With the continued increase in the number of visitors to the resort island of Bali, it is indeed a great investment to purchase or lease a villa and enjoy years of good return from running the villa or villas as holiday accommodation.
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However there are some basic rules to follow and here is some general advice:
Location is as ever of primary importance as certain areas still remain not fully developed and do not enjoy infrastructure such as good internet service and other amenities. The location also directly affects the type of visitor and different neighborhoods can attract different types of visitors. Example; currently the Bukit and Canggu are favorites of surfing fans. Whilst Seminyak and Kuta attract a more varied type of visitor and Kerobokan and Umalas remain favorite expat residential areas.
Check the property you are interested to invest in. Quality of construction is different and styles of building are unlike other countries. Take an expert to see the property for you and making sure the plumbing is up to the job and correctly functioning. Electrical installations work and are correctly earthed and grounded, and that the property does enjoy sufficient supply of electricity. Roof membrane is present. Air conditioning machines don’t leak when they work. No unusual and suspicious cracks. Water proofing has been applied correctly and sufficiently to all flat external surfaces. If there is a swimming pool, check for water loss and that the circulation pump, timer and all the valves are correctly functioning. Location of the septic tank and correct ventilation of it. The location and position of the buildings and if prone to flooding during the rainy season. The list does go on and you will need a professional to help.
Ownership can be achieved through a short or a long term lease. The longer the period of lease, the better deal you are likely to strike. Under Indonesian constitution, foreigners are not allowed to hold free hold title to any property. However a long period of lease is sufficient to generate sufficient returns on the original investment. Make sure to use the services of a well-established and registered notary. The cost is a fixed rate of 1% of the total value of the transaction. Foreigners can ask their notary to produce translations of all lease agreement documents for an additional charge. The amount also generates a tax liability of 10% of the total transaction value, and this is something to consider and negotiate over at the outset with the owner, whilst making your offer. A good notary will also carry out local searches and check to ensure the property does have the correct construction planning permission (IMB) and that all the land taxes are paid and up to date. A good notary will also check if there is any construction tax that due after the completion of building or whether they have been paid and settled.
It is vital to ensure the correct paper work has been obtained and currently for individual villas it is illegal to operate as holiday accommodation without being granted a “Pondok Wisata”, (Guest House) license. The local government is controlling the issue of these licenses in certain areas to protect the local communities and has stopped issuing licenses altogether for some zones. We strongly recommend that you seek professional advice from a licensed broker before embarking on this journey and look out for the current rules which are subject to change on very frequent basis. Also to shop around regarding the cost of each license and to keep in mind that each Pondok Wisata license is only valid for accommodation of up to 5 rooms and therefore in some case more than one license should be applied for.
As you will now be technically running a business in Indonesia you will also be required to have a temporary stay permit, (KITAS), accompanied by a work permit which is an IMTA (Ijin Memperkerjakan Tenaga Asing). All these documents along with the Pondok Wisata license can take up to 3 or 4 months to obtain and the cost should be built into your investment program, using a well-known and licensed notary or agent to obtain.
Provision of good staff and inclusion of services can add value and attract visitors to your investment. Visitors generally will enjoy and wish to have good internet service and cable TV, some regular maid service, pool maintenance and gardener service. Inclusion of good staff not only will attract visitors but also ensure your property is well looked after and maintained. Depending on the scale of your investment, you may wish to consider employing the services of an experienced villa manager too, assisting with routine supervision and quality control and also with marketing efforts.
Whilst preparing your investment plan spread sheet, you must make sure to make allowances for the following:
• An allowance for building & equipment maintenance and fair wear & tear. This will range from routine break down of simple elements such as pool or water well pump, replacement of soft furniture & linen, renewal of water proofing works, etc.
• Tax liability from any income generated, currently at a flat rate of 10%. Taxes are reported monthly and annually and once over certain thresholds there are additional taxes and you must consider the services of a registered accountant to ensure efficient delivery of returns. Not forgetting the accountant’s salary!
• A budget dedicated to marketing and advertisement in this very competitive market.
• Contributions to the local Banjar. This being the local Balinese community office which take care and look after many affairs in the neighborhood. The fee varies depending on the neighborhood and size of your property. Typically for a single property around 200 sqm size, the fee is Rp.100.000 (example figure, subject to variation and change).
• Garbage collection.
• Re-decorating and keeping your investment in top condition and catchy for all new arrivals.
• Salary rises and the traditional holiday donations to the employees and substitute/temporary staff when needed.
• Unforeseen and unexpected events!
Having come so far you will now need to continuously work on achieving high occupancy rates and this is an ongoing task using dozens of OTAs (Online Travel Agencies), and more and more these days by frequently using social media as a marketing tool. There is a lot of competition out there and you need to keep up with the seasonal factors too.