Red Hot in Bali
Friday, 06 May 2011 00:00
Source: The Phuket Insider
by Bill Barnett
While I am usually immersed in all things real estate and tourism in Phuket, travelling to overseas competitors often brings a fresh perspective and offers a quick pulse check on how Thailand is measuring up in Asia's great development race.
Hence my recent sojourn in Bali.
The place has certainly been caught up in a condo-hotel craze that makes Justin Bieber and Lady Gaga look pale in comparison. There are currently between 4,000 and 5,000 units on the market and the monthly take-up rate in new projects is well into double digits.
With many pricing points below US$100,000 (Bt3 million), these formula-driven products often have familiar brand names, like Outrigger, Best Western and even Thailand's own Anantara, which manages two projects.
In many cases, individuals are purchasing multiple units and even some banks or financial institutions are taking on completed units for the rental yields. Ultimately, the market is being driven by a 36-month tourism surge and the strong local economy.
The luxury villa market was pioneered on a similar timeframe to that in Phuket, and most of the new offerings from $1 million upwards are likewise hospitality-led residential. Branding is key, with familiar names like W, Banyan Tree, St Regis and Bvlgari.
While pricing in general remains 20 to 30 per cent lower than Phuket, there was considerably more sales activity last year and in the first quarter of this year than in our Thailand home base.
The underlying story remains domestic buyers and certain markets such as Japan, which create little activity in Thailand.
Giving the secondary market some consideration and reflecting on how the two destinations compare, it is clear that Phuket has become a secondary-centric clearinghouse, given its limited penetration in the domestic market. For the moment, Bali has better diversification. Its resales lie on the highway ahead, rather than in the rear-view mirror. Land sales are also seeing strong movement from both Indonesian and overseas institutional purchases, with appreciation and demand going skyward.
There remains the dark side of Bali: developer off-plan defaults, sagging transportation infrastructure, clogged highways, a trash-disposal issue, water short-ages and mounting crime.
A high-powered public struggle between the island's governor and seven semi-autonomous regencies is also creating chaotic overdevelopment and a limited ability to implement building regulations and zoning. This creates a remarkable similarity between Bali and Phuket, in terms of centralised legislation and approvals and locally inconsistent interpretations.
Our competing islands are at different points in their journey, yet there are striking resemblances around every corner. For the moment property in Bali has the red-hot hand and who can begrudge them after the bombings in 2002 and 2005 that brought tourism to its knees?
One has to worry, though, about what will happen to all those keen investors and lifestyle buyers when guaranteed returns roll off and hotel supply and demand switches places. As always, good locations and strong properties will prosper, while those who simply tried to cash in on a trend will wilt.