Bali: From Red to White Hot
By Adrian Batten
Baliâ€™s rise to regional pre-eminence as Southeast Asiaâ€™s premier location for both high-end and mid-range resort investment continues apace and is set to overtake PhuketÂ within two years, half the time industry experts previously estimated it would take.
â€œThe Bukit is on fire,â€ says Elite Havens boss Ian Macauley. â€œWeâ€™ve seen properties there sold 12 months ago for US$2.5 million fetching $4 million today. Prices are increasing between 40-50 percent a year.â€
Patrick Clancy, Exotiq Real Estateâ€™s director of sales and marketing for Ramachandra Villas in the west Bukit, goes even further: â€œItâ€™s white hot.â€
While uniquely situated to grab the lionâ€™s share of the high-end market, Baliâ€™s rise as the villa destination of choice is also broadly based. â€œWe simply canâ€™t meet the demand fast enough for three-bedroom Balinese-style houses on 7-10 are (700-1,000 sqm) of well situated land in the $350,000-$500,000 range,â€ Clancy says.
While Baliâ€™s visitor arrivals are a contributing factor, set to exceed 1.7 million for 2007, a big factor that has been driving Baliâ€™s spectacular villa investment surge was the governmentâ€™s decision last March to make it easier for foreigners to invest securely. In essence, the new law allows foreigners to â€œcontrolâ€ freehold title, making Bali one of the most attractive destinations for inward investment in Southeast Asia. For the first time, developers are now stepping up to the table with financing packages for purchasers, including foreigners, through foreign and local banks.
However, the ultimate driving force for Baliâ€™s popularity is the intrinsic nature and appeal of the island itself. Bali retains much of its beauty and has a population in excess of 3 million, with a confident art and culture thatâ€™s unique, and whose people are welcoming of foreigners. Bali enjoys a place in the imagination of the rest of the world thatâ€™s priceless.
Furthermore, over the past decade, Bali has also become a design hotspot, as increasing numbers of international designers establish homes here, forging strong and successful partnerships with Baliâ€™s craftsmen. It all makes for a very vital and cosmopolitan scene.
The national cuisine may not compare to Thailandâ€™s, but the sheer variety and quality of the many European cafÃ©s and restaurants, and the sophistication of the club scene leaves Phuket for dead. To put it baldly, Bali has a buzz Phuket canâ€™t hope to match.
Currently beachfront Seminyak commands the highest prices on the island and is in most demand. Itâ€™s where the trendy eateries, boutiques and clubs are and explains what Macauley identified a few years back as the â€œKu De Ta Factor,â€ whereby the majority of visitors seek to rent villas within easy reach of the beach and the action.
A great example of this is the spectacular success of Bali Sentosa Villas, where 31 villas at $550,000 were sold out within four months, commanding a 20-percent increase over purchase price. Further reinforcement came with the recent announcement of the new seven-hectare W Retreat and Spa, which will include 80 villas for sale and is set to open in 2009.
However, Matthew Georgeson, general manager of Elite Havens, detects that the volume of traffic and the extent of entertainment and retail outlets are beginning to change the character of villa rentals in the area, as they start to follow villa owners north toward the Umalas and Canggu.
Here, within a 10- to 20-minute ride of the scene but in quieter, greener and less built-up areas, it remains possible to purchase 30 are of land at reasonable prices.
Up for discussion are the implications of the â€œBencong Factor,â€ whereby transvestites are also now seen to be migrating northward, penetrating further into late-night Seminyak.
One further factor, which may hasten the process of mid-market expansion northward, is the appearance for the first time of several apartment-block developments on the Seminyak beachfront, scheduled to rise to five stories. Itâ€™s a breach or exemption of the â€œno higher than a coconut treeâ€ custom that has broadly been observed in Bali till now.
Such development may well be the forerunner of an upgraded and expanded product for the Javanese domestic market, as well as the group-travel sector from Australia, Japan and Southeast Asian nations. To date, the owners of the older three-star properties, stretching from Tuban through Legian into Seminyak, have yet to rise to the various market and security challenges. Expect to see a review of land usage in the area.
