investments

The key factors that drive the real estate market in Bali

In this series, I will briefly analyze what is remarkable about the modern real estate market in Bali and why it can be interesting for investors.
Part 1. Stable growth and lack of discounts even in times uncertainty
Let's start with such an obscure thing as the almost complete absence of an opportunity to enter well below the market No matter how counterintuitive it may sound, it speaks first of all about the stability in the real estate market.

Let me give you an example.
Over the past 2 years, some investors from the number my clients and subscribers have been actively looking for sales in the Bali real estate market in the hope of entering at a better price.


Here I want to pay tribute to the fact that many continue to use the 150 yo tacticts of Baron Rothschild. But the world has changed a lot since then, and blood is not really flowing through the streets. The very possibility of a lower market entry is a twofold matter. On the one hand, you really get an asset at a better price.
But on the other hand, this tell you that the market is not doing well, and sellers are in a hurry to get rid of assets. Maybe the cycle is not the same, the crisis, or even a bubble that is about to burst. As a result, the pandemic ends, these investors have not gone anywhere. Whereas individual lots in Bali, which we considered together, have already doubled in price since 2020.
At the same time, inflation depreciates dollars at a rate of 5% per year.
Conclusion: the lack of discounts even in unstable times is a sure sign that you are in a steadily growing market.
Part 2. Only cash, no debt attached
I have already written about access to loans and, in particular, to mortgages in Indonesia. In short - everything is bad: the rates are way off-market and the covenants are just unrealistic.
As a result, real estate in Bali is purchased by cash. And in such an environment, the market is much more stable.

Here's why. As many have noticed, over the past 2 years, the real estate market around the world has actively stirred up and in many places a real boom has begun.

But at the same time, the debt load of the population has grown accordingly and their income in best cases stays at the same level.
This state of affairs, together with the explosive growth of inflation, significantly increases the risk of events that we already saw in 2008 in the United States and Spain.

Schematically it looks like this:
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The Central Bank raises key rates against inflation
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Mortgage rates are growing
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A number of borrowers cannot pay the increased rates
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Mortgage objects massively appear on the market
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The real estate market is going down
Conclusion: When real estate is mainly bought by cash, the market is much more resistant not only to economic changes, but also to force majeure such as a pandemic.

And this creates additional space for explosive growth in the real estate market following the easing of credit requirements
Part 3. Booming demand from foreign buyers
Previously, Balinese real estate was primarily targeted by classic vacation property buyers who wanted to stay in their residences during the holidays and rent it out the rest of the time.

Over the past 2 years, things have changed. After quarantines in small apartments many people decided to radically improve the quality of life. So residents of large cities have become the main driving force in the market.

The cost of real estate in Bali is several times lower than in large metropolitan areas, and the trend for remote work made it not just a dream, but quite a reality.
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On the one hand, buyers potentially want to move to a place with a warm climate, good ecology, developed infrastructure, ocean and all the other selling points that Bali has.
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On the other hand, buyers are looking for investments with stable rental income and a growth potential. Whereas the real estate markets in developed countries are way overpriced and show low profitability.
Due to a partial restrictions on movement around the world, demand for the real estate is realized through online transactions.
In addition to the traditional buyers of Balinese real estate from among the residents of large cities in the Asian region, buyers from the USA, Europe and the CIS countries are also very active.

Due to a partial restrictions on movement around the world, demand for the real estate is realized through online transactions. Indonesian legislation allows remotely concluding notary leasing agreements, where the notary acts as the guarantor of the transaction.

This is an important point, because we will only find out a real interest from foreign buyers only after the launch of direct flights to Bali and the abolition of a mandatory quarantine.
Alexander Sokovykh
Co-founder Asai Capital Group
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