What Returns Can I Expect if I Buy a Villa in Bali? – A Simple Guide
One of the best parts of being in the Bali Luxury Estate Team is offering advice and guidance to our customers.
We often get inquiries and questions from clients abroad who are looking to invest in Bali property but are just a bit lost as to where and how to get started. And that means they’ll also have concerns regarding any potential return on their Bali villa investment.
In their minds buying a property in Bali seems overly-complicated or out of reach for them.
We’re here to tell you it doesn’t need to be either.
We recently received an inquiry from a gentleman in Australia, who had the following question:
“I am considering investing in a property in Bali. My prime objective is to receive a high yearly yield with the potential of the property appreciating over ten or so years. Could you send some information regarding the process, expected returns, legal requirements, taxation implications, rules pros, and cons?”
We thought this blog would be an excellent opportunity to try to help answer these questions to a broader audience with similar thoughts.
There are two different ways to acquire a property that generates good yearly yields.
One is through the holiday rental market, and the other is through the yearly rental market.
Bali Villa Investment for Holiday Rentals
The holiday rental market can achieve strong returns, but it does have some aspects that need to be taken into consideration.
You need something called a Pondok Wisata permit. This entitles you to conduct legitimate business in the holiday rental space. However, the areas that this is allowed are limited to “Tourism Zones” only.
Holiday rental business will generally cost more because of their prime locations in the “Tourism Zones,” and some owners of these properties will want to up-sell future profits and therefore charge higher prices. In that sense, it’s just like buying/selling a business.
There are lots of holiday rental villas in Bali, and so for the ones that do achieve reliable results they have to either be unique properties, be in locations that are in high demand by tourists and also be very well managed, maintained and promoted.
Management, maintenance, and promotion can be handled by dedicated management companies here but be warned they will take a nice chunk of the revenue generated.
If that doesn’t appeal, the other option is to self manage, maintain, and promote. But that can almost turn into a full-time job with overheads, commitments, and pressure.
What Returns – Bali Villa Investment for Yearly Rentals
The yearly rental market can also achieve strong returns, although these will usually be a little less than a holiday rental villa.
There are, however, some significant advantages of acquiring a yearly rental villa. These are:
- It will cost less to invest because it isn’t necessary to have a Pondok Wisata license.
- You have a much wider area to choose from because the villa doesn’t need to be in a designated “Tourism Zone.”
- The rent is paid upfront on a yearly basis, and there are no general monthly costs.
- Every year there is a growing population of expats moving to Bali, which leads to increasing demand for good quality yearly rentals.
Ownership Structure for Investing in Bali Property
As far, as ownership structures in Indonesia are concerned, you may or may not be aware that foreigners are not allowed to own a property on a freehold title directly.
But there are instruments you can use to buy a freehold property and begin investing in Bali property. The most common forms are:
- Through setting up a wholly foreign-owned company (PMA) which then acquires the property. This is called an HGB structure and allows you to have the property for 80 years. Though during these 80 years you can resell it on a freehold basis again.
- Acquiring a work permit for Indonesia (KITAS) and acquiring a property under a HAK Pakai structure, which also allows you to have the property for 80 years and in that time you can resell it on a freehold basis again.
It’s important to note here that properties with Hak Pakai titles can only be used for yearly rentals.
If buying a property under either an HGB or Hak Pakai title seems too cumbersome then you can always acquire a Bali villa investment property on a leasehold basis under your name.
This is perfectly legal under Indonesian law.
Leasehold properties are usually acquired for 25-30 years and can either be used for holiday rental or yearly rental business, pending on what permits they have and what zones they are in.
When it comes to returns, we try and tell our clients that freehold/HGB/Hak Pakai property should try and attain an ROI of around 8%, which includes a capital appreciation of the land.
With leasehold properties, the ROI should really be around 10-12% as a starting point.
For taxes, you should count on paying at least 10% on the profit generated. We recommend hiring the services of a bonafide tax consultant to walk you through the process as there are options available.
source Harcourts Seven Stones