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.

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