In addition to Bali being the Island of the Gods there are also many other benefits of investing into the property market of Bali. And who does not want to own their own private holiday home.
What can I expect from an
investment in Bali- Last 5-7 years the property market has shown a 20-25% appreciation on land per year in average.
- You can also expect 6-12% yield on investment per year on rental income, supporting your existing income. This trend is not likely to fall as villa demand from tourist markets continue to grow. And the general growth of the Indonesian economy and Bali will continue to be positive also in 2009 ensuring a further positive appreciation value.
Do you want to:
• retire richer?
• retire earlier?
• supplement your income?
• give up your day job?
• Get a better lifestyle?
Buying the right type of property in the right location will help you to achieve your goal. It is important to establish what your goal(s) is at the outset because it will determine which strategy renovate, develop or buy and hold you apply. Are you looking at a retirement home, or pure
investments, what parts of Bali do you like?
But why choose to invest in property rather than the other growth asset shares? There are many good reasons, including to that, and with the latest financial turmoil even more reasons for that.
• capital growth
• rental income
• hedge against inflation
• tax benefits, with the right structure set up this is very much possible through
property investments in Bali.
• greater degree of control
• lower volatility
• high demand.
Let’s take a look at each of these in detail.
Capital growth
Putting your money in the bank or
investing in fixed interest does not give you any capital growth. If you purchase property, however, you do so expecting that the underlying value of the asset will grow. Bali in average has seen an average % as above mentioned figures, depending a little on what areas, and this trend is not likely to fall, as property in Bali is heavily undervalued, as a comparason 40% less than Thailand. While this is generally the case, you need to ensure that you buy property in the right location to maximise your capital growth. For example, a new villa on the outskirts of Seminyak area bought for $400 000 may grow at 15 per cent per annum, whereas a well-located property in an up-and-coming area such as Candi Dasa, bought at the same price, could grow at 20-25% per cent per annum. If you had bought the property in the prime location, you could possibly retire in 6-8 years’ time, based on your increased net wealth; you could not retire on the funds from the poorer performing outer property. Even though properties increase in value over time, it is crucial that you buy in the right location to maximise your returns. And you should take your time to study the different growth patterns for different areas in Bali, as well as infrastructure development and general plans for each area.
Rental income
One of the benefits of owning investment property is that you start receiving an income almost straightaway. Some properties in Bali runs at 70-80% occupancy, and the key to this is location, design, as well as a good management company, with a clear rental structure. In the current market, you could settle on a property during the week and by the weekend you could have a tenant who will have paid you some rent in advance, such as a travel agent looking to contract villas for their growing markets in Asia. With the other asset classes, you often have to wait until the end of your term (in the case of a term deposit) or until your dividends are due, which is usually two to four times per year.
Hedge against inflation
An inevitable part of life is inflation, and the rate of inflation varies according to the strength of the economy. One of the benefits of holding property is that property values increase at a greater rate than inflation. This is great news if you already own property, but not such great news if you are looking to buy property. The important thing to keep in mind is to buy the right property in the right location. And the right market. Now a lot of investors purchase properties in faling markets such as USA and parlty EU, not looking the fact that the economy will stay in recession for a couple of years. The Asian and Bali part of the world will slow down, but will stills see positive growth figures, something that will also apply to properties. Once the world financial market picks up, Asian growth will continue to be much larger than USA and EU to.
Tax benefits
There are several tax benefits available to
property investors, including claiming interest and expenses, and depreciation (both on the building and the fixtures and fittings). And with the right ownership structure these benefits can be quiet extensive.
Using property as security to borrow money to purchase other property allows you to leverage (borrow against the security) to a greater extent than if you were using a share portfolio as security. This aspect has not been even looked at in Bali, but there are Banks that will from next year open up to this. Most will lend up to 60% per cent of the value of the property being purchased, whereas they generally lend up to 40-50 per cent if you were purchasing shares. This aspect then releases further funds for maybe a second purchase of a smaller property.
Any legitimate expense incurred in running your
investment property should also be tax deductible. For example, if you travel to the property to collect the rent, you can claim a deduction. Alternatively, money paid to a property manager to manage your property is tax deductible.
Depreciation of the building may also be claimed as a tax deduction. The age of the building will determine if you can claim any depreciation and at what rate you can depreciate it.
Bear in mind, though, you should never buy property just for tax purposes. Getting a tax benefit should simply be a bonus of investing in property, not the sole reason for purchasing.
Greater degree of control
Owning property allows a greater degree of control than owning shares. For example, as a share owner you cannot improve the value of your shares. However, as a property owner you can add value to your investment by painting, landscaping or renovating. For a few thousand dollars, you can get much more than that back in added value.
Lower volatility
Although it does have downturns, the property market is not as volatile as the sharemarket. You can sleep well knowing that the price of your property will not plummet overnight, which can happen to shares. Keep in mind also that the security is in the land, not necessarily the building, which makes getting the location right particularly important. As mentioned land appreciates very fast in Bali, even now, whereas buildings depreciate as they get older.
High demand
Everyone needs a place to live and say. For this reason, property, especially well-located property, will always be in demand. Tourist arrivals for Bali in 2007 was the highest ever, 2008 will see a 20% further growth, probably surpassing 2 million arrivals, no including domestic market which also grows strongly. At the time of writing, our capital cities are recording high rates of people wanting to reside in Bali and a rise in international schools. But while demand for property is steadily increasing, supply is unable to keep up with it. If this situation continues, prices are likely to continue to increase sharply in the near future. With the current credit crunch, even in Bali you also might be able to find one or two developers willing to do some good deals to keep momentum…..time is now…
Written by: Terje H. Nilsen,
Paradise Property Groupterje@ppbali.com
Bali Investment Opportunities