With a market having thousands of properties under construction, ILA is sharing with you the different strategies to apply in order to maximise your return on investment (ROI) while investing in the real estate market in Bali.
Bali is an island in Indonesia that has attracted thousands of investors in the last few years. As legal and investment advisors, we advise investors in their investment choices. In the last few years, we have seen thousands of investors making choices between different types of investments and locations. Real estate agents and developers have promised ROI of around 15 to 20%, while investors who bought properties a few years back start to have hidden costs and realize that their investment is not bringing the expected returns.
Is Bali a place with a great Return on Investment?
Bali is certainly, at the moment, one of the greatest places to invest in Real Estate, even in 2024 and 2025. Indeed, in the last few years, Bali has generated some ROI at 20% or more after the Covid. However, be clear: any real estate agent promising 20% or more would be a fool today or lying. Indeed, after deducting the tax, property management cost, and marketing fee, the return on investment in Bali on the properties is around 10 to 15% nowadays for a well-located property and 7 to 12% on average.
So, Bali is a place to invest? The answer is yes, as long as investors are informed correctly and choose the right property project. Despite a drop in real estate return, ROI is higher than in most other countries. Average annual rental yields range from 7% to 15%, which is significantly higher than in other countries.
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Property investment strategy to invest in Bali in 2024
When it comes to making choices, there are several types of investment strategies. Putting on the side the leasehold versus freehold and how to get a licence to rent out a property in Bali.
Long-term investments and Renting out the property
This strategy is the easiest and most commonly used in Bali. It consists of leasing a property or buying a property in the long run and rent out the property on Airbnb, Booking.com, or with other travel and accommodation providers. However, ongoing management fees and high maintenance costs are required to keep the property appealing. Investors can expect returns of 14-25% annually, helping to improve their ROI real estate in Bali. This strategy forces the investor to keep the property and not flip the investment. This strategy can work for a well-located property for daily rental.
One of the other options in this strategy is to rent out the property on a monthly basis. This strategy avoids high maintenance costs and management fees.
Expect a return on investment from 7 to 12%
Off-plan villa (purchase on plan) and Resell
The strategy here is to purchase a property off-plan and finance the development of the property. Developers are calling for funds to develop the property. Off-plan villas are usually cheaper than a ready-made property investment, and they allow the investor to invest with an investment plan during the development of the property.
These properties can offer a higher ROI real estate, but it’s important to note that the invested cash may not generate returns during the first year or development phase, especially until the property is ready for the market.
Average Expected Return on investment from 20% to 40% after reselling
Off-plan villa (purchase on plan) and Resell after 5 years
Similar to the previous strategy, this option is a mix between the first strategy and the second one. As the price of freehold property is high, we advise clients to invest for 30 years, rent out the property for 5 years, buy an extension of 5 years, and resell the property for 30 years.
Investors also have to consider that once the property is on the market, the villas have no review on Airbnb and Booking.com, and some discounts are sometimes necessary or a higher marketing cost. An off-plan property usually needs 2 to 3 years to really bring a return.
It is however realistic to consider doubling your investment with this strategy as long as the property market is expanding. Some developers and platforms, such as TokoInvest, offer this type of investment strategy.
Average expected return on investment from 50% to 130%
Common mistakes in property investment in Bali
When it comes to investing in Bali, some investors quickly accept some contracts without checking the terms and conditions.
Wrong project with the wrong strategy
A strategy works with a good project, and a good project works with a good strategy. Some strategies can match some projects and vice versa.
Unfortunately, it is common nowadays to see investors investing in projects such as Lombok or Tumbakbayu and applying a daily rental strategy. Developers are selling some projects off-plan, letting you think the property is close to the beach, while in Bali, it takes 30 minutes to go to the beach from the property.
Property management companies
Unexperienced property management has emerged in the last few years. It is unfortunate to see property management companies in Bali taking 30% from the clients while a good rate should be between 15 to 20%. Some companies, such as Pulse Villa Management or Bukit Vista, usually offer a complete service at a reasonable price.
Developers offering property management
If there was a strategy to avoid it would be this one. Indeed a lot of developers are trying to offer the property management services after selling the property. However, most developers have no experience managing properties. Some companies have offered this service and started to have complaints from the investor and are now locked up in their contract. It is important to have flexibility in your contract to ensure an exit strategy with your investment.
Legal and tax issues
Bali is full of illegal properties. Politics and local people are starting to implement a moratorium, and it is important to check the legality of the project.
- Permit to build a lot of developers do not even have the right to build
- Zoning to make sure you can apply for the right licence
A legal issue is the worst that can apply to your investment and having your property escrowed. It is important to consult a tax and legal consultant to also understand how the tax will affect your investment strategy in 2024 and 2025 for your property investment in Bali and Lombok. Most of the ROI provided are gross rates and do not apply the tax applied in your home country.
Also read: How to get a building permit in Indonesia?
