Should investors follow hipster surfers to Bali’s Canggu?

/ EdgeProp Singapore
April 27, 2019 11:23 PM SGT
Foreign tourists to Indonesia hit a record 15.8 million last year, 13% higher than a year ago, according to Indonesia’s statistics bureau. Bali, the most popular tourist destination in Indonesia, had the lion’s share at 6.07 million, 38% of the total and up 6.6% from the previous year.
Topping the chart in terms of foreign visitors to Bali is China in first place with 22.5%, followed by Australia (19.3%) and India (5.8%). Bali’s Tourism Promotion Agency has set a target of eight million foreign visitors by the end of this year, or 40% of Indonesia’s total foreign tourist arrival target in 2019.
This year, 1,764 new hotel rooms are expected to open in Bali by 3Q2019, says Colliers International in its 1Q2019 research report. These comprise 969 four-star hotel rooms and 795 five-star hotel rooms.
The average hotel occupancy rate for Bali was 71.1% last year, said Ferry Salanto, Jakarta-based senior associate director of Colliers International Indonesia, in the report. On the back of stronger inbound tourism, he is projecting occupancy rates to reach 75-80% this year. The average daily rate of hotels in Bali was US$116 ($158) last year, and is expected to increase to US$117-118 by end of 2020.
While the overall average hotel occupancy rate in Bali may be around 71%, beachfront properties like those in Canggu tend to enjoy higher occupancy rates (Credit: Edwin Chua)

Capitalising on strong tourism

The strong tourism figures in Bali have also ushered in the popularity of “apart-hotels”, says Alice Tan, Knight Frank director of residential project marketing. “The apart-hotel concept is refreshing as investors can count on the strong tourism numbers to support hotel occupancy rates in such assets, especially in an established international tourist destination like Bali.”
However, there are three factors to consider before investing in any project, cautions Tan: its location; background and track record of the developer; and the type of guaranteed rental return (GRR) package offered. “The success of such a concept hinges on the commitment of the developer,” she says. “Typically, the GRR schemes are only for two to three years, or five years at most.”
Tan points to the upcoming Citadines Berawa Beach as an example. Developed by Indonesian developer Genesis Indojaya, the 226-unit serviced residences is located on a 17,800 sq m (192,000 sq ft) site at Berawa Beach in Canggu. The property will be managed by The Ascott Ltd, the hospitality arm of Singapore-listed property group CapitaLand, for 10 years, with an option for another 10-year extension.
Genesis Indojaya is offering buyers a notarial lease of 80 years on their investment and a net annual GRR of 5% for seven years. It solves the problem of restrictions on foreign property ownership in Indonesia, including Bali, according to Darren Chua, Singaporean co-founder and equity adviser of Genesis Indojaya.
The strong tourism figures in Bali have also ushered in the popularity of “apart-hotels" (Credit: Knight Frank)

Limited new supply in Canggu beach area

While the overall average hotel occupancy rate in Bali may be around 71%, beachfront properties tend to enjoy higher occupancy rates, notes Tan. “Canggu appeals to the younger hipster crowd, and there isn’t a lot of new supply around the beach area,” she observes. “Meanwhile, Nusa Dua – being a more established area – sees a lot more competition among the five-star hotels and appeals to a more mature crowd. Occupancy rates are also lower.”
Colliers International Research’s Indonesian report showed that of seven hotel properties that opened in 1H2018, only one is located in Canggu, namely the five-star, luxury hotel property, the 119-room Como Uma Canggu.
Between now and 2022, another 19 new hotels are in the pipeline, and are expected to yield a total of 2,759 new rooms, according to Colliers. Most of them are in the four- and five-star categories. Beyond the established areas of Kuta and Nusa Dua, many of the new hotels in the pipeline are in Jimbaran-Uluwatu areas as well as Seminyak and Ubud. Only one is located in Canggu.
Citadines Berawa Beach is located just a two-minute walk from the beachfront, notes Knight Frank’s Tan. The property is also within proximity to the famous Finns Beach Club, a five-minute drive to the upcoming Cafe Del Mar, the famous lifestyle club from Ibiza and near Potato Head Beach Club.
“Canggu is an up-and-coming area with a vibrant start-up scene, beach clubs such as Finns, Potato Head and Como, as well as indie cafes and eateries on a strip within a five- to 10-minute bike ride,” says Tan.
Citadines Berawa Beach is also within proximity to the famous Finns Beach Club (Credit: Knight Frank)

Taxes to look out for

What should Singaporean and other foreign investors look out for when investing in Bali? A first-time buyer in a new development will be subjected to a 10% value added tax (VAT) on the final purchase price from the developer. There is also a nominal stamp duty of Rp6,000, the equivalent of 58 Singapore cents.
For the resale market, there is a 10% tax on the sale price. By default, it is payable by the seller, notes Tan. However, it is often subject to negotiation between the buyer and seller, she adds.
As the GRR is classified as rental payment and falls under “land and building rental (final tax)”, there is a 10% withholding tax on the 5% rental return.
In the case of Citadines Berawa Beach, the developer, Genesis Indojaya, is absorbing the 10% withholding tax on behalf of the buyer for the entire seven-year GRR period. Thereafter, the owner will have to pay the withholding tax on the annual rental income. However, there will not be any capital gains tax, says Tan.

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