You’ll agree, the figure of 12% per annum in dollars sounds quite tempting. And the best part is, this figure is realistic, and investing in Bali real estate can indeed generate such a return. But there’s a catch. Actually, five.
We’ll explain how to avoid the most common mistakes and maximize your returns on Bali real estate investments.
Why Bali?
When considering Bali for profitable real estate investments, the following reasons can be highlighted:
-
A dynamic market: Bali is confidently demonstrating growth in tourist arrivals, including from Russian tourists. In the first quarter of 2024, the island saw 31.05% more tourists visit than in the same period last year. This directly impacts real estate demand.
-
High profitability: average occupancy rates for quality properties reach 85%, and annual returns can reach 12% in dollars. This is significantly higher than in many other popular tourist destinations.
-
Year-round demand: Unlike many foreign resorts, Bali has no “off season.” Tourists come here 365 days a year, providing a stable income for rental property owners.
-
A unique combination of nature and infrastructure, Bali offers not only heavenly beaches and picturesque landscapes, but also a developed infrastructure, including international schools, medical centers, and world-class restaurants, making the island an attractive place to live.
-
Limited supply: Only 10% of the island’s land area is available for development, creating a natural shortage and driving up property prices.
-
Growth Prospects: Indonesia is growing steadily and is projected to become one of the world’s top 5 largest economies by 2030. This opens up additional opportunities for investors.
Now that we’ve fully convinced you of Bali’s investment appeal, it’s time to talk about the nuances you need to consider before you start investing.
Lack of understanding of your needs
In the world of Bali real estate investing, there’s a golden rule: clearly define your goals before buying. Failure to understand your needs is the first step to making an ineffective investment.
Why is this critical?
Bali offers a variety of real estate options, from cozy apartments to luxurious villas. Each type has its own investment advantages:
- Apartments: often have a management company, which is convenient for renting out.
- Villas: provide privacy but require more management attention.
- Properties in complexes: combine the best qualities of apartments and villas.
How to determine your needs?
- Assess your budget and expected return.
- Determine whether you are willing to handle management yourself or would prefer to delegate it.
- Think about long-term plans: do you want to live in this property in the future?
Practical advice
If you plan to visit Bali frequently, consider a combined option: for yourself and for rent.
If you’re aiming for maximum profitability, consider areas with high tourist traffic, such as Canggu or Seminyak.
For long-term investments, consider purchasing property in developing areas such as Sanur, where major infrastructure projects are being built.
A Practical Example
We were recently approached by a client planning to purchase a villa in Bali for a private vacation. After a detailed analysis of his needs, we determined that the ideal option would be a villa in a complex with its own management company.
This allowed him to secure a stable rental income when he was not on the island, while also having a comfortable place to relax during his visits to Bali.
Location: The Key to Successful Investments in Bali
Once you’ve defined your investment goals, the next critical step is choosing the right location. In Bali, as elsewhere in the real estate world, location is key to successful investing.
Why is this important?
Many investors, captivated by the beauty of Bali, forget that not all areas of the island are equally attractive from an investment perspective. Choosing the wrong location can lead to low occupancy rates and, consequently, reduced returns.
1. Assess the area’s infrastructure:
- Availability of beaches, restaurants, shops
- Accessibility of transport
- Proximity to key attractions
2. Explore development prospects:
- Planned infrastructure projects
- Trends in the growth of tourist flow
3. Analyze your target audience:
- Canggu and Seminyak attract young travelers and digital nomads who prefer modern accommodations
- Nusa Dua is family-oriented
- Ubud is popular among spiritual and nature lovers.
Practical advice
Use the “location checklist”:
- Unique attractions (beaches, temples, natural attractions)
- Potential for increasing tourist flow
- The presence of chain hotels (an indicator of the investment attractiveness of the area)
A practical example
One of our clients was choosing between a villa in a remote area of northern Bali and an apartment in Canggu. Although the villa was cheaper, we recommended the apartment in Canggu. The result: 85% occupancy versus the projected 40% for the villa in the north.
