The Savvy Investor's Guide to Bali – Decoding Parameters for Smart Investments

Many property investors may now notice there are more luxury property investment projects in Bali, gaining global attention and presenting a wealth of opportunities for investors seeking favorable returns on both capital gain and rental yields. Diversifying investment portfolios, especially in a place with beautiful natural surroundings, makes it not just a numerical investment but also a perfect lifestyle product.

However, for investors eyeing the Bali property market, what parameters should be considered? We spoke with our clients working in financial services in Hong Kong and compiled insights that we believe would be useful for most investors. Let’s take a look now at what they say.

Step 1: Investment Purpose and Opportunities

When investing in Bali's emerging market, the return on investment (ROI) is the primary factor to consider. ROI can be assessed on two fronts: the capital growth potential and ideal rental income.

Capital Growth Potential:

Several key fundamental factors influence capital growth potential, with supply and demand, and location playing crucial roles.

Given the tourist market in Bali, the demand for good lands and properties around coastal areas is always high, as well as for some hinterlands with great views. However, the supply of these lands and properties may be quite limited due to them being already taken or zoning restrictions, such as green zones for agriculture, Pariwisata for touristic activities, or Pemerintah for governmental usages; not all lands are available for residential development.

Proximity to popular spots such as coastal areas, beaches, recreation clubs, amenities, restaurants, bars, shops, and developing infrastructure all impacts the popularity of a location, influencing exit liquidity and rental opportunities.

Investing in undervalued locations is crucial for capturing future gains. In the long run, both land and property prices in remote areas or those further away from saturated areas will increase faster than prices in areas that are already comparatively high.

Timing is also important; investing in Bali now, before prices rise, is advantageous. Off-plan investments typically come at a lower price point than completed projects.

Property titles with Leasehold ownership usually can yield higher price growth due to their lower entry cost and higher liquidity compared to their freehold counterparts.

Rental Income:

Rental income comprises two components: rate and occupancy. The rate depends on demographics and spending power in the area, often determined by references from booking platforms or the presence of luxury resorts. Occupancy is influenced by attractions, convenience, amenities, facilities, and community vibes. Platforms like AirDNA, which provide in-depth information about occupancy rates in different districts and averaged rates for various property types, can be valuable. Property quality, including design features and facilities, contributes to daily rates and rental income.

Understanding whether your investment is a market-fit property is also important for gaining rental income. In Bali, the potential monthly income from the daily rental of a villa can be 1070% higher than that of a monthly rental of an apartment. This contrasts with other developed markets like Hong Kong, London, or Australia, where the focus is more on long-term leases over short-term rentals.

Lastly, owning a holiday home in Bali necessitates a pleasant environment, including a swimming pool for family or renters, tropical gardens with outdoor spaces, sundecks or roof decks for barbecues or scenic views, sustainable features, and property safety.

Why Bali Investment:

The majority of investors from Hong Kong have provided two key reasons: it serves as a backup option in times of financial crisis in Hong Kong and aligns with the remote working trend and generational shift, with more people willing to work and live in places like Bali. "You have to be more open-minded and understand the trend when you are talking about the changing landscape of investments," quotes one of our Hong Kong clients.

Parameters:

• ROI: 15-20%
• Location: Attractions, amenities, F&B, accessibility
• Occupancy: Averaged 65-80%

Step 2: Investment Project 

When the market is identified, the focus narrows down to choosing the right property, property type, and additional details about its location. For investment purposes, aiming for optimal ROI and rentals, feedback from investors often leans towards 1-bedroom villas. This is due to their ease of rental, especially for holiday couples, as Bali is a well-known honeymoon tourist destination. Additionally, the lower entry and maintenance costs make them attractive. For a combination of a holiday home and investment, buyers tend to opt for 3-bedroom properties to accommodate family members and attract family groups for rentals.

