Bali boom . . . property values have increased as much as 12 times in five years.
There’s a saying among surfers in Bali: “In Hawaii, you are otherwise until you prove yourself cool. In Bali, you are cool until you prove yourself otherwise.” Frankly, after spending 10 days in the Indonesian province, I’d say another type of person who deserves elevation to a whole new level of cool is anyone who’s bought property here in the past 10 years, given the sums they’ve made.
Some people have come for pleasure, others in search of yield, but whatever their driver, they have had access to plenty of upside.
“Anyone who was shrewd enough to buy property in Bali five, six, seven years ago has made an incredible amount of money,” according to my landlord in Seminyak and Ubud, David Seligman. “If they didn’t do anything, that property’s now worth six times, 10, 12 times what it was. You can’t invest in anything and make the kind of return that land here [has produced].”
A former Sydneysider I spoke to during my stay, Paul Hardick, now of Jakarta, says based on recent sales, a 1000 square metre block he owns in Seminyak on a 35-year leasehold has quadrupled in value from the $125,000 he paid five years ago. Such stories are not uncommon, particularly in highly sought-after coastal areas.
Hardick says everything he’s bought in Bali since he started investing in 2005 has at least doubled in value. Rental yields on managed properties, net of tax, are running at 9 per cent (higher if you’re in control) and rising, thanks to an influx of demand from Jakarta, Singapore and Australia. “There’s only one Bali and they’re all clamouring to get land there, coastal first,” Hardick says. “It really is unique with its Hindu culture and setting. You simply can’t create another like it.”
He says smart investors hoping to use their strong Australian dollar to buy into Bali need to follow strict rules of engagement if they want to avoid costly mishaps in this still-feudal land.
“I can just see it: Seminyak is going to be like Monaco, it’s going to be that rich,” says Hardick, who’s also a director of First Capital Financial Planning in Sydney.
The key to success, however, will be finding a reputable project manager with good local contacts, and making sure any titles are as “clear” as possible. A land lawyer of integrity is essential. There are plenty of horror stories involving ownership quibbles after considerable sums have changed hands. Good luck if you’re ever on the raw end of such a deal. Land is sacred in Indonesian law, religion and culture, and “bule” – or foreigners – have very little recourse when it comes to disputes over it. The pending influx of foreign investment is forcing the Indonesian government to get serious about corporate law.
The safest way to buy land is freehold through a company, but as this is complicated – and expensive – most people use either leasehold or nominee structures.
A 35-year leasehold arrangement can be extended a further 25 years (though make sure you codify that possibility in the initial contract) and may be on-sold during the term of the lease at whatever price the lease owner can attract. The nominee structure, on the other hand, involves a convoluted mortgage agreement with a local Indonesian.
“Sometimes, I wake up and think, ‘Wow, do I really own anything’?” Hardick says. “But I’ve bought and sold and made money on both the lease and the nominee structures.”
For investors, the best way to go is to provide longer term rentals of one to two years, which is how Seligman usually offers Villa Sassy, our first spectacular stop at Seminyak.
There’s no money in short-term nightly rentals, Hardick says, because the market is already saturated from the big hotel brands. By renting for years rather than months, the money is paid up-front so you’re not chasing rent, and the market is lucrative.
“Just renting out at peak season in Seminyak [August and Christmas/New Year] will get about $30,000 in the door,” he says.
As to buying opportunities, prices in Seminyak seem to have blown out. But Balian, a town to the north, may be set to fly, with its “A-frame wave” (a style of break popular among surfers).
Things are also starting to move on Bali’s north coast, near the old capital of Singaraja, where there are plans to start building another international airport after the upgrade of Denpasar’s international terminal is completed next year.
Further afield, Flores, an island less than an hour’s flight from Bali, is being touted as the next Indonesian hotspot, famed for its diving, volcano and proximity to Komodo dragons.
But back in Bali, Ubud still has some more to give which, when experienced from Seligman’s River View Villa above the Petanu River, seems impossible given its long-term popularity among the well informed.
Despite its prospects for perfection – or possibly because of them – things can still go horribly wrong, which is why having an end-to-end operator like Seligman on hand can help take the trauma out of the process of finding land, negotiating to buy it, then building your Bali dream. The actual cost to build should reasonably range from $200,000 for something beautiful to $600,000 for the drop-dead, no-holds-barred villa.
A 30-year veteran furniture designer to Hollywood and its stars, Seligman and his wife Brenda moved to Bali eight years ago hoping to continue supplying the film industry remotely. But he ended up leasing Bali land instead, then designing, building and fitting out properties on it. He’s built 12 villas to date, which he has either on-sold or maintains as rental properties. Along the way he reckons he’s made every possible mistake particular to this unique market.
River View may be his crowning jewel, with its high and wide dimensions and glass walls – perfect complements to the dramatic surrounds and sheer drop through jungle to the roaring river below.
It hadn’t rained for two months in Ubud before we arrived. We enjoyed flashing tropical thunderstorms every night we were there. I know we’ll be back. It feels cool to be cool.