How to buy a Balinese villa for investment

Balinese villa, Ubud, Bali, Indonesia

Balinese villa, Ubud, Bali, Indonesia

Australians have had a life-long love affair with Bali. Despite the setbacks experienced by the Balinese people as a result of ruthless terrorists, we have continued to favour Bali as our holiday destination and it’s not hard to see why. The relative strength of the Australian dollar in recent times means more bang for our buck. The Balinese people are friendly, good-natured and we enjoy our time in the sun, surf as well as delicious nasi goreng at throw away prices.

Bali Tourist map

Bali map

New Year's Eve 2009 dinner in our Aria villa, Bali

Albert Wong & his wife Pui Sing, X'mas 2009, Bali

Indeed, some Australian have even made the beautiful island their home away from home, setting up local businesses and embrace Bali as an alternative lifestyle in a very different setting. Many have purchased local real estate as an investment and see it as a holiday home in an exotic setting. Whether local Balinese real estate constitute good investment propositions from an Australian point of view depends obviously on the risks and returns of the proposal. Depending on location, typical prices range from as cheap as US160,000 to those well over US$ 4 million.

Popular locations will include those which are close to commercial and tourist precincts and these include Ubud, Kuta, Seminyak and Jimbaran where property prices have seen steady growth over time. Apart from Ubud, well-located properties in Kuta, Seminyak, Denpasar and Jimbaran will be within walking distance to the beach and tourist attractions such as restaurants, cafes and shopping.

Other popular locations which have yet to experience significant capital growth but are also close to local beaches and tourist areas include, Sanur, Canggul, Bukit and Tanah Lot.

Some key points:

  • Find and establish a good relationship with reputable local real estate agent. There are many local real estate agents in Bali and it is good to review the websites of these agents to find out the quality of management and staff who are running the business, the level of activity in terms of property listings and to visit their offices. Exotiq Real Estate is a local agent which has offices all over Bali and is run by both locals and expats. Management fees charged by local managing agents can range anywhere from 6 – 15% depending on the level of services such as lease and tenant management, up-keep of property and grounds. A good  return on investment for a well-located property can fetch up to a net of 10% (ie after all other expenses such as management fees and taxes are paid). These properties are usually leased to expats over a 12 or 24 month lease.
  • Understand the local Indonesian laws regarding foreign ownership of local real estate. For example only Indonesian nationals are entitled to purchase and own freehold land. Private Indonesian companies, whether domestic or foreign-owned are entitled to purchase leaseholds, rights of use and build. Usual practice for foreign ownership is to enter a legal contract with an Indonesian national acting as a nominee who will hold the freehold title but assigns the control to the foreigner through a power of attorney. It is always prudent to engage a reputable local solicitor to formalise this process and ensure all legal requirements and interests of the purchaser is adequately protected.
  • Understand the local Indonesian tax laws which affect foreign ownership of local real estate. Transfer of land titles incur a 5% government transfer tax based on the government designated value of the property which in most instances is substantially lower than the prevailing market price.

As always, engage professionals such as a reputable accountant, solicitor and real estate agent to  assist you in navigating the buying, leasing and management process. This ensures that potential loopholes are plugged and your legal and financial interests are protected.

Rhodes Shopping Centre ~ a lifestyle convenience for local residents

Rhodes-Shopping-Centre

Rhodes Shopping Centre, home to largest IKEA store in Australia

The Rhodes Shopping Centre is located at 1 Rider Boulevard off Homebush Bay Drive in Rhodes, Sydney. The shopping centre opened in December 2004 which is part of the Rhodes Waterside development. The centre was acquired by the Mirvac Group in January 2007 and is now owned and operated by Mirvac.

The Rhodes train station is the approximately 600m from Rhodes Shopping Centre and access into the shopping centre is available from either direction along Homebush Bay Drive or Concord road. Sydney Buses to the shopping centre is available on the 458, 459, 460 and 461 routes.

