Is a Bali villa investment a good idea?
Bali villa investment has proven to be an investor’s dream over the past two decades.
Tourist numbers have increased and the trend for holiday villa rentals has exploded. As a result, property development has surged to meet the rising demand.
The influx of foreign investment has created a resilient market for property sales and holiday villa rentals in the more developed tourist resorts of Seminyak, Sanur, Canggu and Ubud.
Whilst early property investors in these areas have made life changing returns on their investments, this article will use the 18 Year Property Cycle to suggest that the real estate markets in Bali’s developed tourists areas have become saturated.
Moreover, the 18 year property cycle when applied to Bali, suggests that growth cycle in these tourist hotspots is less than 2 years away from its peak.
Continue reading to learn....
- How Bali’s real estate market is performing in 2024;
- Which areas of Bali are close to their cycle peak;
- Which areas have the highest growth potential;
- How to profit from a Bali villa investment.
Investing in a Bali villa
The Southern part of Bali has been exposed to major levels of development as places like Sanur, Canggu and Seminyak have emerged from being sleepy towns into large scale tourist destinations.
The results for property investors have been financially outstanding. Early buyers of real estate have seen a return on the price of a property upwards of 500% in less than a decade.
The returns on investment become even more impressive when we consider that the rental income from a holiday villa can account for significant returns with an investment payback rate between 5-7 years. Â
High-yield rental returns have been generated through the demand created by increasing tourists numbers and longer-term expat residents.
In-turn, rental occupancy rates are sustained at high levels upwards of 70% year round.Â
The price of property in the most developed areas of Bali have risen exponentially. So whilst the principal investment capital used to buy a property has been paid back with rental profits, villa owners are also sitting on substantial equity gains in the underlying values of their properties.Â
Bali property markets in 2024
Whilst the influx of tourists to Bali has resulted in impressive returns for landowners, property owners and businesses serving the boom towns, there are a number of negatives that are creating a shift in investor perception.
- The price of land and property is simply too high for many new investors to enter the market.
- As most areas are flooded with an oversupply of property, sale and rental profits are being squeezed in what is termed a ‘buyers market’.
- A ‘buyers market’ essentially means that since buyers have so much choice, sellers are having to cut their prices and in turn, cut their profits.
- Part of Bali’s charm is the intricate road network that weaves through villages, hills, rice paddies and coastline clifftops. The overdevelopment of the Southern areas has created chaos on the roads.
- Traffic jams and congestion are everywhere, with short journeys to the grocery store taking upwards of an hour each way.
- The basic cost of living is becoming expensive. Rental prices for convenience stores and restaurants have risen in line with villa rental costs.
- Business owners have been forced to raise their prices to cover these costs. The end consumer is the one who pays for the cost of inflation.
There comes a point in every growth cycle where the pace of growth begins to slow before rapidly stagnating.
Consumers can not continue to fuel price increases as the balance of value tips over and beyond what the consumer is willing to pay.
This applies to the cost of rent, a bag of apples and even for wasted time sitting in traffic.
The 18 year property cycle
The 18 year property cycle is an investment model that property investors use to identify the ups and downs of a property market in a relatively predictable pattern.
Based on long-term historical data of global real estate markets, the property cycle model provides an estimate that runs through four distinct phases that take on average 18 years to play out.
As an average, some cycles will take longer to complete, other cycles will complete in less that the 18 year average.
Whilst the model refers to a ‘property’ cycle, the concept is essentially based on a ‘land’ cycle. The cost of building a house in Bali is much the same in Canggu as it is in Amed.
The big difference in the price of a property is simply due to the underlying price of the land that the property occupies.
Phases of the property cycle
Understanding the phases of the property will give you the best possible chance of timing the market so you can optimise your Bali villa investment.
The goal for any real estate investor is to buy low, maximise rental profits, before selling around the market peak.Â
Where is Bali in the property cycle?
Property cycle of Southern Bali
Property cycles are exposed to a range of variables. The variables that have the most impact on prices are linked to location and economic conditions.
As the vast majority of Bali’s tourist economy is based in the Southern areas, the property cycle can not be represented as a single cycle that represents the entire island.
As such, the cycle in the more developed part of the island displays significantly different characteristics than that of the less developed areas.
For example, during the Covid-19 years between 2020 and 2022, property prices in the established tourist destinations of Seminyak, Canggu and Ubud plummeted between 30%-50%.
During the same period, property prices in Amed remained relatively unchanged. Reasons for this, that will be explained in more detail below, are primarily due to the stage in the cycle of different locations.
