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Investing in real estate in Bali: risks and prospects
Real Estate Specialist
Date: 10.12.2024
Reading time: 11 min.
Views: 137Bali, this picturesque island in the heart of Indonesia, has long been a true investment gem of Southeast Asia. Every year more and more people are paying attention to the opportunities that the real estate market offers in this tropical paradise. Tourism is booming here, and this attracts both local and foreign investors willing to invest their money in promising projects. In this article, we will take a closer look at the risks and prospects of real estate investment in Bali to help you make an informed choice.
Why is Bali attracting investors?
Tourism potential
One of the main factors contributing to the interest in investing in the Bali real estateThe island has a huge tourism potential. Every year, the island receives more than 6 million tourists (pre-pandemic figures), and the number continues to grow. Just imagine: beaches, surfing, exotic nature and unique culture attract travelers from all over the world. This creates a steady demand for rental properties, especially in tourist areas. For example, in Seminyak or Changgu, where the best restaurants and clubs are concentrated, there are always potential tenants. During the high season, which lasts from June to September, the demand for rentals can increase by 30-50%This makes these areas particularly attractive to investors.
Economic factors
Not to forget the more down-to-earth economic factors. Bali has relatively low real estate prices compared to other popular destinations. This makes investment affordable for many. For example, you can buy a small villa for about $100,000and short-term rental yields can be as high as 12-15% p.a.. For many, this looks like a great opportunity to increase their savings, not to mention the fact that you can enjoy a vacation on your own island. It is important to note that these returns can vary significantly depending on the season and the quality of the property, so it pays to research the market thoroughly.
Climate and culture
The climate in Bali is a separate topic of discussion. Warm temperatures all year round and stunning nature make the island an ideal place to live. Many expats and digital nomads choose Bali as their home, enjoying the unique lifestyle this tropical paradise offers. This creates additional demand for long-term rental properties. Just imagine how great it is to spend the winter on this sunny island when it's snowing in your hometown! In Bali, the average temperature ranges from 25°C to 30°Cmaking it an ideal place to live and work all year round.
Types of real estate for investment
When it comes to real estate in Bali, the choices are indeed vast. Villas for rent are definitely one of the most popular options. The average cost of a villa ranges from $100,000 to $500,000and many investors profit from short-term rentals, especially during the high season. In addition, condominiums are becoming increasingly attractive to expats, with prices ranging from $70,000 to $200,000. Commercial real estate such as mini-hotels or restaurants also has great potential, especially in tourist areas. For example, in Changgu and Seminyak, it is possible to find mini-hotels with yields of up to 20% per year.
Plots of land
Let's not forget about land plots. Prices for a hectare of land depend on the location and can range from $1,000 to $10,000. However, it is worth considering the risks associated with land registration, as foreigners are not allowed to own land directly. This can be a real headache for investors unless you know how to properly circumvent the legal aspects. For example, using the Hak Pakai scheme can help with this, but requires careful checking and consultation with a lawyer to avoid possible legal problems in the future.
Real estate market prospects in Bali
Postpandemic growth
The COVID-19 situation has certainly had a significant impact on the real estate market, but now we are seeing a postpandemic growth. Tourism in Bali is gradually recovering and the number of international flights is increasing every month. For example, in 2022, the number of tourists to Bali increased by 30% compared to the previous year, and this trend continues to gain momentum. The recovery in tourist traffic is certainly having a positive impact on demand for rental properties, making investment more attractive. It is predicted that tourist numbers could return to pre-pandemic levels by 2025, creating more opportunities for property owners and tenants.
Infrastructure development
Another important aspect is infrastructure development. New roads, airports and tourist areas are being actively built in Bali. This not only improves the quality of life for locals, but also makes the island more accessible to tourists. For example, the recently opened Ngurah Rai International Airport has greatly simplified access to the island, increasing the number of flights to the 20%. Such changes create additional opportunities for investors wishing to invest in real estate near new transportation hubs or entertainment complexes. It is also worth noting that the Indonesian government is actively investing in infrastructure improvement projects, which may increase the value of real estate in the coming years.
Popularity among digital nomads
With each passing year, Bali is becoming more and more popular with the digital nomads. People work remotely and are looking for places where they can combine work and leisure. This is creating a growing demand for long-term rentals, especially in areas such as Changgu and Ubud where co-working spaces and communities of like-minded people are concentrated. According to research, the number of digital nomads in Bali has increased by 40% over the past two years. Investors who understand this trend can generate stable rental income by offering housing that meets the needs of digital nomads, such as high-speed internet and convenient workspaces. This opens up new opportunities to create specialized properties tailored to the needs of this audience.
Main risks in investing
| Risk | Description | How to avoid risks |
|---|---|---|
| Legal aspects | Foreigners are banned from owning land directly in Bali. This can be a stumbling block for investors. Hak Pakai or nominee owner schemes are often used, which requires careful checking of local laws. | Consult with experienced lawyers who can help you understand the intricacies of the law and avoid legal problems. Make sure that all documents are properly executed. |
| Fluctuations in tourist flow | The real estate market in Bali is highly dependent on tourism. During the off-season, revenues can drop significantly, which can lead to financial losses for owners. For example, rental demand drops during the low season. | Assess potential risks and consider seasonality. Consider a long-term lease to ensure stable income during the off-season. |
| Construction quality | Not all builders adhere to high quality standards. This can lead to problems such as leaks and defects. | Do your due diligence before buying. Check the builder's reputation and read feedback from other buyers. Consider getting an independent appraisal of the property. |
| Political and economic stability | Changes in legislation can affect your investment. The discussion of new rules regarding foreign ownership of real estate creates uncertainty in the market. | Keep up to date with the latest news and changes in legislation. Sign contracts taking into account possible changes and consult local experts. |
Now that we have discussed the main risks, let's move on to tips that will help minimize these risks and make your investments safer and more profitable.
