After a decade of unprecedented price increases in the Bali property market that saw land and house values performing in the top five of the world’s markets, the upward trend seems to have stopped rather suddenly – at least in the south of the island. What is going on? Are we finally in for a correction?
The fact is that demand for raw land or villas in the most sought after regencies of South Bali has fallen dramatically since the end of 2014. It is difficult to quantify the decrease in demand, but based on inquiries it is at least 50%, something confirmed by notaries, lawyers and other service providers in the building industry.
We all knew that there would come a time where prices couldn’t continue to rise. That time seems to have arrived. A number of factors have contributed tothe current slump. First and foremost, with rising property prices marginal returns of investment have fallen to such levels that less and less investors are prepared to take the risk to build here.
Ten years ago, investment returns for rental villas in Seminyak and Petitenget were at 25% p.a. If you buy land and build a villa now you are lucky if you get close to 5%. At the fringes of Seminyak and Petitenget, most villa owners are happy if they manage to cover their costs and don’t have to chip in fresh money at the end of the year to pay their bills. Much worse is the outlook for lower priced 2-4 star accommodations. A massive oversupply of bedrooms has resulted in a price war and most of these establishments find it hard to break even.
What about residential buyers? Six years ago a well-built four-bedroom villa in Berawa on 15 are of freehold land was worth US$ 600 – $700,000. That same villa is now on the market for a whopping US$ 1,650,000. Unfortunately, the disposable income of our typical residential buyer hasn’t kept pace with this dramatic increase of prices, and that’s why this beautiful villa in Berawa won’t find a buyer unless the owners drop the price considerably.
In short, South Bali has priced itself out of reach for most buyers and investors.
While most property owners in Bali are not in a hurry to sell, and have financed their properties with cash rather than bank loans, the wait for a sale could now be much longer than anticipated. Today’s market isn’t made by these halfhearted vendors, it is made by owners that want and need to sell now and are ready to reduce their expectations to meet the current demand.
So what is likely to happen?
I believe the property market in South Bali will remain soft and see fewer transactions at relatively low volumes, but there are and will be opportunities to watch out for as motivated vendors drop prices to get a sale. I also believe that other regions in Bali, particularly the North will become more attractive as prices on the northern shores are way below prices in the South. There are many interesting investment opportunities in North Bali now as one enters a market that still has a lot of upward potential.