The diversity of Bali’s holiday home market and its future amid a gloomy economic outlook

Djody Trisusanto ,  CONSULTANT   |  Sat, 02/21/2009 10:52 AM  |  Business

Bali has evolved into a diverse and segmented tourist destination: Kuta with its beach, shopping and nightlife attractions; the greater Seminyak area with its chic, relaxed, boutique lifestyle experience; Nusa Dua with its self contained affluent gated resort complex and Jimbaran, Uluwatu and Bukit with their cliffs and luxury, spacious, established resort establishments.

There is also Sanur with its rich Balinese village experience and Ubud, which is probably the most popular destination for those seeking natural beauty among its mountain villages. The area is famous for its highly skilled artists and more recently for its international quality boutique villas, away from mass market destinations.  

These characteristics and the constant growth of the tourism market have generated not only different classes and categories of hotels and resorts but also holiday home products.  

The holiday home market started with limited local time share products and brands offering the annual weekly use of hotel rooms, introduced mainly by mid-market developers such as the Jayakarta and Bali Sani hotels in the late 1980s. The market has grown and now includes the possibility of full ownership of luxury branded villas such as the St. Regis Villas in Nusa Dua and the Alila Villas in the Bukit.  

Full ownership buyers have the option of using the villas as their full private holiday homes or, by putting them on the hotel’s room inventory, as a mix of second home and investment product.  

This type of holiday home product requires buyers to enter into a compulsory rental pooling agreement or a sale and lease back deal.  

The Banyan Tree villas in Bukit, the Anantara apartments (suites) in Seminyak, the Novotel in Nusa Dua, and the Pullman in Kuta are all examples of this.  

We estimate that about 3,000 units of various classifications have been offered as branded holiday homes in Bali since 2000.

There are other holiday home products in Bali that are offered as independent and unbranded  but are generally of a much smaller scale.  These are independent clustered villa developments that have been mushrooming in the past few years and are predominantly located in Bukit, Seminyak, and Sanur.  

With no requirements to conform with international brand standards these holiday home products generally offer flexibility in design, quality and services and therefore are priced relatively lower than other, branded products.  

These projects range from as small as one 3-bedroom villa compound up to a mix of 20 1-bedroom, 2-bedroom, 3-bedroom, 4-bedroom and 5-bedroom villas.  

These products have attracted guests from the existing, older hotels as they offer relatively larger, newer and updated designs and room amenities and, more importantly, guests of these holiday homes do not have to pay the 11 percent local government tax or the 10 percent service charges.

To date we have estimated that about 1,500 units have been put on the market.

With strong international interest, even without the supporting foreign ownership laws and regulations, developers of holiday home products have been able to sell the villas and/or condo units successfully to foreigners, which have made up over 70 percent of the buyers.  

Many of these developers offer leasehold structures of 25 to 50 years with options to extend or to convert to an ownership title when the law permits.  

For the luxury segment, with unit prices of over US$1 million however, developers generally offer an ownership structure which allows a foreign buyer to virtually own a freehold title.  
This has been an important feature of luxury branded villas as most buyers, including foreigners, demand the ability to mortgage the title and enjoy capital gain (return of) the investment in the long run.

These characteristics and the market growth have in turn generated holiday home products
In addition to the existing, branded holiday home establishments, our data base suggests that
there will be over 1,000 branded holiday home units to enter the market between 2009 and 2012.  

The majority of them are hotel units that are or will be offered predominantly as investments.  
With the global recession and slowing down of demand for holiday home products in Bali, we believe that there will be delays in the construction or completion of these projects.  

Developers may reduce the size of the development and stage the construction in line with the recovery of the market.  

Also, given the history of resiliency of Bali’s hotel market and the uniqueness and popularity of Bali, demand for holiday homes in Bali will recover.  

The market will be competitive and sophisticated as many of the proposed holiday home projects will be completed in 2009 and potential buyers will be more educated and opt for the best ownership structure, design, amenities and services tailored to their investment and lifestyle needs.  

Branded holiday homes and those projects managed by international and experienced hotel operators will likely attract long term investors, as these projects are relatively better designed, built and managed according to international market requirements.

To support the sustainable recovery of demand for holiday homes in Bali, there are a number of issues which have to be addressed to anticipate slowing demand during 2009 and 2010. 

These include the commitment of the government to improve the law and regulations, particularly for foreign real estate ownership and to enforce better licensing regulations of the independent holiday home projects so as they do not compete unfairly with hotels.

The government also needs to enforce consistent development zoning regulations and parameters to avoid over development and to maintain open space, not to
mention ensuring infrastructure developments, particularly accessibility to air traffic and electricity supply.


The writer is the vice president of investment sales at Jones Lang Lasalle

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