Bali is one of the most sought after locations when Asians and expats look for a place to reload their batteries. Some (or should I say many) people take it a bit further and actually buy a property here.
Vacant land prices have grown with rates that hasn’t been seen elsewhere and luxury property prices increased by 15% from year-to-year. A common option is also to rent a villa as foreign ownership regulations aren’t the most favorable in the region.
Today, I have David Chambat with me who founded Villa-Bali in 2012. Currently living in Singapore, he realized that booking a Bali villa was still a challenging thing to do. The company has dozens of employees and offers neat services to foreigners who wish to rent some of the best villas on the island.
In this interview, he’s sharing some of his best advice when buying and/or renting a villa here.
Hello David, thanks for having you. Let’s start with an introduction so that our readers can know a little bit more about yourself and your company. Where are you currently operating and what services does your company offer?
We started Villa-Finder.com from Singapore in 2012 to offer the best experience when booking and staying in a villa in Asia. Our motto at that time was “It has never been easier to book a villa in Asia”.
In a very fragmented Asian villa market, diverse in terms of style and quality, we are able to not only offer a guaranteed, secured booking service, but also a great Concierge service in our Asian destinations.
Since 2016, we have also started a distribution platform to help villa owners distribute and market their villas worldwide.
Currently, we market over 1,500 villas in Bali, Phuket, Samui, Sri Lanka and Mauritius.
Can you explain about the general regulations that apply when foreigners lease or buy a villa in Bali?
There are 2 types of systems in Bali: Freehold and Leasehold.
The Freehold Title (Hak Milik) gives you the right to own the land and everything that’s on it. Legally, only Indonesian citizens can have this title, so any way of obtaining it for a foreigner is illegal.
You may have heard of cases in which foreigners have the Freehold Title by having an Indonesian nominee, i.e. you have a contract with an Indonesian citizen who holds the land in his name for you. This person will help you buy the land under his/her name, and you pay them a fee for the service. However, this is very risky and, again, illegal.
Leasing the land is the proper way to have a villa in Bali. The Leasing Title (Hak Pakai) gives you the right to use for a certain period. Most leaseholds on villas are set for 25 years with an option to extend the lease once it’s over.
One thing to note: the title only gives you the right to use the land. Once the duration is over, the land and everything that has been built on it will revert back to the landlord’s ownership. In reality, very few leaseholds come to a term and most are renewed at an agreed price with the land owner, a few years before its term.
To build a villa, you’ll need a Building Permit (IMB), which can be obtained with the help of your agent.
If you are planning to use the villa for holiday rentals, then you will need the Pondok Wisata license (Homestay license). It allows you to operate the villa as a daily rental business. However, this license is only applicable for villas with 5 bedrooms or less. Larger villas will require a hotel license.
Additionally, you need to make sure that the land is in the correct zoning. You can’t build a villa for commercial activities on a piece of land that has been mapped out for residential purposes. So do check that you buy land in the right zone.
What kind of villas are in the biggest demand and how is the current supply?
From what we have seen, there is a strong demand for 3 and 4 bedroom villas. Seminyak is the most popular location in Bali, taking up 45% of the demand. The closer a villa is to the main Oberoi Street, the better it will do.
Over the past 5 years, we’ve seen a thousand new villas being built in Bali, so the market is definitely overloaded with properties. Land prices have skyrocketed. The price of a piece of land changes as soon as there’s a transaction happening.
Luxury housing prices have increased by 15% year on year and Bali has performed the best in terms of vacant land appreciation in the world. Is it still profitable to buy a villa in Bali and what’s your projection of the future?
Yes, it’s still profitable to invest in Bali. On average, the return on investment is 8%, so you’ll break even within 12-13 years. However, you need to market the villa really well. It’s no longer the case where you can simply build a villa and expect customers to come to you.
There is an oversupply, hence the market is getting really competitive.
We are seeing more and more villas being built in the North of Seminyak, in areas like Kerobokan, Umalas, Canggu. Canggu might be “the next Seminyak”. It’s a beautiful location that has been popular amongst surfers, and there are also more and more nice cafes and restaurants there.
How is the process when purchasing or leasing a villa in Bali?
The steps below are applicable to villas for rent. If you are simply buying/building a villa to stay in it, then you don’t need steps 7 to 10.
