PROPERTY: BALI BECKONS
Jakarta’s initiative to relax foreign investment restrictions is driving new interest in the Bali property market
For generations, Bali has evoked images of a sunkissed tropical island paradise, with golden beaches fringed with gently swaying palm trees, lapped by the warm turquoise waters of the Indian Ocean.
Bali is the jewel in the crown of Indonesia's booming tourism industry, an industry the government is determined to make the country's top foreign exchange earner by the end of 2019. Tourism feeds the real estate industry in Bali. A report by Global Property Guide, released in February, estimates that 80 per cent of Bali's economy depends on tourism, and that there are about 30,000 expatriates living in Bali. These, coupled with rising investments by both Indonesians and foreigners in Bali resulted in “unprecedented property price increases in recent years”.
Australia-based think-tank Future Directions International estimates that Indonesia's direct and indirect foreign exchange earnings from tourism amounted to US$72.4 billion or about 6.2 per cent of the country's total economy in 2016. The World Travel & Tourism Council estimates that by 2027, the Indonesian travel and tourism industry will amount to US$141.3 billion.
Terje Nilsen, a partner with Seven Stones Indonesia, a real estate agency specialising in Bali, has seen considerable change in the market. "Some strategic areas, especially those on the edges of where tourism development was in those days, areas like Seminyak for example, saw prices go through the roof! As much as 10 times in a very short space of time,” Nilsen says.
Global Property Guide notes that six years ago, a four-bedroom villa built on freehold land in Berawa, near the main city of Denpasar, was priced between US$600,000 and US$700,000. Now, the same villa could be worth more than US$1.5 million. In 2017, villas in Bali were priced as high as US$2,300 per square metre.
According to the 2017 market report by tourism consultancy Horwarth HTL, the supply of villas on the island grew seven per cent year on year. Asking prices meanwhile, had a year-on-year growth average of 36 per cent, despite a 69 per cent decrease in monthly absorption rate.
For investors, the synergy between tourism and property is good news because infrastructure and services improve with increases in tourism. And there are more reasons to be optimistic about the resilience of Bali's tourism draw, despite setbacks.
The eruption of Mt. Agung last year dampened tourist arrivals in the last three months of 2017, which many saw as being directly responsible for the drop in property transactions during the same period. Yet, the annual total number of visitors to the island rose 15.62 per cent to 5.7 million, exceeding the official
target of 5.21 million, data from Bali government's show.
In February 2018, tourist arrivals to Indonesia were up 17 per cent from February 2017.
The Imf-world Bank Annual Meeting will be held in Bali in October, and to prepare for the event, state airport operator Angkasa Pura is to begin construction on the expansion of Bali's I Gusti Ngurah Rai International Airport. The highlevel meeting will bring 17,000 delegates from 189 countries,
“LESS DENSELY DEVELOPED AREAS IN THE NORTHWEST AND NORTHEAST SHOW SOME OF THE MOST EXCITING INVESTMENT OPPORTUNITIES THESE DAYS.”
- Dominique Gallman, Exotiq Property
including heads of state, central bank governors and ministers, among others.
Bali's Investment Board is targeting investments worth at least US$1.3 billion for this year. The government wants to partner with private firms to build a US$2 billion airport in the rural north of Bali to allow an additional capacity of 32 million passengers. Local media report that a large airport in the north has been discussed for years, but with backing from Indonesian President Joko Widodo, progress might actually be made.
The International Air Transport Association, in its 20year air passenger forecast, says Indonesia will be the fourth fastest growing aviation market. By 2036, the archipelago's air traffic is seen to rise to 355 million passengers.
Chinese investors have also shown interest in Bali. In April, Jakarta and Beijing signed five contracts worth US$23.3 billion as part of China's Belt and Road Initiative, according to the Jakarta Post. The projects include a US$1.6billion joint venture to build a power plant in Bali.
Coordinating Maritime Affairs Minister Luhut Pandjaitan has announced that Jakarta would seek further cooperation with Beijing on some of Indonesia's economic corridors, including Bali.
There are of course obstacles facing Indonesia's tourism industry such as poor infrastructure and the lack of investment required to fund the necessary infrastructure projects. From 2015 to 2019, it is estimated that as much as US$520 billion is required to meet Indonesia's overall infrastructure needs.
Tourism is also a double-edged sword. More visitors mean a more vibrant economy, and returns on investments grow as a result. But more people can also have a negative impact on the environment and local communities: the very things that drew people to the island in the first place.
There's no question Bali is a buyers' market, but these days, “unrealistic price expectations mean properties are closing at around 80 per cent to 85 per cent of original asking prices,” says Andy Gray of Seven Stones.
