Domestic Buyers Eye Bali Property

Katrin Figge

From an investment standpoint, Asia has domesticated itself in the midst of the global financial crisis. This is especially true for Bali, which has seen an influx of domestic buyers in the property market.

This is, among others, one of the key findings of a survey conducted by C9 Hotelworks, a hospitality consulting firm based in Phuket, Thailand, which gathers market data for resort markets throughout Asia.

According to C9 Hotelworks managing director Bill Barnett, a leading specialist on hotel and property development issues with 27 years of experience in Asia Pacific, Bali has traditionally been a foreign investment market for villas, but this shifted three to four years ago with the rise of condo hotels.

“That really has changed the market-scape, because probably 80 percent of the transactions in the marketplace are Indonesians, which is much different than in a place like Thailand, where we have more foreign buyers, and that’s a different dynamic,” he said.

The majority of foreign buyers in Bali come from Australia, followed by some niche markets such as Hong Kong, Singapore and Korea.

Barnett added that there are two different types of buyers for the real estate market in Bali: investment buyers and lifestyle buyers.

“Lifestyle buyers are buying into condo hotels because perhaps they want a second home or it’s an investment into a hotel brand, but they actually want to go and use it,” he explained.

When it comes to Indonesia, the domestic lifestyle buyers have increased, most of them hailing from a rising aspirational middle class in Jakarta and Surabaya.

“This is not the case in every market,” Barnett said. “You typically have more investment buyers, but Indonesians like to come to Bali and make use of their property.”

Prices have come down due to the global financial crisis, and Bali is a price-sensitive market.

“People were flocking to these condo hotels which are priced anywhere from $80,000 to $250,000 versus the old market with the villas going for half a million or a million dollars,” Barnett explained. “That’s been a dramatic shift.”

Buyers are not as interested in luxury property as they were a couple of years ago. Instead, they are looking into buying the entry-level products, such as one-bedroom units, which have proven to be the most popular.

This latest development doesn’t mean that the villa market has stopped growing but sales have been slow. Hotel-branded villas such as Bulgari, Banyan Tree or Alila, clustering in southern Bali in places like Uluwatu and Jimbaran, have sprung up in recent years.

“It’s taking three to four months to sell one of these villas,” said Barnett. “But when you look at the condo hotels, these sell within a month. So there is a big disparity between those two markets.”

The Bali condotel market is not without risks though, especially where guaranteed returns are concerned.

“With so many hotels in the market, it is doubtful that many of the guaranteed return levels are going to be sustainable,” Barnett explained. “As soon as the guaranteed rolls off and people aren’t getting good returns, they put their property back on the market, and you will get a secondary, a resell market.”

A secondary market will be more attractive to buyers, he added, because there is no development risk.

Barnett said the resell market is inevitable and will probably happen over the next 12 to 18 months.

“We are starting to see the level where the guaranteed return schemes have been bought two or three years ago and will start rolling off soon, and the secondary market is going to emerge,” he said.

When that happens, people who are trying to resell property that is not located on a prime location will be left behind, which in return will slow the market.

“Will there be blood? Yes, I think so, because you have projects that people threw out thinking they could sell anything,” Barnett said.

With tourist numbers in Bali surging, land prices have gone up especially in the southern part of the island, even in areas where the infrastructure is still underdeveloped. But a gradual expansion of development landscape to areas such as Pererenan and Kerobokan, where land prices are generally lower, is to be expected.

The island’s active tourism market complemented by an improvement of its fundamental facilities, including the overhaul of the Ngurah Rai International Airport and new highways and underpasses, remains a key factor in the real-estate market, as well as the strong domestic economy.

One thing that is still missing from Bali’s property market are gated estates which are more visible in other parts of Asia, such as Thailand.

“There, they have large estates and overseas buyers who come perhaps to retire or to have a second home,” Barnett said. “That’s probably going to be next shift and we’ll see more of that coming to Bali.”