Bali Phenomenon
Borneo? Sumatra? Java? Thousands of hearts from all over the world do not respond to these call signs, but Bali is another matter. Among the numerous Indonesian islands, this relatively small island stands apart as the most attractive destination for tourists. Unsurprisingly, many return here again and again, and some have taken root and become practically local.
What is special about Bali? First of all, the Balinese themselves, with their colorful traditions, beliefs, love of life and hospitality. In addition, there is a special international environment - many creative, enterprising people, as well as those who have decided to radically change their lifestyle or are looking for spiritual enlightenment. We add to this the eternal summer and relaxation, the richest and most diverse nature, the ocean with excellent waves for surfing, the already established infrastructure, including for families with young children, moderate daily expenses. Here is such an invigorating tropical cocktail «The Advantages of Bali»!
Who is expected in Bali?
The island is actively developing and being built up not without the participation of foreign investors, although they do not receive unconditional ownership rights, which are due to Indonesians.
Foreign companies are allowed to build a house by registering Hak Guna Banguan ("the right to build") for 30 years with the possibility of prolongation for 20 years, and then for 30 years. Foreign citizens can issue a Hak Pakai exclusive right to use land or a house for 30 years with the possibility of extension up to 80 years in total or, at the simplest, conclude a Hak Sewa real estate lease agreement for 25-30 years with the right of preferential prolongation. Hak Guna Banguan is considered a freehold in Indonesia.
The Indonesian authorities are taking steps to liberalize laws related to investors. So, recently, foreigners were allowed to buy housing only with a passport and/or visa. Previously, it was necessary to have a residence permit (KITAS/KITAP). A bill is being considered to raise the level of title that an individual can own. In addition, the government extended the VAT exemption for residential real estate worth up to 5 billion rupees ($317,709) until the end of 2024. It is 11% until June 2024 and 5.5% from June to December 2024.
The Indonesian government attracts foreigners, but the country's policy towards them has changed dramatically. Representatives of the Indonesian authorities, including Tourism Minister Sandiago Uno, have repeatedly stated that they want to make the island, loved by people from all over the world, a place not for the "poor", but for the "rich". All legislative innovations in the field of hospitality and immigration are aimed at this. For example, the income threshold for the same digital nomad visa is quite high - $5,000 per month for the main applicant.
Real estate market trends
Bali is still recovering from an extremely painful quarantine period for the island. In 2023, about 5.3 million guests from abroad visited the resorts (almost 2.5 times more than a year earlier). Bali expects to receive 7 million tourists in 2024, exceeding the average annual figures (6.5 million annually).Some countries are already supplying Indonesia with more tourists than before the pandemic. For example, Russia. At the same time, the CIS countries are far from the leaders in terms of tourist flow. Thousands of citizens of Malaysia, China, Australia, Singapore, India, South Korea, and Japan are vacationing on the island. Travelers from Western Europe and America arrive. Indonesians themselves increasingly prefer to spend their holidays on their hyped island.
The tourist boom has begun to boil over in Bali again, and the flow of visitors is likely to grow. Over the year, rental rates in popular locations have risen by an average of 10-15%.
The recovery of tourism has also led to a revival of the housing market. Bali has a real construction boom. Over the past year, real estate has already risen in price by 10-20%. According to realtors, some properties have increased in price by about 1.5 times in 2 years.
Investors are more active than ever. Moreover, the geography is wide; visitors from Singapore, the USA, Australia, Malaysia, and Japan purchase villas and apartments. There are many buyers from the CIS.
How much does the investment bring?
As a rule, foreigners invest in projects on under construction, in order to sell upon completion or lease, long-term or to tourists. With the right choice of an object, one can expect an increase in capitalization of 20-40% per annum for the period from the excavation stage to commissioning. However, for Bali, the quick return on investment strategy is not the most effective.
It is more efficient to rent villa or apartment within 5-6 years after receiving the keys, and only then sell. The profitability of long-term rentals varies from 5 to 20% per annum, depending on the location and characteristics of the object. On average, realtors target 10-12% for good projects. Apartments worth $200,000 may well generate $2,000 in passive income per month.
It is worth bearing in mind that the return on investment (ROI) depends on the price of the property. Housing is getting more expensive, and ROI is decreasing. A common mistake of a novice investor is buying an overpriced object, and, as a result, low profitability.
A nice feature of Bali is that it is an all-season resort, unlike Thailand, for example, where there is a fairly pronounced rainy season. The average occupancy rate of tourist accommodation on the island is 50-60%. This is a good indicator, but in many successful projects it is even higher, up to 90%.
Changgu, Bukit or Ubud? Where to invest in Bali?
Not the whole island is considered to be a tourist destination, but only its southern, southwestern and southeastern parts. Foreigners mostly settle and rest either very close to Denpasar airport, or no further than 1-1.5 hours drive from it.
