Property investment opportunities in Bali

In my day job I work in a media agency. Lately it has been exciting to exchange stories of property experiences, it investment or otherwise, with my colleagues. Often we learn from each other and share some tips and tricks with one another all in the interest of, well, passing some time at the water cooler. And from my perspective it is great to get a feel for what others in the community who unlike myself don’t ‘live and breathe’ property, are thinking and doing. I welcome these conversations because they allow me to step outside of my own investment headspace and get a fresh or new perspective on things.

Today I was given one such new perspective, or should I say “opportunity”, in the property investment world. Mind you, it's hardly new, but new to me.

An Australian colleague who has been based in our Singapore office for the last few years has spent the last 12 months doing research and due diligence on the Balinese holiday villa market. She is looking to acquire land and build two luxury villas on it, turning them into high-rental-return investments – with the bonus of achieving great long-term capital growth prospects. What my colleague is actually seeking in doing this is what locals in Bali are calling the lucrative “Western dollar”. This market is specifically the luxury holidaymakers who want a bit more than a Jetstar pre-packaged crowded resort-style holiday. This market wants something more elusive, peaceful and off the beaten track, but still in reasonable proximity to all the attractions, and still in five-star luxury. And they are willing to pay for it.

Bali, although having been a tourism favourite for Australians for a very long time, is more recently undergoing somewhat of a gentrification process. And not just gentrification in the property investment meaning of the word, but in regard to the evolution of both its tourism industry, as well as its domestic supply-and-demand ratios for native Indonesian rental market within the Bali island itself. And this is a good thing.

The island is in more recent years now starting to attract the Western dollar beyond just the Australian and New Zealand travellers who historically have dominated the market. The island is increasingly more attractive to US, Canadian, UK, and European holidaymakers too, and this is important to note because in order to make such an investment viable, there must be signs of strong and increasingly growing demand for holiday accommodation. And of demand, there is plenty.

Property-wise, I've read a number of recent white papers on the Balinese property market (versus the broader Indonesian market separately) indicating steady capital growth over the past 10 years. The island is much more politically stable now than previous years, and is actually higher on the “desirability” list for internal migration for Indonesians due to this greater stability. The island’s comparable stability compared with larder cities Jakarta, Bandung, and Medan has resulted in a high migration internally to not just Denpasar on Bali island, but also the villages and towns around it. This is important because demand for housing by Indonesia’s domestic market, coupled with increased demand for tourist accommodation, has seen a steady increase in land and property values in this provincial island.

This information has inspired me to write today and invite the community to share their experience, or even basic knowledge and understanding of, the Bali property investment market. Are the returns as favourable as they seem? Can a development go ahead while being based in Australia? And how much time “on the ground” is needed from investors? Also, what are some of the bigger risks involved? Some bloggers have reported poor construction quality and poor site selection as being some of the greatest risks. Is this true?