- Find a good real estate agent
- Conduct due diligence check on the land before buying
- Legalize your contracts with a notary
- Buy the land
- Apply for an IMB
- Build your villa
- Apply for the Pondok Wisata
- Find a manager or a management company
- Find a company to take care of your distribution
- Rent out your villa
As mentioned above, foreigners can’t own property in their own name in Indonesia, not even condos. Still, foreigners’ preferred option is to buy freehold property through so called nominee structures. Would you recommend our readers to buy or lease property? What are the benefits and drawbacks with each option?
I always recommend keeping it safe and stick to the only legally available option. You never know what might happen in the future and I have heard many stories with nominees that didn’t end well. And of course, since this situation is not legal, you will have no legal recourse.
Some people are still drawn to the nominee structure because they think it is the only way to get a return on the land itself, since land appreciates so much. However, they can also resell their lease before it’s up.
Many people ask me what financing options they have when buying property in different Asians countries. Is it possible to get a property loan in Indonesia to buy a villa in Bali, or do I need to seek financing from my home country or elsewhere?
You can get a loan in Indonesia. However you will most likely get a better deal in your home country considering the local Indonesian context (interest rates in Indonesia being around 10%).
Most foreign banks will ask you to mortgage a property in your home property to borrow money though (as they won’t be able to mortgage the Balinese property).
Moreover, I would not recommend taking a loan in a currency you don’t have any revenue in, since any currency exchange fluctuation could result in a big loss.
You deal with rental services in Bali, what are the options if I want to buy-to-let in Bali? How are the rental incomes?
Yes, foreigners can rent out their holiday homes in Bali. First, you will need to get a Pondok Wisata license.
Then, you will need to recruit some staff for your villa. Depending on the type of services you want to offer, it could simply be someone who takes care of housekeeping a couple of times a week, or a lot more. I would strongly recommend hiring a management company to simplify the day to day. We have professional partners in Bali we can recommend.
After that, you list the villa on various distribution platforms such as Villa-Bali.com, Booking.com, AirBNB, just to name a few. You need a proper pricing and marketing plan to compete in the market. Find a unique selling point for your villa.
What makes it different from the 10 others that are on the same road? What’s your marketing message and how are you going to send it out? In the past, you could just build a villa and wait for customers to come. However, that is no longer the case with the current market, and villas are competing hard to stand out.
When it comes to distribution, I recommend handing your villa to professionals. Here are a few different way, we at Villa-Finder.com help villa owners:
We handle all enquiries for their properties: in order to get 250 nights occupancy, you will need about 40 reservations, or about 200 conversations with clients, each at least 20 emails long (hey, that’s 4,000 emails!). We save hours of work for villa owners with a team available 7 days a week, speaking multiple languages.
We have distribution partners from all over the world: we have developed a network of hundreds of travel agents and booking platforms in Australia, Europe, Asia, etc. Some of these networks are simply impossible to approach for villa owners as they ask for volume.
We get the owners a good ROI: we help them differentiate from the competition and match the trends. Our bird eye view and expertise of the market provide a unique advantage.
A good return on investment today is around 7%-9%, depending on where your villa is. We created a tool to help owners calculate their ROI.
Do you see any competition from websites like AirBNB, or have you managed to segmented yourself into a different service area? I can imagine that wealthy clients prefer to use a more high-end service that you offer for example?
First of all, AirBNB has grown the pie, making the villa holiday much more popular than 5 years ago: the market has developed a lot since the inception of AirBNB. I don’t view AirBNB as a direct competitor. For one thing, our target market is quite different from AirBNB’s.
Most of the time, our clients are families going on holidays with kids, with high expectations on services like breakfast, airport pickup, transfers, massage and so on.
They need a reliable third party to ensure their holiday gets delivered up to the promise. We are also present at the destination to help them with daily services – something an airBNB will not provide.
Thanks for helping us and providing this helpful information David. Finally, is there anything you want to tell our readers before we finish?
When you visit an Asian destination, please try to reduce your footprint as much as we can. We have seen the use (and misuse) of Plastic raising so much in Bali in the last few years.
The environment is suffering. Reuse bottles, towels, bed sheets. Reduce (or eliminate) the use of plastic bags, straws and cutleries. And book with us, we plant a tree in Sumatra for each booking!
And if you think of building your villa, try to make it as eco-friendly as possible. Think solar panels, composting, reusing rainwater. Not necessarily very costly and you will save on your utility bills in the future.