You’ve just been on an amazing villa holiday to Bali, and you want to go back, every year, forever. Whether it’s an ultra modern cliff-top villa or a chic tropical garden villa, the costs and rules surrounding villa ownership in Bali mean it’s sometimes better to consider it more of a lifestyle choice than an investment. Along with the cash from the nightly rentals and your very own piece of paradise, there are significant risks that come with the purchase of a villa in Bali.
Like the local rental market, demand drives rental prices. The first consideration for an investment perspective is occupancy. The best occupancy – and therefore rental rate – is Seminyak. This area is the stylish heart of Bali where you’ll find the boutiques, galleries, famous chefs and upscale beach clubs. Many visitors are aware that traffic congestion is an issue on Bali so staying as close as possible to the best entertainment is a priority many will pay for. It also means the areas that immediately surround Seminyak are also in demand and can command good rental returns. In fact, you will often find villas in these nearby areas like Petitenget, Kerobokan, Umalas and Batu Belig described as being in Seminyak to exploit the popularity of this area.
About a 20-minute drive away is Canggu where vacancy rates are higher and rental rates are generally lower which means you will need a strong local manager to help you get bookings. Further afield in Sanur, Nusa Dua, and in the north, demand is very low from Australia though Europeans tend to appreciate the quieter more local feel. The cliffs of Uluwatu have some of the most amazing properties, and are great for weddings and events, however the costs to develop a super villa to tap this market can run into the millions.
If you are buying a villa, you will need to ensure you have the correct licencing to rent it out to the tourist market. There have been a number of “busts” on unregistered properties recently, stemming from listing on AirBnB, however getting your “pondok wisata” can be time consuming and costly, with the outcome unsure given that big hotels are lobbying to limit the villa market given it cuts into their customer base.
Officially, foreigners can’t own property in Indonesia outright (and many other Asian countries), but companies can. However there is a significant investment requirement to set up a 100% foreign-owned Indonesian company (minimum investment levels are more than US$1,000,000) and recent changes to policy are limiting investment in small tourism development. There are “grey” areas used by foreign investors where there is a local shareholder, however there are risks in setting up this way as the minority local shareholder has significant power in the relationship.
You can also purchase a property “leasehold” with the leases running from just a few years, to 25 or 50 years with an option on another 25 years or longer.
If you buy in a villa complex, you have the added benefit of professional management and marketing, helping you get higher prices and greater occupancy rates, but the management fees can whittle away your return.
If you lease or buy a private villa, you’ll need to pay as much as 30% of your booking revenues for the property management and marketing, and that does not include staff or maintenance costs.
Land in Bali certainly is no longer cheap. For 25 Ara (about 250 sqm) a typical size for a villa in Seminyak, the land can cost as much as AUD$500,000, or a leasehold villa with 25 years left start at A$250,000 and increase from there.
So while you may dream of owning a luxury piece of paradise, you should do your sums and check that your investment return will make sense. But if you’re just looking for a bit of wow to add to your property portfolio, and to entertain your jet-setting friends, there will be something amazing for you.
David Anderson is the Founder and Managing Director of Villalet.com, a luxury villa rental website specialising in Bali, Thailand, Sri Lanka and Pacific villas