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Bali Property Market

 

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The Bali property market is open to foreign investment but only Indonesian citizens may own freehold land. The Bali property market is vulnerable to the global financial crisis because many developments are funded by US and European banks. Following is an overview of the Bali property market, enabling investors to make an informed decision on whether it meets their strategic investment objectives:

General Overview

1.
Foreign ownership in the Bali property market is possible for residential real estate, commercial real estate, or as a property investment. Restrictions do apply, there are basically three options to legally acquire property in the Bali market, which are: i) leasehold investment, where rights are negotiated with the landowner for up to 25 years ii) Indonesian nominee power of attorney agreement, basically a legal agreement where an Indonesian nominee is the registered owner iii) PMA foreign investment company structure, which allows a foreign corporation to own land without an Indonesian partner for a period of 30 years.
2.
Even though Bali suffered from terrorist activity in both 2002 and 2005, Bali still remains a potential property market for investors. This is indicated by the occupancy rate of both hotels and villas, which is currently at an average of 85 percent. The annual increase of property prices is said to be 10 percent according to several executives. This is supported by the Colliers International market report on Bali which shows an upward trend in occupancy rates for hotels across Bali.
3.
According the Bali Tourism Board in January to March of 2010, there were a total of 551,186 visitors (a 18% increase from the same time last year). 22.1% of the tourists were from Australia; Japan and China accounted for approximately 12% and 10.6% respectively.
4.
Generally, rates for office, retail and residential property has been increasing in recent years. However, there is currently concern that the Bali property market is at risk of suffering decline, especially villas and hotel development businesses, because a significant share of these are owned by foreign investors and financed by US and European banks. Locally financed developments are less at risk as the liquidity in the local banking industry remains strong due to the tighter lending criteria.
5.
Taxes are payable in Indonesia for purchasing Bali real estate and selling Bali real estate. These taxes include notary tax, vendor and purchaser tax, and mortgage certificate tax. Healy Consultants provides professional advice to investors on all the legal matters and taxation requirements associated with the Bali property market. Professional tax and legal advice is beneficial for the Bali property market as there is limited regulation of the industry and processes can be time consuming requiring patience and due diligence.
6.
Depending on the impact of the current global financial crisis, investment in the Bali property market is likely to be negatively affected. However, strong growth in the number of tourists and forecasts for land appreciation of 25-30%, will help maintain demand for property in Bali.
Residential Property market
i)
One particular challenge that the Bali residential property market may face in the upcoming years would be investors choosing to invest in residential property else where such as Singapore. Singapore has up to 99 years of free-hold period, where as Indonesia only has up to 30 (maximum), although is in the process of increasing this.
ii)
There are both high rentals and sale growth of condominiums and housing. In the first few months of 2008 the take-up rate for apartment rentals reached 2,000 units compared to only 73 units in the first few months of 2007.
iii)
Transactions costs for buying in the Bali property market are also fairly expensive compared to other markets. According to the Global Property Guide, cost for buying can reach 20% of the value of the property.
Commercial Property Market
i)
Investors that either buy villas or hotels and develop them successfully, can potentially sell the property with capital gain, whilst earning an income via tourists. The stronger tourism market is a positive sign for investors in the hotel property sector.
ii)
Condominiums are not the only segment of Bali undergoing a construction boom. There is also construction in the commercial property market where offices and retail outlets are under construction. Following Indonesian GDP of 6.3% in 2007, the Indonesian Economy is expected to grow by 5.2% in 2010, while GDP in 2009 is meant to conclude at 4.3%. These figures are due to foreign and domestic investments rising.
Contact Us
For further information on the Bali property market, call our Singapore office at (+65) 67350120 or email us here
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