The quality of the property is also crucial. "I would rather pay more to buy a high-quality villa in an emerging market—the use of materials, better safety, and construction quality control that make it value for money—than going into the market with a cheap price without guaranteed quality. This is also considered an investment risk," notes one Hong Kong investor. Another adds, "Also, the higher quality of the villa would secure a better customer type for rental with a higher night rate, given the same location compared to other cheap properties. So, the investment horizon can be spread across longer with hopefully less necessary maintenance cost involved."

Regarding property location, aside from proximity to attractions, beaches, recreation clubs, and F&B spots, investors also consider the community in the area. "I will get bored just staying at the beach—being around the community, people are key!" remarks a client who purchased our NOVEA 3-bed townhouse project in the center of Bingin village. They prefer a community neighborhood where people feel safe and connected. Additionally, they look at whether events and growth are happening around the area, presenting trends.

The debate between leasehold and freehold property ownership titles is frequent among investors. While some prefer freehold for its perceived safety, others argue that it's more suitable for developed markets for future living or legacy planning. In emerging markets, investors often opt for leasehold titles for 30-40 years due to their liquidity. Leasehold properties in Bali are often easier to transfer or sell compared to their freehold counterparts, and they also have a lower entry cost. To delve deeper into the distinctions between leasehold and freehold ownership titles in the Bali property market, you can refer to our published blog.

Pricing is, of course, important. Some of our clients focus on the price per square foot or meter and compare Bali prices to what they could get elsewhere. However, investing in Bali's emerging market can be a very different play, as said by a property investor who owns multiple properties in both established and emerging markets: “Investing in Bali properties should be priced based on ROI, its project yields, rather than psf/psm. Of course, the property type, quality of the property, and the developer's track record are important to me as an investor investing in Bali.”

Step 3: Developers and Due Diligence 

After checking the market and investment projects on your list, the next step is to examine who is behind the project—the developer—and to conduct your own due diligence.

It's understandable to investors that not many big players are established in Bali's emerging property market. Instead, there are many scattered small developers buying land and building projects to capture the growing property market. It's essential for investors to know who these people are behind the projects, what their background and expertise are, where they are from, and who they are partnering with in terms of construction, design, architecture, and property management firms.

Before investing, a thorough study of sales and marketing materials is necessary, as well as online research, including checking LinkedIn for employees, the company's history, any negative news or reviews related to the company/projects, and the developer's portfolio—what has been built and what is under construction.

Investors also expect to receive information such as market insights, customer testimonials, and construction updates from the company they are investing with to help them make informed decisions.

Here are some summarised steps you can take:

Research the Developer's Track Record: Look into the developer's history and track record. How many projects have they completed successfully? What is the quality of those projects?

Visit Previous Projects: If possible, visit properties developed by the same developer. This will give you firsthand experience of the quality and craftsmanship of their work.

Check Online Reviews: Look for reviews and testimonials from previous buyers or investors. Online forums, real estate websites, and social media platforms can be valuable sources of information.

Financial Stability: Assess the financial stability of the developer. A financially sound developer is more likely to complete the project as planned. Check their financial reports and stability over the years.

Legal Compliance: Ensure that the developer complies with all legal requirements. Check for necessary permits and approvals for their previous projects and the one you are interested in.

Verify Licenses and Certifications: Confirm that the developer holds the required licenses and certifications to operate in Bali. This includes checking their registration with relevant authorities.

Review Contract Terms: Carefully review the terms and conditions in the purchase agreement or contract. Ensure that the contract is fair, and all your concerns are addressed.

Legal Assistance: Consider hiring a local attorney or real estate expert to assist you in reviewing legal documents and verifying the developer's credentials.

Project Timeline: Understand the proposed timeline for the project. Delays are not uncommon in the real estate industry, but a clear and reasonable timeline should be provided.

Communication: Assess the developer's communication. A transparent and responsive developer is more likely to address your concerns and provide updates on the project's progress.

By thoroughly researching the developer and following these steps, you can minimize risks and make an informed decision when investing in the Bali property market.