This resistance, from foreign and domestic investors unwilling to pay high asking prices, has cooled prices somewhat, creating a more attractive property market in the last couple of years, particularly in areas close to high tourism potential.
In 2018, this means more development on Bali's west coast, where there are sunset ocean views and world-class surf breaks with million-dollar panoramas. Most recently, there has been a lot more interest on Bali's north coast, where the island's new airport is scheduled for construction.
And over the past six months there's been a lot of interest in freehold luxury villas.
“With economies and stock markets in general experiencing exponential growth on a global scale, the luxury high-end market seems to have opened once again, but this is limited to those properties with freehold titles,” says Joe White, Sales Director at Seven Stones Indonesia.
Matthew Georgeson of Elite Havens/knight Frank says that locals who have acquired a freehold property will then offer it on a leasehold basis to foreign investors.
“There is always a market, even when Mt. Agung erupted, and tourist numbers declined. Now it's all back to normal,” Georgeson says.
Indonesia's legal situation is also getting better for foreign investors. While only Indonesian nationals can own Hak Milik (freehold) titles in their name, the central government has simplified the process for foreigners to acquire properties for up to 80 years under a Right of Use ( Hak Pakai) title in their own name,
or even a Hak Guna Bangunan structure in the name of a foreign investment company they create.
But it's not just foreigners from Singapore, Hong Kong, Japan and the Americas who are in the luxury space. Indonesians too, especially those out of Jakarta, are seeing fantastic opportunities in Bali, something that Siti Purba, principal of Harcourts Purba in Jimbaran, knows only too well. “More than 90 per cent of my clients in the luxury villa market are wealthy Indonesians, primarily from Jakarta,” she says. “And every year there seems to be more.”
For most Bali real estate agents, domestic investors make up about 60 per cent of clients. “My Indonesian clients are looking for something unique with
“WITH ECONOMIES AND STOCK MARKETS IN GENERAL EXPERIENCING EXPONENTIAL GROWTH ON A GLOBAL SCALE, THE LUXURY HIGHEND MARKET SEEMS TO HAVE OPENED ONCE AGAIN, BUT THIS IS LIMITED TO THOSE PROPERTIES WITH FREEHOLD TITLES.”
– Joe White, Seven Stones Indonesia
amazing views. They tend to have much more realistic expectations than many foreign investors,” Purba says.
In Bali, villa prices start at around US$1 million (sometimes a little less) and they go up from there. US$1 million will buy a very nice family home in Sanur, along Denpasar's eastern shore. US$2.5 million doesn't get beachfront in Seminyak (the region home to the famed Ku De Ta bar), but will get a good central location in this tourist hot spot. And it can also get you a nice little boutique resort on the north coast. Between US$4 million and US$5 million is what you'll need for clifftop in the Bukit or beachfront in Tabanan, while beachfront in Canggu can reach as high as US$12 million.
Absolute beachfront in Sanur, for example is not where you'd expect to be spending US$13 million, but that's the price of a recent luxury sale there in the famous Batu Jimbar estate on Sanur's beach. “This was a great example of a very wealthy Indonesian client buying for location more than anything else. The villa could have been better but that much space on that particular beach was a rare find,” says Purba.
Beachfront, clifftop and surfbreak views are at the top of most people's checklists but there are also rugged mountains, seas of undulating rice fields and tropical jungle vistas to be had. Luxury options in Ubud for example will be in the US$3 million to US$4 million range.
Julien Hug, however, marketing specialist at Exotiq Property in Seminyak, believes the future lies on the west coast. “Once Canggu becomes saturated there is likely to be movement towards Cemagi further north.”
This may well be the case for those determined to invest in Bali's most popular destinations and their fringes, but Dominique Gallmann, CEO of Exotiq Property, predicts the “less densely developed areas in the northwest and northeast show some of the most exciting investment opportunities these days.”
Georgeson also sees the northern and eastern areas of Bali as the most promising locations for property investments.
“It's moving further north and east, but not that far from the present strategic areas,” he says.
Regardless of location, it's access
that appears to be the number one consideration. If roads don't make the grade and it takes too long to get to your oasis then helipads and boat access become essential.
Most people looking to invest in luxury property in Bali have a lifestyle to maintain with the best options being self-contained with lots of space and somewhere magically beautiful. White argues the experience for these buyers is the greatest consideration. “From our perspective the clients we help are not usually too worried about getting healthy returns from renting out their properties when they're not using them, but they do want to feel they're getting value for their investment. They're mostly looking for that unbelievable experience every time they stay there,” he says.
THIS SPREAD Villa Mana, located in Canggu, offers rice-field and mountain views.