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Yum Cha at Rhodes Phoenix

The Rhodes Shopping Centre is a convenience which serves residents of residential apartments along Rider Boulevard, Shoreline Drive, Mary, Marquet and Walker streets in Rhodes. These medium density apartments were developed by Mirvac, Meriton and Billbergia. It is a popular hotspot during weekends which attract shoppers, diners and families from neighbouring suburbs of Concord, Meadowbank, Ryde, Liberty Grove, Homebush Bay, Breakfast Point and North Strathfield to name a few.

The shopping centre is also a conveniently located next to the Rhodes Business Park which has attracted the likes of the National Australia Bank, Australand, Hewlett Packard, Alcatel Lucent, Lion Nathan, Unisys and Nestle in setting up offices and headquarters in this location.

Among major retail outlets, shops and commercial businesses include:

Retail

Commercial

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Northern beaches apartments: 15/14-20 The Avenue, Collaroy

Unit 15, 14-20 The Avenue, Collaroy 1

FOR SALE: Unit 15, 14-20 The Avenue, Collaroy, Sydney

Apartment 2 bed, 2 bath, 2 car

Built Near new

Size 100 sqm approximately

The asking price for this apartment is over $720,000.

This east facing apartment is located a street back from Collaroy beach which is approximately 23km to the north of Sydney CBD.

It has 2 bedrooms with build in wardrobes and both walk out to the east facing alfresco entertainment area / balcony. Good features of this apartment include a separate study alcove, good size internal laundry and separate 3.5 sqm storage space. The ensuite of the master bedroom is a good size with double his / her wash basin.

This apartment comes with a double side-by-side secure car-space and is marketing by Matthew Lemon of LJ Hooker Collaroy.

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Vital statistics

Collaroy Median price $ Weekly advertised median rent $ Gross yield $ 3-year growth % 5-year growth % Average annual growth %
Apartment 485,000 n/a n/a n/a -10.2 6.1
House 1,107,500 885 4.16 -17.2 1.84 5.12

Source: RP Data, June 2010

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How it’s calculated:

Median price: Median price for the 12 months to February 2010

Average annual growth: Average percentage change over the past 10 years as a per annum figure

3 and 5-year growth: Median price percentage change over the past 3 and 5 years to February 2010

Weekly median advertised rent: Median price of rental listings for the 12 months to February 2010

Gross yield: Estimated rental return, based on advertised rent to median price

Will Australian property prices keep rising in 2010?

Australian property prices have weathered the global financial crisis in 2008 and 2009 extremely well and our nation remains the only developed country in the world that avoided a recession during that time. Notwithstanding the GFC, property prices across major capital cities in Australia have defied gravity and surged a whopping 14% over the past 12 months.

The key question is whether this upward trend will continue and be sustainable over the near future? Lets take a look at some issues and key variables.

Australian house prices

80-year trend for real house prices

Source: ABS, AMP Capital Investors

1. Australian property prices

The long term growth rate of real house prices over the last 80 years is 3% per annum, which is consistent with the long term real GDP growth rate. Latest figures show that house prices in general are approximately 29% above their long term average. Therefore, Australian housing are, in general, overvalued and hence deemed relatively expensive. Why is this so? Some plausible explanations include the growth in 2-income families, lower interest rates due to relatively low inflation and greater financial deregulation which has seen easier credit in recent years.

However, it fails to explain why Australian house prices are relatively very high compared to other countries with similar variables (See chart below).

image

Source: OECD, AMP Capital Investors

My personal view and explanation for this skewed ratio is as follows:

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Water front houses, Point Piper, Sydney