Each of Bali's resorts has already gained a certain reputation. For example, Changu is considered a youth hangout place, Seminyak an elite area, Sanur – quiet, family-friendly. Located among lush greenery and rice terraces In Ubud, yoga and meditation lovers find peace.
Changu and Seminyak are already quite densely built up, although there are new projects here. These are top places, so the prices are appropriate.
The Bukit peninsula is obvious in terms of investments, which, on the one hand, is near the airport, and on the other, boasts good beaches for both swimming and surfing. There are many new facilities in this place. It is preferable to choose large complexes with shops, cafes, fitness, because its infrastructure in Bukit is not as well developed as in Changu or Kuta.
Of course, it is interesting for an investor Ubud. This "salted" place is always in demand, and real estate prices are noticeably lower than by the ocean.
Which areas can develop in the future?
In the northeast of Bali, there is a quiet and peaceful Amed, considered one of the best places for diving. There is very little infrastructure here (for example, there is only one pharmacy, which also shares a room with a store for divers). With proper investment, the area can gradually turn into a new point of attraction, although it is quite far from the airport.
The development of the opposite tip of Bali is directly linked to the construction of a second airport. According to the plans, it should appear in the northwest, near the national park and the ferry crossing to Java. The Indonesian authorities have been talking about this project for 10 years and eventually decided to abandon it, excluding it from the list of national projects last year. The reason is the difficulties with the settlement of the local population from the territory under construction. However, this year the new president decided to return to the discussion. If the country manages the project, the tourist and, therefore, the investment map of the island will change greatly, and cash flows will flow to the north of Bali.
The airport is notthe only large-scale project. The plans for the development of transport infrastructure in Bali are impressive. The construction of the elevated metro is due to begin in the autumn. The first section will run from the airport to Seminyak and Changgu. A new toll highway will be laid from south to west. The measures are timely, as traffic jams and chaos on the roads are one of the big problems of the island.
Not only highways are being built, but also hospitals and shopping malls. Disneyland construction will soon begin in the Jemran area in western Bali (the project was postponed for several years due to the pandemic).
In the long term, the development of other Indonesian islands is possible. So far, the phenomenal popularity of Bali has not spread to neighboring Nusa Penida and Java, although Java is a large island, and it is certainly interesting. In addition to the listed islands, experts in the region advise paying attention to Lombok, Sumba, Sumbawa, as well as Kalimantan (Borneo), where Indonesia plans to move its capital from Java.
Villa, townhouse or apartment? What type of real estate should I invest in in Bali?
Of course, Bali is associated primarily with eco-friendly, modern villas, inscribed in a green tropical landscape. There are also many offers of townhouses, which are often called villas on the local market.
The most popular format among tenants is houses with two or three bedrooms on a small plot. The cost, of course, depends on the location, the stage of construction, the concept of the complex, the brand of the developer and what rights to the property you purchase.
Prices for one-bedroom townhouses in Ubud start from $110,000 to $130,000, for two-bedroom villas from $200,000. The average price for small villas in Bali is around 300,000 dollars 350,000.
The latest market trend is complexes with apartments. Of course, the format is interesting, first of all, for the price. The cost of modest studios starts from $55,000 to $70,000, one-bedroom apartments from $80,000 to $100,000. So far, all such projects are under construction. After putting them into operation, it will become clear whether they will be able to compete with small villas and townhouses.
Bali presents both small chamber projects and fairly large residential complexes with their own infrastructure. Another characteristic feature: in this market, in addition to location, the concept is especially important, and developers compete in ideas and embodiments. Conceptual objects are in perspective and give up better.
Perhaps the formula for the success of a development project in Bali is as follows: location, location and once again... The concept is two location atoms and one concept atom.
The risks of investing in Bali
High returns on investments are associated with their high risk. And Bali is no exception in this sense. There are risks.
Global shocks. The recent experience of the pandemic is an illustration of this point. The tourist flow has dried up, and with it the cash flow of investors.
Problematic developers. Many developers from different countries have recently entered the Bali market, and not all of them have enough experience. The investor may well face unfinished construction, bankruptcy of the company. Development activities are poorly regulated by law. There is no practice of escrow accounts, there is no project financing.
Problematic objects. Insufficiently experienced developers can formally complete the project, but with serious mistakes. It is very difficult to build in the tropics on uneven, sometimes rocky areas. One of the aspects worth paying attention to is the waterproofing of the foundation and roof.
Legal misunderstandings. It is more reliable if the seller has a freehold on the land on which the house stands. Otherwise, it may happen that his lease agreement with the landowner will expire earlier than your agreement with him. Keep in mind that the legal field in Indonesia is not regulated properly.
Market circumstances. Quite a lot of facilities are being built, and it is possible to overstock the market with similar offers. In addition, you should beware of inflated, speculative prices.
To sum up, the Bali market has entered a hot stage, and you can make money on it, but you need to invest with a cool head. However, as always.
Thank you for your help in preparing the material Elena Kuchmey, CEO Satellite Estate Group
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