Bali VS Lombok: A Tourism and Real Estate Investment Overview

Although commonly referred to as “Bali’s little sister”, competition at this point is relatively low, as Lombok continues to undergo development. While typically known to be a popular island among travellers, over the last year, Lombok started to gain more traction among foreign investors. As its prospects are clear for savvy investors who are well-versed with Indonesia’s tourism industry and roadmap.

Lombok - Mandalika is part of Indonesia’s “10 New Bali'' - an initiative to drive economic growth, by creating more jobs, improving infrastructure and access. A grand plan that many are keenly observing, given Indonesia’s recent fast-moving progress of doing business and regulatory change to improve its investment climate. Economic forecasts aside, another reason why real estate in tourism hotspots remains popular is due to its natural ability to quickly recover from adversity.

Time and time again, Bali’s tourism sector has been put to the test. In 1998, Indonesia suffered a severe financial crisis, every sector was distressed except tourism in Bali. Compared to other regions, the impact on Bali was minimal – the island’s activities remained largely unscathed due to the devalued Indonesian Rupiah, as it acted as a catalyst in preserving consumer demands in the tourism sector.

Then in 2017, the island’s resiliency was again put to the test. Tourism received a heavy blow when the volcano, Mount Agung, started showing signs of eruption in November. Inbound traffic took a dip, but the island was able to quickly bounce back, with 14,000 visitors every day – showing an astonishing recovery of over 90 percent in less than three months. While these setbacks remain exclusive to Bali, COVID-19 has shredded our global tourism.

As we continue to monitor travel regulations and trends in the tourism sector, a survey by HVS Global Hospitality Survey, a leading tourism consulting firm, reported that the Average Daily Rate ( ADR) of hotels across the South Pacific region dropped by 10 percent in March 2020. Hotels and accommodations in Bali, on the other hand, were able to somewhat rely on its ADR to sustain its business. According to a TTG Asia report, Bali’s ADR was 91 percent higher than the national average in the same period. While some digital nomads have (reluctantly) left the island, a new pool of audience trickled in – the majority of our global workforce who have permanently transitioned to a remote work arrangement have now made Bali their new home.

STEPS TO RECOVERY - BALI & BEYOND: 10 NEW BALIS

Indonesia’s Ministry of Tourism has made multiple in-roads on delivering a plan to recover the industry from this drought. One of the key plans is to of course accelerate vaccine drives. The central government has administered over six million vaccine doses, with hospitality and frontline service employees as a priority. In early June, its task force had distributed over 50 percent of its vaccine, making Bali the province with the highest rate of vaccination coverage in the country. In addition, the Indonesian government is also in talks with Singapore, China, South Korea, India, the Netherlands, United Arab Emirates, Ukraine, and Poland to open up travel corridors.

On an economic level, in 2019, tourism accounted for 15 percent of Indonesia's Gross Domestic Product (GDP) – a 4 percent increase from 2016. To support economic growth policies, Indonesia is focused on increasing the number of foreign arrivals, and it understands these targets cannot solely rely on Bali.

In 2016, the Indonesian government introduced 10 other top priority destinations (known as the 10 New Balis) to replicate the economic effects of tourism in Bali nationally. One of such destinations is Mandalika on the island of Lombok – a stone thrown away from Bali.

THE NEXT BALI: MANDALIKA – A SPECIAL ECONOMIC ZONE (SEZ) IN INDONESIA

To boost competitiveness among its neighbouring countries, the Indonesian government is developing specific areas, known as Special Economic Zone (SEZ). They are designed to maximise industrial, export, import, tourism and other related activities that have high economic value and broaden their potential for an international market.

In 2017, President Joko Widodo declared Mandalika as a priority destination thus accelerating the developments on Lombok. The US$ 3 billion Mandalika Development Project in Lombok aims to have over 16,000 hotel rooms, a water park, a 27-hole golf course, 1,500 villas, and a 4.3 km International Race Circuit, which is scheduled to host the MotoGP championship in 2022. As an SEZ, Mandalika poses a lucrative investment opportunity for foreign investors, where 2.8 million tourists are projected to arrive in 2026 as compared to 1.9 million in 2015. This brings the island’s tourist arrival growth at a CAGR of 2.3- 4 percent.

In addition, the Integrated Tourism Master Plan also known as RIPT ( RencanaInduk PariwisataTerpadu) detailed a plan to improve connectivity from ports and airports to facilitate tourism and also aim to preserve and promote the cultural diversity of Lombok. The vision is to have a resilient, inclusive and sustainable tourism ecosystem in Lombok.

SEZ INCENTIVES IN MANDALIKA

Designed to be a world- class tourism destination, the Indonesian government has set up long-term benefits for business actors establishing themselves in SEZ territories. And here are some key differences investors should keep in mind when starting a business in Bali or Mandalika: seetablebelow.

LAND PRICE COMPARISON

Aside from long-term business incentives, foreign investors are banking on its land, hoping to reap benefits from the lower land price when it comes to investing in Lombok, compared to Bali.

In developing and developed areas such as Canggu and Seminyak, land prices are estimated to cost approximately Rp600 to 800 million (US$ 40,000-55,000) per 100 square metres. While outlying land is priced at approximately Rp100 million (US$7,000) per 100 square metres. It is no surprise that Bali has the fastest growth in land prices amongst Indonesia’s archipelago of islands.

As “The Sister of Bali”, land prices in Lombok have followed a similar upward trajectory ever since the commencement of the Mandalika Project and the completion of Lombok International Airport. The highest valued land is in Kuta (near Mandalika) where land prices have reached approximately Rp350 million (US$25.000) per 100 square metres – halved, compared to the hot spots of Bali. Land prices in the surrounding areas are still relatively low ranging from Rp115-215 million (US$ 8,000-15,000) per 100 square metres.

CONCLUSION

While Bali continues to lure investors with its charms and stability, seasoned and savvy investors are keeping other Indonesian islands and regulatory changes on their radar. While the ease of doing business in Indonesia progresses year-on-year, activities such as buying real estate in Lombok can still be a tedious task.

Cekindo provides a range of comprehensive services to help you in purchasing land and property investment plan in a secure way. Be it conducting due diligence to help you assess the credibility of the company you want to work with or understanding the foreign ownership

While you focus on the core business aspect of your company, Cekindo’s comprehensive business solutions also assist you in the technical facets of starting a business in Indonesia.

To help your company comply with the accounting and tax reporting rules of Indonesia, Cekindo provides a full selection of services as an accounting agency. On the legal side, our consultants provide legal guidance, helping companies to comply with applicable laws and regulations in the country.