Being an island continent, almost every major Australian capital city is built upon beautiful seascapes, harbour, river or water views. Traditionally, the Australian population has been clustered around these capital cities and the desire among most Australians to live close to these areas have even intensified due to a variety of reasons ~ tradition of being close to the water, scarcity and prestige of water front and properties with water views, growing wealth and affluence. The lack of appropriate infrastructure such as water, transport and other public amenities in rural and regional Australia have also discouraged Australians from moving away from capital cities. It can generally be agreed upon that properties with breath-taking views or even the slightest glimpse of Sydney harbour, Yarra river, Swan river, Indian Ocean, Pacific Ocean, Bass Straits, Tasman Sea, Brisbane river and the list goes on, will command a premium in its price. Added together, the value of all these water front properties compared to a country without such natural beauty and appeal is, well, beyond comparison. However, if you take away the water views that so many Australian properties are predicated upon, you will take away all the fuss and exorbitant prices of Australian property. Coupled with the fact that the strength of the Australian economy has been closely aligned by the rise of China as a superpower in recent years, thanks to what we can extract from beneath the ground, you have a potent cocktail of wealth chasing scarcity. To me, the answer as to why Australian property prices are so high compared to other countries with similar economic variables minus world-class harbour and water views then become fairly obvious.

2. Supply and demand

In recent years, there has been, in general, a severe shortage of housing supply around all major capital cities. Further narrowing down this shortage, it is apparent the shortfall lies in well-located suburbs within these capital cities where Australians prefer to live. Therefore, it is important to not generalize the shortage as being prevalent across Australia as there is certainly good supply if you prefer to live in certain areas more than 40km from major CBDs.

This shortage is reflected in the low vacancy rates of these popular and well located suburbs which have the general characteristics of being close to major CBDs and generally have good public transport and amenities. These suburbs have withstood the test of time, adverse economic factors such as the high interest rate era of the early 1990s, Asian crisis in the late 1990s, dotcom bubble in 2000, September 11 in 2001 and the recent GFC to record strong historical capital growth. The scarcity factor of these suburbs will continue to drive prices in the future. The housing shortage is estimated to reach almost 500,000 dwellings by 2020 if current levels continue.

On the demand side, changing demographics such as the retirement of baby boomers, significant increase in net migration to Australia, aging population, single households and affordability will impact demand levels in different ways.

House price to rent ratio

Housing affordability index Australia

Points of caution

As current property prices are deemed to be overvalued in general, the downside is that any serious threat to the ability of homeowners and investors in servicing their debt as a result of say a domestic rise in unemployment or interest rates will see a likelihood of a marked fall in property prices. The imminent threat is the current crisis in Europe which is not limited to just Greece. Europe’s 5 basket cases and their respective exposure are:

1. Italy        US$1.4 trillion

2. Spain      US$1.1 trillion

3. Ireland    US$867 billion

4. Portugal  US$286 billion

5. Greece    US$236 billion

How did these economies incur such huge liabilities over time in the first place? The equation cannot be simpler. Spend > Earn = Debt. Over time, these economies failed to earn sufficient income through revenue and taxes to pay for their debts which were incurred through the issuance of government bonds. It has now come to the stage where bond holders may never be repaid as a result of the inability of these countries to raise sufficient income. This may have dire consequences when investors and funds managers around the world become jittery and stocks are dumped en masse. The ASX saw this first hand when more than A$40 billion was wiped off the market on 17 May 2010. The worse case scenario for Australia is a flow-on effect onto commodity prices and a general slow down in the world economy. Australia can be seen as more fortunate as her economy is now more aligned with those of in Asia.

Evidence of over-spending in Australia

There is little doubt the Australian mining boom of recent years have increased living standards in Australia. However, this has also come at the cost of rising costs of living and the propensity of Australians to spend, have a good time and live for the day and worry later about the future. In 1990, the ratio of household debt to household disposable income was 40% and was at the low end of the OECD countries. It is 155% at present and is at the other end of the OECD spectrum.

