Spotting trends is an important part of what real estate agents are supposed to do and we think we’ve got a real interesting one breaking ground right now.
It’s about buyer patterns. Hardly earth shaking news, I know. After all, buyer patterns across many business are constantly shifting as consumers become more sophisticated and knowledgeable and discerning. And seeing these patterns are what savvy businesses tend to do.
Here’s what we’re noticing – Leasehold property is becoming a very attractive option for Indonesian investors.
Yep, that’s it!
To really appreciate what this means and what the implications are, you need to understand the context of what and where and how because we’re talking real estate in Bali, which has for many years been a very predictable animal; a complicated one but some would say predictable nevertheless.
The historical (and typical) breakdown of buyers used to be simple: Indonesian investors preferred freehold titles, while foreigners preferred leasehold, not necessarily out of choice but simply because of constitutional legalities.
Of course there are those foreigners who see greater security in the name ‘freehold’ and we can understand that, but there are some important do’s and don’ts you should become familiar with if you have an interest in property ownership in Indonesia, especially how this relates to real estate in Bali and your nationality. You can read about them here, but the bottom line is that only Indonesian’s can legally own freehold titles in Indonesia. It’s that simple.
It makes sense that freehold is still the preferred title for most. However, there’s a growing movement that’s young, savvy, business oriented and entrepreneurial and most importantly it’s very Indonesian.
They’re well educated, they have inspiration and they’re crunching the numbers to find some really decent margins, even on leases well under twenty years; the sorts of leases that have been notoriously difficult to sell in the past and ones that not that long ago everyone, foreigners and Indonesians alike, would have been avoiding like the proverbial plague.
These are the guys and girls at the sharp end who are now actively searching for leasehold options, especially in tourism rich areas like Seminyak, Petitenget and Batu Belig. These trend setters see opportunities in commercial properties, particularly restaurants, shops, boutique resorts, middle-of-the-road hotels and holiday homes. They’re much more interested in exploring the right kind of deals on the right kind of property investments in Bali that produce the right kind of returns than they were just five years ago and they’re finding some of the best of those deals can be found with leaseholds.
It’s no secret that the hottest spots in town (between Seminyak and Batu Belig) are attracting domestic and foreign tourists like super magnets. Their business potential is beyond huge. Even short-term, they have the power of rocket fuel on a drag strip. As if to prove the point, many even offer Trip Advisor reviews, forward bookings from a loyal fan base and fantastic ROIs.
Kind of begs the question ‘why sell if business is so good?‘
And it’s a good question.
A simple answer is that many leases are foreign owned and they’re becoming prohibitively expensive to renew. Greedy owners aren’t happy with inflation related price increases and don’t care about pegging to the price of gold or rice or how good the foreign tenant has been over the years. They have become seduced by the green horned money toad and their brains are soggy with dreams of things they think they need.
They’re demanding three, four even five times more than market value because in their eyes that’s what the land or villa or business should be worth. It’s not by the way. Most people would agree that value is determined by how much people are prepared to pay for something not how much you perceive it’s worth.
The result of this is that many leases aren’t being renewed. What’s left of them are being sold instead while there’s still something worth selling. It’s time to cash in while you can.
In the old days leaseholds would be sold to other foreigners with fresh ideas, enthusiasm and inflated bank accounts ready to extend and bear the over-pricing. But not now. Now it’s the savvy Indonesians who are seeing the opportunities and they’re picking up opportunities all over the place.
They are inspired and inspiring. They are a reflection of the enormous potential Indonesia has with Indonesians and we’re delighted to see them create this exciting trend.
That’s not to say freehold is on the way out. Far from it. But there are different motivations and expectations to buying a freehold property, which we can deal with at a later date.
If you’d like more information on what property investments are available in Bali (both freehold and leasehold) drop us an email. We’d love to help you find a great opportunity. If you’ve got an asset you’d like to sell, drop us an email too. We might just hook you up with a rising Indonesian entrepreneur who can see the potential in what you’ve got and help create a win-win for everyone.
Andy writes on a variety of topics related to property, real estate, the customer experience, mindset training and local/international trends for Seven Stones Indonesia