Buying a property without a management company: risk being left alone with problems
Private villas and apartments from owners may seem more attractive due to their low price. However, such savings often result in serious problems for the owner.
Why is this critical?
Property management in Bali is more than just “housekeeping.” It’s a complex set of tasks that require time, expertise, and constant presence:
- Hiring and supervising staff (maids, gardeners)
- Communal issues
- Organization of repair works
- Marketing and tenant acquisition
- Handling reviews and complaints
- Financial accounting and reporting
Without professional management, you risk facing:
- Language barrier: Most local contractors do not speak English.
- Cultural peculiarities: misunderstanding of the local mentality can lead to conflicts.
- Legal nuances: ignorance of local laws can lead to serious problems.
- Seasonal maintenance: During the rainy season, special care of the property is required.
Practical advice
Choose properties with a professional management company. For example, all Magnum Estate projects have their own management company, which handles all administrative matters. This allows you to enjoy passive income without being bogged down in the daily grind of property management.
A practical example
Recently, a client who purchased a villa directly contacted us. After six months of managing it himself, he encountered constant equipment breakdowns, unscrupulous staff, and low occupancy rates. Ultimately, expenses exceeded income, and his nerves were on edge.
Signing a contract with a management company freed him from this constant stress, and his rental income increased.
A quick inspection of the property: how to avoid buying a pig in a poke
Regardless of whether you’re buying land or a completed home, it’s crucial to conduct a thorough inspection. A superficial approach can lead to serious problems down the road.
Why is this critical?
- Legal disputes over property rights
- Unexpected restrictions on land use
- Hidden structural defects
- Conflicts with local authorities or the community
What needs to be checked
- Developer:
- Company history and completed projects
- Reputation in the market
- Status of the land plot:
- Availability and authenticity of the land certificate
- Neighbors and community consent for construction
- Legality of access roads
- Construction permit:
- Compliance with land zoning
- Availability of all necessary approvals
Practical advice
Don’t skimp on legal due diligence. Engage an experienced local attorney for a full due diligence of the property.
A practical example
A client contacted us looking to purchase a villa from a private owner. During the property inspection, it was discovered that the villa’s low price was due to it being built in violation of zoning regulations. This inspection helped avoid a deal that could have resulted in litigation and a lost investment.
Working with reputable developers like Magnum Estate reduces risks, as all legal issues are already resolved during the project development stage.
Price traps: how to avoid overpaying for real estate in Bali
The most common mistake worth mentioning is buying overpriced real estate. You might end up buying a truly great property, but the potential return on your investment will be significantly reduced.
Why is this critical?
Overpayment when purchasing affects:
- Payback period of investment
- Possibility of profitable resale in the future
- Overall profitability of the project
How to avoid overpaying
- Research the market:
- Compare prices for similar properties in the area
- Analyze price dynamics over recent years
- Consider growth potential:
- Assess the development prospects of the area
- Learn about planned infrastructure projects
- Don’t give in to emotions:
- Remember, you are making an investment, not buying a dream home.
- Focus on numbers, not pretty views
Practical advice
Work with reputable real estate agencies and developers who provide transparent pricing and cost justification.
A practical example
One of our clients initially planned to purchase a villa in a popular area at a price 30% above the market average. After consulting with our experts, he chose a property in a promising but less popular area. As a result, the investor not only saved a significant amount but also acquired a property with significant growth potential.
Magnum Estate always provides its clients with a detailed analysis of the pricing and potential profitability of each property, so you can make an informed investment decision.
Your Path to Successful Investments in Bali
Investing in Bali real estate is a great opportunity to profitably invest and earn passive income in hard currency. To ensure this investment is truly profitable and yields 12-15% per annum, follow these simple rules:
- Clearly define your investment goals
- Choose a promising location
- Find a management company
- Conduct a thorough inspection of the property
- Don’t overpay
Or contact Magnum Estate for a free consultation. We’ll help you choose the right investment strategy and identify the most profitable Bali real estate options.
(*)