Conclusion

The severe shortage of housing supply in favoured locations around major capital cities and the imminent increase in demand due to population growth will continue to support prices. At some stage, the affordability factor will have a dampening effect depending on the location of properties. If employment continues to hold up with strong income growth, then middle to high end properties will continue to grow albeit at more modest levels. My view is that good locations with good access to the CBD and good public amenities within a 15 km radius of major capital cities will see growth anywhere between 4% – 8% as interest rates move back to “more normal” levels. Selected suburbs in the second and third ring radius of capital cities may see growth anywhere between 2% – 8% as they are more affordable and less susceptible to a downturn in the economy. Rents will be strong if housing  affordability continues to deteriorate. New migrants to Australia will initially rent and these second tier suburbs may be their starting point to move into more popular locations the property market at a later stage when they find their footing in a new country and environment.

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Sydney Inner west apartments: 32/21-25 Coulson street, Erskineville

Unit 32, 21-25 Coulson street, Erskineville 1

FOR SALE: 32/21-25 Coulson street, Erskineville, Sydney

Apartment 2 bed, 2 bath, 1 car

Refurbished 2007

Size 85 sqm internal space including ground floor courtyard. It has security car space of 12.65 sqm and  a separate storage facility of 4.2 sqm.

Asking price Close to the mid $600k’s.

Erskineville is known for its vibrancy in terms of an alternative lifestyle among Sydney’s hip and Bohemian. This suburb is a mere 4.5km from Sydney CBD and 2km from the University of Sydney.

Location wise, this apartment is ultra convenient whereby it is within 300 metres to the St Peters train station, a 3-stop train ride to Central station. It is also within walking distance to the cafes and restaurants along King street in Newtown and Erskineville village shops and cafes.

This building was previously a light industrial premise but is now known as Star Printery Apartments. It has since been fully refurbished with modern conveniences and the professional team involved in this project include Turner & Associates architects and builder DeiCorp.

The apartment has 2 bedrooms both with built-in wardrobes opening out to an east-facing enclosed courtyard. The main bedroom has an ensuite.

Erskineville has been identified by Peter Koulizos, author of Top Australian Suburbs as one of the best areas to invest in 2010 along with other inner west suburbs such as Alexandria, Enmore and Darlington.

The downside to this property is that it may experience train noise due to its close proximity to the tracks.

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Vital statistics

Erskineville Median price $ Weekly advertised median rent $ Gross yield $ 3-year growth % 5-year growth % Average annual growth %
Apartment 490,000 500 5.3 22.5 16.7 6.8
House 650,000 570 4.56 15.04 14.04 7.3

Source: RP Data, June 2010

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How it’s calculated:

Median price: Median price for the 12 months to February 2010

Average annual growth: Average percentage change over the past 10 years as a per annum figure

3 and 5-year growth: Median price percentage change over the past 3 and 5 years to February 2010

Weekly median advertised rent: Median price of rental listings for the 12 months to February 2010

Gross yield: Estimated rental return, based on advertised rent to median price

New sales tax for NSW property buyers

New South Wales home buyers will incur a new sales tax for the sale of residential and commercial property above $500,000.

Under the proposal released by the Minister for Lands, Tony Kelly, the new land transfer charge will impose a tax rate of 0.2 per cent for the portion of the sale between $500,000 and $1 million and 0.25% for the portion of the sale above $1 million.

The announcement has enraged property groups who called it “just another stamp duty increase”, while the Opposition Leader, Barry O’Farrell has criticised the timing of its release amid the wash-up of the federal budget as being “sneaky” because it was buried in a press release which focused on new security measures for land transfer documents. Mr Kelly’s release suggested part of the tax would be used to fund the security measures.

The median Sydney house price is about $600,000 and therefore attract a charge of $200. A property sold for $1.5 million would incur a tax of $2,250.

According to figures provided by the Department of Lands, almost 30,000 residential and commercial property sales of between $500,000 and $1 million were settled in the past 12 months. More than 10,000 properties sold for more than $1 million in the same period.

Aaron Gadiel, the chief executive of the developer lobby group Urban Taskforce, said the new charge amounted to a 4.5 percent increase in stamp duty for the top end of the property market. He estimated that a developer looking to acquire a $10 million development site for new housing would be hit with an extra cost of $23,000. Mr Gadiel said that it ”flies in the face” of the recommendations of the recently released Henry tax review, which criticised transfer duties.

