Investing in Bali Villas & Real Estate: What You Should Know
Bali has been a very popular destination for real estate investment these past few years. Whether it’s with individuals buying their villas in order to rent them out, or for more corporate investors in tourism, it seems that Bali is on everyone’s map.
As you may suspect, investing in Bali is not always all about fairytales. It does also come with its fair share of risks, especially for foreigner investors that are not always aware of rules, common practices and even basic precautions.
Here is what you should know before investing all your money in a villa, a hotel or a complex in Bali.
What are the pros of investing in villas and real estate in general in Bali?
Bali’s popularity among real estate investors isn’t coming out of nowhere. There are indeed some strong pros about investing in Bali that you might have already heard of from promoters and that are (mostly) true.
Bali is indeed a very popular and very dynamic rental market
Bali is a very popular touristic destination. It is an island that is visited by more than 5 million foreigners each year, and almost the same number of domestic tourists. All of these on an island that only has a 4.5 million local population.
So to say that property rental is a popular business in Bali is quite an understatement: it is almost one of the most important sectors of the Balinese economy.
On top of that, the real estate market in Bali is quite unique as people come to Bali for a variety of reasons: very short visit stays for most tourists, a few months a year for digital nomads and for an undetermined duration when it comes to expats or other Indonesian relocating full-time to Bali.
So regardless of how you would like your rental business with villa or any other real estate to be, you can almost always find a way to do so in Bali.
Return on real estate investment in Bali can be one of the highest in the world
It is mostly true, the return on real estate investment in Bali can be very high, and is even often described as one of the best in the world… at least when it’s done right.
Of course, stating an average ROI that could apply to most villas or other rental properties in Bali is risky. But most real estate companies regularly advertise return on investment that are between 10% and 20%, and some indeed have returns well above that.
Bali simply has all the ingredients for profitability in real estate: constant flow of newcomers (tourists, nomads and expats alike) driving the demand, limited land space restricting the supply, high occupancy rates for some specific types of properties, affordable construction and staffing costs and rental prices that are not as low as most people think.
The entry ticket for Investing in real estate in Bali is relatively low compared to many other locations
One of the main pros of investing in a villa or any other rental property in Bali is that the entry ticket is usually much lower than some other countries, especially compared to most Western countries.
Investing in a villa can start as low as 80-100K USD for the smallest properties in areas that aren’t in high demand, which is quite far from the purchasing price of a similar property in many other countries.
There are a lot of unique properties and experts to help you build a dream villa in Bali
Bali is a melting pot that attracts talents and ideas from all over the world. In consequence, you can find many kinds of architectures (and architects!) on the island.
You can of course build a property that would follow the traditional “balinese compound”, or get inspiration from constructions from the rest of the Indonesian archipelago (Padang style houses, Sumba huts or Tana Toraja design for instance), but it’s also possible to build villas in a Mediterranean style or something completely modern such as a post industrial style.
Everything is possible, and many serious and creative architects and contractors can help you build the villa you have envisioned.
Investing in Balinese real estate can be a great way to make a living passively
Owning a villa or any other kind of real estate in Bali can be a great way to make a living passively (or relatively passively), whether you are living on the island or in your home country.
There are plenty of villa management companies (including us!) that can help you manage your villas, their staff and your clients without having you to do much, if not anything.
So if you are looking for diversification in your portfolio or a way to make money while living in Bali, you can do it almost hassle-free, and you wouldn’t be the first one to do so.
You can get several types of residence permits when you invest in Bali
The Indonesian government wants to favour foreigners that can invest in the local economy.
And that includes the foreign investors in the real estate market that are able to boost the Indonesian construction industry.
In turn, Indonesia grants very convenient residence visas (locally known as KITAS / KITAP) for these foreigners. A win-win situation.
These visas that allow foreigners to live in the country (and so in Bali) in exchange of an investment include:
- Investor visa (1 year or 2 years residence permit)
- Golden visa : 5-10 years residence permit
- The second Home visa (5 years resident permit, real investment is not even required if you qualify)
What are the main cons to be aware of when investing in Bali real estate
If you’ve read a lot about the real estate market in Bali, you may have gone from fairy tales to horror stories quite fast and are likely unable to figure out where the reality is.
So where is the catch? Here is what you should always keep in mind before investing in real estate in Bali.
Current laws drastically limit foreign ownership for real estate, villas included
Laws for foreign ownership of many assets are limited in Indonesia: this is true for a lot of things ranging from vehicles to companies, but it’s especially true when it comes to real estate of any kind: land, homes, apartments, villas and so on.
Although the government has been removing a lot of red tapes in recent years to ease foreign investment in real estate, this remains a market where foreign ownership of properties is at least limited.
Most foreigners will have to set up companies that will technically own land and villas / buildings as it remains very hard to own property freely for a foreigner in Indonesia.
To know more about this subject, read this detailed article about how foreigners can legally acquire property in Indonesia.
Real estate regulations are complex and changing often
Like any place in the world, Bali in particular and Indonesia in general come with regulations, and the construction, tourism and rental industries are often targeted.
A simple idea such as building and renting out to tourists a villa in Bali can require a lot of different permits and licences: building permits, renovation permits, land zoning or touristic rental licence to name a few.