Which brings us to the Bukit. Industry figures agree south and west Bukit is set to become the jewel in Baliâ€™s villa crown, and the areas are already commanding stellar prices for their cliff-top ocean views.
Following the opening of Bulgari in late 2006, major developments in the pipeline include Alila Villas Uluwatu, Banyan Tree Ungasan, Outrigger Panorama and a Raffles due in the west as part of Tommy Suhartoâ€™s ill-conceived Pecatu Indah development.
Adjoining the golf course there will be Ramachandra, set to open this December and aimed firmly mid-market. The development will include 40 two to four-bedroom villas on 5-12 are lots set on four hectares overlooking the ocean, with prices ranging $425,000-$925,000.
The latest high-end â€œsuperâ€ deluxe cliff-top villa entry now coming online is the Khayangan, which roughly translates as â€œheaven on earth.â€ Itâ€™s the kind of place that will resonate with international celebs who find the adjoining Bulgari a tad too public, with its Japanese market delivering 90-percent occupancy at an off-season rate of $1,200 per night.
On the other side of the Bukit peninsula lies the historical resort of Sanur, where things are also hotting up, with new developments at the western and eastern ends of the town.
Some 30 hectares of beachfront property have come into play at the western end, including a seven-hectare five-star hotel property in the offing, the likely redevelopment of the dated Sanur Hyatt set in still-beautiful gardens, and several villa projects. Most interesting of these is the 3.5-hectare Mertasari Estates from developers Oriental and Occidental, comprising 17 villas built on 15-25 are and costing US$750,000-$1.2 million.
â€œBali is at the forefront of tropical island living and Sanur is back,â€ says developer Tony Rhodes, a former UK chartered surveyor. â€œIn fact it never ever really went away.â€
Arguably the most interesting new aspect of the developing Bali villa market is its eastern potential.
Although a few mega seven-bedroom villa complexes in the $3 million-$4 million range have been built out west, beyond Tanah Lot, western villa development will progressively run up against the problem of traffic and lack of good roads. To the east, the improved new main road allows you to be in Klungkung within an hour and Candidasa in 90 minutes.
The area, which is spectacularly beautiful, has already been put on the map for high-end travellers through the presence of such well run and established properties as Amankila and Alila Manggis.
In addition, news comes that the beach at Candidasa, so cavalierly destroyed two decades ago, is to be restored, and a villa project and a terminal for cruise ships is to be built at Padang Bai. Handled right, east Bali could well rival the rising star of the Bukit in days to come.
As Bali has emerged as a major international player for second-home owners and resort developers worldwide, its biggest market remains Australia and Southeast Asia, particularly expatriates. Further afield, Europe, particularly the French and Russians, are notable buyers in their own sectors. Land prices, meanwhile, continue their healthy upward trend and, if anything, are accelerating.
While there are still things the industry would like the government to tackle in the area of legal title, Indonesia is now ahead of the game in this region. However, developers cutting corners, ignoring existing laws such as setbacks and evading tax could create problems that will come back to haunt owners and the industry as a whole.
Villa projects delivering a quality product at good value sell like hot cakes. This applies especially to the mid and high end of the market. Due to its intrinsic character, Bali enjoys an international cachet that no other Southeast Asian destination can match.
The risk is now that Bali becomes a victim of its own success. The south side and large areas of Badung Regency already look like parts of Jakarta and traffic jams are now a factor.
Uncontrolled strip development and advertisement hoardings serve to conceal the ricefields and grazing cows, even when theyâ€™re there. The question of controlled and sustainable development is becoming critical.
Bali has all the laws and regulation it needs in place to protect its environment, particularly from various hangover mega projects from 1997, which corruptly obtained environmental approvals and/or exercised undue influence in obtaining exemptions from them.
All that waits is the necessary re-financing. Unfortunately existing laws are not enforced. Too many people get away with ignoring the rules.
The property industry here would do well to police itself, not only abiding by the letter and spirit of the law but going the extra yard environmentally. It should also lobby hard for property development and tourism to grow sustainably and equitably across all sectors of the industry, and ensure wealth accrued is spread fairly among all Balinese over all areas of the island.
This article first appeared in the January 2008 issue of Property Report Singapore-Malaysia-Indonesia (www.property-report.com).Filed under: