Indonesia Expat
Business/Property

What’s Wrong with Real Estate in Bali?

There have been a lot of recent claims that property transactions in Bali have slowed down after 15 years of unprecedented growth. Is this true? And if it is, then why is it so? What’s happened? Let’s have a look at some of the issues.

Issue One: Property Prices

There has been tremendous growth in land and property prices in all parts of Bali, but now we’re seeing for the first time that certain areas are experiencing a slow-down. This isn’t rocket science to the savvy investor, especially if we consider that business ventures have to make financial sense of their investment. And it doesn’t in areas like Seminyak and Sunset where land has reached the dizzying heights of Rp.3 billion per are. This hefty price tag combined with things like height restrictions to buildings is pushing interest to other, cheaper parts of the island such as Canggu further west, Ubud to the north, and all along the east coast because of the more attractive return on investments (ROIs).

Issue Two: Is There an Oversupply?

In general, yes. But this is something that any market will experience at this stage of its development. Two to three years ago Australia’s Gold Coast took a nosedive due to oversupply and prices went down by a whopping 50 percent. Now, however, everyone is talking about next year’s potential price boom because all developers held back and demand did not decrease. In fact, the opposite happened because of an ever-growing appetite from foreign markets. This will also happen in Bali, and in the meantime

the smart domestic bulk purchasers are running around picking up whatever they can.

Issue Three: Infrastructure, Energy and Water

This is a sensitive subject. In general the infrastructure appears to be improving and the new government is addressing issues with speed and a lot of money. For some people it is a matter of too little, too late, but these are the sorts of people who will try to find holes in any initiative because they’re wired that way. It doesn’t mean their negative opinions are right. The truth of the matter is that infrastructure projects are being given priority all over the country, particularly in Bali, and we can expect to see more projects in the very near future.

The central government is trying to focus all provinces towards alternative energy especially in the areas of solar, hydro and geothermal, resulting in many projects lining up for the immediate future. Solar energy seems to be the flavour of the month and the Balinese provincial government is trying to get legislation approved to have solar panels on every government-owned building.

Water is a big challenge for Bali and the next drive needs to be on enforcing hotels and housing projects to re-circulate and reuse water. If this isn’t addressed very soon it will peak and ultimately have a negative impact on the island. The political will, or lack thereof, has been the main stumbling block on this issue, but now this is changing and positive steps are being made.

Issue Four: Overbuilding

In Bali there are many areas already massively overbuilt. The biggest single factor influencing this is connected with the issue of zoning, or more accurately where there has been no zoning enforced. This began to change from 2009-2013 and today it is much clearer where and what these zones are. This is being supported by stricter policies centred on the issuance of licenses and permits and what can or can’t be done in specific areas, including regulations on the size/amount of land needed to build ‘mini-hotels’. Interestingly, more and more developers now understand the need for green developments and see ‘empty’ spaces as valuable assets.

Issue Five: Ownership Structures for Expats

This year there has been a lot of talk around this topic, and in particular towards something called anominee structure. This has been – and always will be – illegal under Indonesian law and is in fact set as such in the Indonesian constitution.

Adjustments on other structures such as Hak Pakai and Hak Guna Bangunan are well under way as is ownership for expats, no matter what self-appointed specialists from other industries may say. These other structures can freely sell at similar values to freehold, and interestingly, to set either of these two ownership structures up is actually cheaper than using the nominee structure and the so-called lawyers who have been instrumental in creating the myth. Many people, however, are reluctant to change from the illegal nominee structure. This perhaps could be because they are worried about being exposed or fined, or worse, but we strongly advise that if you are one of these people you make the change to a legal structure sooner rather than later as it will not be any easier to change as time goes by.

Issue Six: Domestic Politics

This year’s elections and the usual tug of war between powers took a long time. Indonesia was also affected by a general world wide economic slowdown and a currency war between the US and China. However, since its recent reshuffle, Indonesia has really gotten up to speed, revoking 2,700 regulations which were hindering investments. It has also issued six economic stimuli packages amongst other initiatives designed to encourage investment. We see this as a very positive step in the right direction as Indonesia tries to normalize itself and continue to fight corruption through better law enforcement than it ever did in the past.

The new Minister of Tourism has been given a budget which is ten times the size of previous years. This is being used across a number of platforms to a number of strategic areas including China and the Middle East, and the results are already having a positive impact.

What has changed however, is the market. It is now much better informed and is slightly more conservative than it used to be. Prices and ROIs are also more conservative, regulations are easier to understand and red tape is fast disappearing – all of which attracts a larger market. So, the answer to the question ‘What’s wrong with real estate in Bali?’ is nothing!

Nothing is wrong with real estate in Bali. The bottom line is that Indonesia is one of the richest countries in the world when it comes to natural resources, with one of the largest productive populations on Earth being led by a democratic and proactive government. It receives the second highest amount of foreign investment in the world after China and its debt exposure compared to the National Budget is on the same level as Norway.

There is no better place to invest in right now, and domestic investors are jumping at the opportunities to absorb cheaper assets. Their mindset is simple: grow tourism and fill the hotels and resorts. All the underlying indicators are solid and positive. They don’t want to lose out; the question is do you?

 

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