Of course, if you make a business out of your rental properties, you will also be liable for taxes on the rental income to Indonesian tax department and will have to follow all the legal requirements that come with a company (accounting, taxes, social security of the staff…)
When you have the right people by your side to delegate that aspect, these are minor requirements that do not really concern you, but it can quickly become cumbersome if you do it alone without a deep knowledge of the Indonesian system.
Not all areas of Bali are equal when it comes to villas / real estate ROI
Not all real estate agencies and construction companies are honest, especially when the ROI talk is on the table.
Yes, many real estate investors have had huge profits with rather simple investments years after years in Bali. But like anywhere in the world, there are also the ones that bought high and never really managed to make any money with their properties once all management costs were deducted.
Truth be told, trends in Bali can be very intense and short lived. A city might see a huge increase in popularity and in price, and drop a few years later for the new shinier neighboring city.
As with most investments, it’s great when you bought low and milked the cow during the boom (or sold it high), but it’s a lot less fun when you bought at the peak and struggled to get a decent occupancy rate that could grant you profitability… or when you have to sell you property at a loss.
Like any investment, take everything you hear with a grain of salt. If it’s too good to be true, then it’s probably not true. Nothing beats solid fundamental market research, even in Bali.
If real estate ROI are great in Bali, it’s also because risks are quite high
As with any investment, the high returns you might hear in Bali are also due to its relatively risky nature. It’s probably not something your real estate agent or construction company will tell you, but it’s clearly something you should keep in the back of your mind.
Investing in real estate in Bali has several inherent risks that are completely outside of your control and almost anyone else’s control:
- Natural hazards risks: earthquake, floods, tsunamis are a threat that you can’t underestimate
- Airport closure: whether it’s due to a volcano eruption, a pandemic or something else do happen and are a guarantee that there won’t be any tourist, so a lot less candidates to rent your properties
- Lose enforcement of certain regulations such as land zoning can be an issue: you might have a rice field view one day, and a building view the next
- Economic crisis / hike in transportation costs affect Bali: Bali is isolated and many tourists except its direct neighbours and other Indonesians come from far. A huge increase in flight prices and they go somewhere else.
- Political risk: Bali isn’t a sovereign state. It is a religious and ethnic minority representing only 3% of Indonesian. Central government decisions do not always match with Balinese opinions / interests.
- Change in laws could happen: foreign ownership when it comes to real estate remains touchy. Laws could change for the better, but also for the worse.
No serious financial advisor will ever tell you to put all your eggs in the same basket, and it’s certainly true for real estate investments in Bali.
You DO have people lurking and regularly scamming ignorant foreign investors in Bali
One of the main cons when you want to invest in real estate in Bali, even more if you intend to build your own villa or complex, is that it can be a challenge to find serious people you can trust to make your project come to life.
Let’s be honest, the asymmetry of information when you are a foreign investor in a complex environment like Indonesia is almost never in your favour, despite the big money you might be bringing. Many professionals in the real estate market will capitalise on your ignorance if the opportunity is given to them.
Outright scams, or people disappearing with your money without starting your projects, aren’t a rare occurrence. It even happens with institutional investors.
If you are new to Bali, it is therefore strongly recommended to surround yourself with qualified professionals that can help you make your first real estate investment safely and without unnecessary drama.
Who do you need to surround yourself with to invest in the Balinese real estate safely?
Here are the different people and skills that you might need to get your real estate investments in Bali going.
An agent that can help you get the company holding the properties set up
Most real estate investments in Bali by foreign investors require them to set up a company that will hold the property rights for them.
So you will likely need an agent that helps you set up a company for you, get all the licences you need to operate and maybe even help you manage the accounting or the legal requirements that come with owning these structures.
Someone that can make the due diligence for your land
Buying land in Indonesia is risky. Before buying it and building anything on it, you should always hire a professional that will check that your land is suitable for whatever you intend to do with it.
Failing to do so may expose you to serious risks that could hinder your investment: not being the true owner of the land, the impossibility to obtain a necessary licence to operate such as a building permit and in extreme cases having to destroy a construction that has already started.
An agent that can obtain all the building permits and exploitation licences
Whether you intend to build a new villa or make a true rental business, your activity will need several licences and permits to get started legally.
These permits and licences vary from one project to another and usually require you to know the regulations and institutions deeply if you intend to do it on your own.
If you are new to Bali or not well versed in the law, it’s strongly recommended that you let a professional handle that part for you.
A legal team and notary to draft contracts, agreements and ownership documents
Owning a house, buying a land, creating a company or drafting any kind of contracts with anybody involved in the construction require legal proofing to make sure everything is perfectly square with Indonesian laws.
We strongly advise you to surround yourself with a reputable legal team that you can trust and to get help from a notary to legalise all important documents you might need.
An accountant to report your company financial statements periodically
If you created a company for owning or running a rental business for your villa or your real estate, you will need to report financial statements to the authorities, along with contributing to taxes and social security, among others.
If you don’t have anyone in-house to do so, it is best to let professionals handle it to stay on the legal side of things.
Conclusion
Investing in real estate in Bali, whether it’s for a simple villa or a resort, isn’t black or white.
Bali can be a wonderful and very profitable market for your investments. But like with any investment, there are risks that you must know before jumping in.
Surround yourself with a legal team that can assist you with all the legal documents involved in real estate transactions, in company setup and compliance and you should be able to invest in Bali legally and with peace of mind.
Whatsapp us now to get assistance for your real estate investments projects in Bali.