”The Henry review said they were unfair; they hit some members of the community harder than others and they could cause economic distortions and reduce business activity,” he said.

The acting NSW executive director of the Property Council of Australia, Glen Byers, said the tax was introduced “without consultation, without explanation at a time when the investment climate in NSW is fragile”.

It is understood that legislation for the new tax will not be introduced before the next session of Parliament, which begins next month. A spokesman for the Treasurer, Eric Roozendaal, said the revenue forecast to be generated by the tax would be included in the state budget on June 8.

A spokesman for Mr Kelly said revenue from the charge would flow to the Department of Lands, not the Office of State Revenue, as was the case with stamp duty.

However Mr O’Farrell said: ”This is another attempt under the cover of a federal budget to get some bad news out from the state budget, well away from polling day in Penrith.”

Figures provided by Mr Kelly’s office suggest that the proposed NSW charge is at the lower end when compared with similar charges imposed by other states.

Based on a sale worth $750,000, the spokesman said only Western Australia charged a lower ”registration charge” of $260, compared with $500 proposed in NSW. In Victoria, the figure is $1350, in Queensland it is $1623 and in South Australia it is $4759.

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Sydney North shore apartments: 28/56 Christie street, St Leonards

28-56 Christie street, St Leonards, Sydney 2

FOR SALE: 28/56 Christie street, St Leonards, Sydney

Asking price: $650,000+ in May 2009.

Apartment 2 bed, 2 bath, 2 car

Built 2000

Size 90 sqm

Strata levies $1,108.00 per quarter

This is a fifth floor apartment of the Mirvac Shoremark developemtn with views over tropical gardens. It has separate living and dining areas with glass sliding doors to the balcony. Both bedrooms have built-in robes, the main bedroom with an ensuite.

It is conveniently located within a short walk to the St Leonards train station and shops. The asking price for this apartment was $565,000 in July 2009 and was sold for $545,188 on 17 July 2009.

Last traded for $515,000 in 2004.

St Leonards apartments median auction price is $627,500.

Source: Australian Property Monitors, 1800 817 616, homepriceguide.com.au

Sydney North shore apartments: 9/25 Hampden Avenue, Cremorne

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FOR SALE: 9/25 Hampden Avenue, Cremorne, Sydney

Apartment 2 bed, 1 bath, 1 car

Built Mid 1960s, renovated 2005

Size 88 sqm including balcony

Strata levies $896.00 per quarter

This is a second floor apartment with a bright and airy feel with a leaft outlook from its wooden decked balcony with black pebble trim. It is located in a quiet street with a 5-minute walk to buses, shops, cafes and restaurants on Military road. The main bedroom has access to the balcony.

The asking price for this apartment was $565,000 in July 2009 and was sold for $545,188 on 17 July 2009.

Last traded for $332,500 in 1999.

Cremorne apartments median private treaty price is $508,000.

Source: Australian Property Monitors, 1800 817 616, homepriceguide.com.au

Northern beaches apartments: 5/180 Pacific Parade, Dee Why

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FOR SALE: 5/180 Pacific Parade, Dee Why

Apartment 2 bed, 2 bath, 1 car

Built 2009

Size 116 sqm internal and terrace

Strata levies $463.35 per quarter

This courtyard apartment is one of 18 apartments in “The Tasman”, located merely 100m from the sands of Dee Why beach. It features a travertine-tiled terrace and bathrooms and Caesar stone benchtops in the gas kitchen.The open plan living, dining and kitchen area has glass doors to the terrace and garden. Both bedrooms have built-in and glass doors opening to the terrace, the main bedroom with an ensuite.

The asking price for this apartment was $839,000 in December 2009.

Dee Why apartments median private treaty price is $436,000.

Source: Australian Property Monitors, 1800 817 616, homepriceguide.com.au

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