Calculation of return on investment
Example of profitability
Let's look at a specific example to better understand how you can calculate the return on investment in Bali. Imagine that you have purchased a villa worth $200,000. During the high season, you can rent it out for $200 per day. If you rent the villa for 8 months of the year, the rental income will be:
- $200/day × 30 days × 8 months = $48,000.
Now let's consider the expenses. Let's assume that your villa maintenance, taxes and other expenses are approximately $12,000 per year. Thus, your net profit will be:
- $48,000 (income) - $12,000 (expenses) = $36,000.
Now you can calculate the yield:
- Net profit $36,000 / villa value $200,000 × 100% = 18% per annum.
That's a pretty attractive return, especially when you consider that you can also expect property values to increase by 5-10% per year. This means that it's not just the rent that is profitable, but the property itself becomes a more valuable asset over time.
Expected cost growth
It is important to realize that the real estate market in Bali has potential for growth. Given the recovery phase after the pandemic and the increase in tourist traffic, real estate prices may continue to rise. For example, in 2022, the average value of villas increased by 7% from the previous year. If you plan to hold your investment for the long term, this could be a serious advantage.
Popular locations for investment
Seminyak
Seminyak is one of the most famous and sought-after neighborhoods in Bali. Here are concentrated luxury villasThe neighborhood attracts tourists with its lifestyle and luxury atmosphere. The area attracts tourists with its lifestyle and luxury atmosphere. Investing in real estate in Seminyak can be very lucrative, especially if you plan to rent out your villa on a short-term basis. The average cost of a villa here ranges from $300,000 to $1,000,000but the yield can be as high as 12-15% per yearThis makes the area attractive for investors. It is worth noting that during the high season, which lasts from June to September, the demand for rent can increase by 30-50%which further increases profitability.
Changu
Changu has become a real magnet for digital nomads and young people. The area is known for its co-working spaces, surfing and relaxed atmosphere. If you are looking for a long-term rental property, Changgu is a great place to invest. Apartments here are priced from $70,000 to $200,000and the demand for long-term rentals is growing. Many young people come here to work remotely, which creates a steady stream of tenants. It is important to note that many co-working spaces offer flexible working conditions and convenient spaces, which further enhances the attractiveness of the area for tenants.
Ubud
Ubud is Bali cultural centerKnown for its rice terraces, art galleries and yoga studios. The area is ideal for those seeking tranquility and harmony with nature. Investing in real estate in Ubud can be lucrative, especially for long term rentals. Both villas and apartments can be found here at reasonable prices. For example, the cost of a villa can start from $150,000and rental yields can be as high as 10% per yearUbud is an ideal destination for travelers looking for a unique cultural experience, especially if you are targeting tourists. Ubud also attracts many retreats and wellness centers, making it an ideal destination for rest and relaxation.
Nusa Dua
Nusa Dua is fashionable resort areaKnown for its luxury hotels and white sand beaches. This area is ideal for those who want to invest in commercial real estate such as mini-hotels or restaurants. Land prices here can be high, but the demand for quality tourist facilities is stable. If you are looking to invest in commercial real estate, Nusa Dua can be a great choice. The average cost of commercial real estate in the area can range from $500,000 to $2,000,000This is justified by the high level of tourist flow and stable rental income.
Now that we've covered popular locations to invest in Bali, let's answer some frequently asked questions that can help you better understand the process of buying real estate on this amazing island.
Conclusions and recommendations
Investing in Bali real estate can be a very lucrative venture if you approach the process wisely. While there are certain risks, such as legal aspects, fluctuations in tourist traffic and quality of construction, a sound approach and careful document review will help minimize them.
It's important to remember that the real estate market in Bali continues to evolve, and as tourist traffic recovers, new opportunities are opening up. If you are seriously considering an investment on this beautiful island, be sure to consult with professionals who can help you make the right choice.
If you have any questions or would like more information about real estate investing in Bali, feel free to contact us. We are here to help you every step of the way on your investment journey.
Put your dreams into reality in Bali and enjoy all the benefits this amazing island has to offer!
Risks include legal aspects such as prohibition of direct ownership of land by foreigners, fluctuations in tourist traffic, quality of construction and political instability. It is recommended to work with experienced lawyers and carefully check all documents.
Foreigners can rent a property for up to 25 years with an option to renew for another 25 years. This allows you to enjoy long-term residence without having to buy.
The choice depends on your goals. Villas are good for short-term rentals, while apartments may be more favorable for long-term rentals. Commercial real estate can also generate a stable income.
Selling real estate can be complicated due to market fluctuations and legal formalities. It is recommended to work with experienced agents and follow market trends for a successful sale.
Yield is calculated as net rental income divided by property value multiplied by 100%. Factor in all maintenance costs and taxes for an accurate calculation.
With tourism recovering from the pandemic, increased international flights and infrastructure development, the real estate market in Bali has good prospects for growth.
To buy a property, you will need a passport, documents proving financial solvency, and documents related to the property. It is also recommended to have legal support to verify all documents.
Research reviews, study previous projects and talk to other investors. It is also recommended to check if the developer has licenses and certificates.
The average cost of real estate in Bali varies depending on the area and type of property. For example, villas can cost from $100,000 to $1,000,000, while apartments can start from $70,000.
Foreign investors are liable to pay taxes on rental income as well as capital gains taxes on the sale of real estate. It is recommended to consult a tax advisor for accurate information on tax obligations.
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