can price today. Treating the extension as a given, and using it to argue the lease "doesn't really" lose value, skips over the one part of the deal that's genuinely uncertain.

Where the real uplift actually comes from

None of this means land in these areas is standing still — it isn't. Land pricing we've observed through our own acquisitions in Bingin, Pererenan and Padang Padang shows real, substantial movement between 2023 and 2026: roughly 19.5jt to 35jt per are in Bingin, 25jt to 35–40jt in Pererenan, and 20jt to 40jt in Padang Padang — increases of 40% to 100% depending on the area, in three years. That's genuine appreciation, and in a strong location, on a longer lease with most of its term still ahead of it, it can comfortably outpace how much value a lease loses just from the clock running down.

But there's a second source of value increase that's easy to conflate with the first, and it isn't really appreciation at all: building on the land. A finished, income-producing villa is worth more than the land lease plus a construction-cost line item — that's development margin, the same economics behind any development business, and it's a large part of what buying pre-construction or early actually captures. It isn't the lease appreciating on its own. It's value created by turning raw leased land into something that works.

Both of these are real, and neither is the "leasehold defies depreciation" story competitor content tells with an invented 5% figure and no source behind it. The honest version: land in the right spot can genuinely gain value, building on it can add more again, and a shortening lease term is still working against both the whole time it sits there — which is exactly why the number that should drive a leasehold decision is the yield it produces, not a hoped-for resale story stacked on top of it.

What leasehold is actually good for

None of this makes leasehold a bad structure. It makes it the wrong structure to buy for the reason a lot of current content sells it on. Leasehold is a yield instrument: you're buying a fixed number of years of rental income, priced today, and the return case has to work on that income alone — not on a hoped-for resale gain the structure isn't built to produce. We'll model your specific villa before you commit — the gap between gross and net is real and villa-specific, and no generic figure closes it for you.

What to actually ask before buying a leasehold villa on an appreciation story

If a leasehold pitch includes a projected resale value or an appreciation percentage, ask what the number is actually built on: land value growth, income growth, or an assumed extension — and ask for each to be shown separately, not netted together into one optimistic figure. Ask how many years are left on the lease today, not just how many it started with. Ask whether the extension right is written into the current contract as a priority option, and at what pricing mechanism — "market rate at the time" is a very different promise from a locked-in figure. And treat any appreciation percentage with no sample and no date exactly the way you'd treat an unsourced yield figure: as marketing, not evidence.

The honest version of the leasehold pitch is a quieter one than "defies depreciation." It's this: buy the income, price the term correctly, and don't count on a resale story the structure was never built to deliver.