"Hype" in the Bali Real Estate Market. Is it Really Possible to Make Money by Buying a Villa on the Island?

Hello, Today I will share my thoughts on the hype currently present in the Bali real estate market. In the title of this post, I intentionally used the term “hype,” which means “aggressive, intrusive advertising of a product, exaggerating its importance or advantages with the aim of forming consumer preferences.” In my opinion, this word best describes the current situation in the island’s real estate market.

The excitement can be divided into two groups: one promising "mountains of gold" if you buy property on the island, and the other warning to "avoid Bali," claiming that only developers and construction companies profit from it.

Let's start with those who promise 26-30-33%, or even 260% ROI. Where do such high figures come from?

• They calculate the annual occupancy rate at 90-95%.

This is indeed possible. On my blog, in the "Bali People" category, foreigners talk about life and business in Bali, and the annual occupancy rate of their hotels and villas reaches 85-95%. These figures are also confirmed by most of Santiago's clients. However, everything depends on the location of your property and professional property management. Our clients and friends own properties on the Bukit Peninsula in the Uluwatu, Bingin areas, and Canggu (Berawa area). These are some of the top locations today. But not all tourist areas can guarantee such a tourist flow. Bali also has seasonality. As a result, average annual rental can be 65-80%. This is not bad but significantly affects the calculation table, and the forecasts do not look as attractive.

• Overestimated rental price.

When forecasting income, they take the average price in the area for similar properties and add 20-30%, or even 40-50%, explaining it with the "exclusivity of the offer": new villa, very modern interior, or something like that. The market is growing now, the number of offers is increasing, and there are more and more "new modern" villas, so there is no reason to set a significantly higher price.

• Underestimated or unlisted expenses.

Calculations often show very low expenses, and sometimes certain items are not included at all. Most management companies sell villas through OTAs (booking.com, Airbnb.com, etc.). For this, OTAs receive a commission, which can range from 5% to 25% depending on the terms of cooperation. And this commission, which is an expense, is often not indicated. Then there are the costs of maintaining the property: electricity, water (on the Bukit Peninsula, the costs can be significantly higher due to its scarcity and water supply problems), laundry, staff salaries, replenishing cleaning and hygiene products, etc. We had a case where a client said he was not interested in our management because he found a cheaper option – paying only 10% of the total income. I asked to find out what was included in this 10%. It turned out to be very little. The entire management included:

• Listing the property on OTA resources, but the photo and video content for them was paid for by the client additionally;

• Processing applications, then upon the guest's arrival, a company representative met them to hand over the keys, and after departure – cleaning. And nothing more. Who pays for marketing expenses, territory maintenance, and other costs?

• Maintaining the property and the villa as a whole is another interesting option that is often not mentioned at all. This is Bali with its rainy and windy seasons – the villa requires regular updates to maintain a high level of service and receive positive reviews from tourists.

• ROI forecasts.

 A long time ago, my manager and I did financial calculations for a future project. I am not an economist or financier, so I asked him how we would calculate all this. He, being a good economist, answered, "Olya, empirically. We will make calculations using an empirical method." I remember checking the meaning of this word on Wikipedia, and here’s what it says: "Empirical data is information obtained through sensory organs, particularly by observing, recording patterns and behaviors through experiments. The term originates from the Greek word 'experience' – ἐμπειρία (empeiría)."

So, the forecasts of some developers about incomes and profits are empirical calculations. Translation: this is the fantasy of "their sensory organs," sometimes indeed formed based on their practical experience if they have been in the real estate market for some time and can "record certain patterns"; or, as is more often the case, based on information from the Internet or simply their desire to create the most attractive presentation for the client.

And it’s also a good "play" with numbers ☺

Therefore, having bought an apartment for $205,000 in Bali, according to the "empirical data of the developer," you can get 35% ROI in 5 years, or by selling your apartment in 5 years, you can increase the ROI to 175% or even 265% in 10 years. The mentioned figures are not invented by me but taken from a real developer's presentation in Bali ☺

But at the same time, there are indeed real stories of incredibly successful investments, for example, as Mercedes told in her interview on my blog: when she calculated the business, she counted everything according to the prices during the lockdown, and according to the first calculations, the project was supposed to pay off in 10-12 years, now it's about 3 years. Incredible result, but this is a combination of many factors: signing the land agreement during the lockdown when prices were 3-4 times lower than now, the construction cost was significantly lower; a high-quality project; a top location of the object and professional management.

And what do those who recommend avoiding investments on the island of Bali say?

Last week, my friend sent me a video from Instagram where a blogger who, according to her words, teaches proper investing, talked about how unprofitable it is to do this in Bali. Here's how she calculates:

Property value - $250,000.

Lease term - 30 years.

Construction period - 24 months.

Monthly rental income - $1,500.

Monthly maintenance and management costs - $300.

360 months (lease term) – 24 months construction = 336 months

336 months x $1,200 (income minus expenses) = $403,200 income over 30 years.

 $403,200 – $250,000 = $153,200 profit over 30 years.

$153,200 / 30 years = $5,106 annually or only 2% ROI

And at the end, she recommends investing in real estate in the Maldives ☺

After watching the video, I had the following thoughts:

• $250,000 – this price indicates that the property should be in a good tourist area with modern architecture and design.

• The average construction duration in Bali is 12 to 18 months depending on the volume. Of course, you can build for 24 months or even 30 if you hire unprofessional companies or, as some tourists do here, hire cheap workers for different types of work and try to control the process themselves, and in the end, the result is sad: they build for a long time and then redo what was built even longer.

• Why is the rent mentioned monthly when a more profitable business is renting property daily? A price of $1,500 per month is quite low for a monthly rental if we are talking about a modern villa worth $250,000 located in a prime tourist area like Seminyak, Canggu, or Ubud, as a blogger mentioned in her video.

• If the management and maintenance costs are $300 per month, it should be at a professional level. On the other hand, why is the payment so high if it's a monthly rental with significantly less work – it could be 10% or $150. Additionally, in most cases, tourists pay extra for utilities if it’s a monthly rental. There are many such nuances.

So this is again "playing with data and figures," but in this case, they want to convince us "Bali is not the best option for investment, but the Maldives is – less competition, etc."

Serena Villas Uluwatu

Where is the truth?

As is often the case, the truth is somewhere in the middle ☺

Is it possible to lose money by investing in real estate in Bali?

Easily if you do it without knowing all the nuances of the process.

Is it really possible to make money by buying a villa in Bali?

It is possible, but it is definitely not for everyone, and the approach must be prudent.

And finally, a few recommendations:

1. Where the market has high returns, it is always accompanied by high risks as well. The Bali market is just like that: high income = high risks.

2. Check companies and their incredible promises as well as sharp discouragement from investing in real estate in Bali because it is more profitable in the Maldives, Thailand, or elsewhere. Maybe it is, I don't know, so check carefully, consult with professionals and other investors who already have experience.

3. If you have never been to Bali, it is better not to buy real estate in such a case. This is purely my opinion. I believe that without having been on the island, it's like buying a cat in a bag. I have also seen people get disappointed after coming here. You need to be here to feel and understand the island, especially if you plan to connect your life with it by investing.

4. Never invest more than you can afford to lose. This should definitely not be your last savings from which you plan to receive income and live on these funds. Because life can be unpredictable!

If you are interested in buying real estate in Bali, then in this step-by-step guide Part 1 and Part 2, the information you need to know for a future investor is collected.

Also, if you are interested in reading real stories of people who live and have a business in Bali, sharing their experiences and advice, then go here.

Thank you for reading!

See you soon!

Olya.