Cycle peak approaching in Canggu and Seminyak
The following commentary is focused on Bali’s southern, established real estate markets.Â
The commentary takes you through each of the four stages of the property cycle. It is a very detailed read and clearly concludes that area such a Seminyak, Canggu and Sanur are getting very close to their property cycle peak.Â
The image at the end of this section demonstrates the current property cycle perfectly, and should be used in reference to the commentary to enhance your understanding.
Recession phase is looming in the South of Bali
Following the narrative above we can see that the 18 year property cycle is playing out in true fashion in the developed Southern regions of Bali.
With this we can confidently conclude that the real estate market in the Southern developed regions have entered the Buyers’s Curse Phase and that a significant fall in property values is likely to occur within the next 2 years.
The red dot in the image below demonstrates where Bali’s established real estate markets are positioned in the property cycle.
Where is Amed in the property cycle?
The following chart shows land prices in Amed over the last decade with a projection towards 2026.Â
Historical land price data in Bali is not available in the public domain. The data has been taken from official land sale tax records from the land tax office in Amalpura, Karengasem.
As buyer demand for land increases, so does the price. As land prices increase, the knock-on effect on Bali villa investment valuations also increase.
Bali villa investment in Amed
The chart below demonstrates a significant upwards trend beginning from 2020 onwards.
From this we can conclude that Amed is currently positioned in the third year stage of the Emerging/Recovery Phase of the cycle.
ROIs from a Bali villa investment
The table below demonstrates the ROIs you can expect from a Bali villa investment in some of the most popular tourist hotspots.Â
For consistency, the data is focussed on a villa investment price of $279,000. The information has been taken from an independent source. You can use their tools to verify the data here. Â
Amed | Canggu | Seminyak | Uluwatu | Ubud | |
|---|---|---|---|---|---|
Purchase Price | US$279,000 | US$279,000 | US$279,000 | US$279,000 | US$279,000 |
Ave Daily Rate | US$215 | US$166 | US$181 | US$181 | US$199 |
Ave Occupancy | 92% | 80% | 76% | 73% | 70% |
Gross Revenue pa | US$72,197 | US$48,472 | US$50,209 | US$48,277 | US$50,844 |
Management Fees | US$10,829 | US$9,694 | US$10,041 | US$9,645 | US$10,168 |
Operational Costs | US$10,474 | US$8,724 | US$9,037 | US$8,680 | US$9,152 |
Net Revenue pa | US$50,893 | US$30,054 | US$31,131 | US$29,902 | US$31,524 |
ROI % per Year | 18.2% | 10.8% | 11.2% | 10.7% | 11.3% |
ROI Payback | 5.5 Years | 9.3 Years | 9.0 Years | 9.3 Years | 8.9 Years |
Investing in Bali's emerging property markets
Using the data in the table above, it is clear to see, from an investors perspective, that Amed represents the most attractive villa investment proposition when compared with other areas of Bali.
High occupancy rates for 3-bed/3-bath villas with higher daily rental rates has the potential to generate impressive net-revenue performance in excess of $50,000 per year. Â
Reasons why 3-bed/3-bath villas are performing so well in Amed are;
- Short supply with increasing demand results in high occupancy rates;
- Owners can raise the daily rental rates to capitalise on the high demand .
Click here for a detailed comparison on how rental markets are performing in Canggu, Seminyak and Amed.Â
Summary on a Bali villa investment
Putting your hard earned capital to work in a Bali villa investment is an exciting yet daunting prospect.
However, buying a villa at the right point of the 18 year property cycle can be highly rewarding from both a financial and lifestyle perspective. Â
From a financial investment perspective, Bali’s thriving villa rental market continues to represent a highly compelling investment opportunity. Â
- Demand for holiday villa rentals continues to increase;
- High rate rental occupancy levels all year round;
- Buying in the early stage of the property market cycle provides a long-term margin of safety;
- Property prices in tourist hotspots always rise over time.Â
From a lifestyle perspective, the pros outweigh the cons many times over.
- Use your villa as your holiday accommodation;
- Use your villa as a ‘work from home’ base;
- Use your villa as a permanent home or second home in paradise;
- Rent your villa when you are not using the property;
- Generate a significant passive income from holiday rentals;Â
As the cost of living in the Western world continues to increase, a Bali villa investment presents an ideal exit strategy from the day-to-day grind as you seek a more balanced way of life for you and your family.
Imagine waking up to a stunning sunrise with tropical views of the Bali Sea. Or diving in world-class waters before making your first Zoom call of the day.
You have the potential to shape your future and a Bali villa investment can be the catalyst to help you realize a better quality of life.
High Passive Income From Rental Villas
Starting from $279,0000
18.2% ROI
$50k Income
75% Occupancy
$225 Daily rate
Build Generational Wealth
Upside opportunity as land and property prices increase
