A dive into Bali branded residences. Reflecting on legacy, economic transmigration, and the Zoom Boom

The resort island of Bali continues to be one of the world’s most desired holiday destinations. Over the past three decades, its resort real estate market has continued to evolve and change. Though, for branded residences, both in the lead-up and period after the global pandemic it has lagged behind other key Southeast Asian leisure markets such as Thailand and Vietnam.

Turning back the page, the initial wave of branded properties legacy properties included Amanusa. Moving into the Millennium, a second wave of mixed-used development included Alila Uluwatu, W Seminyak, Banyan Tree, Karma Jimbaran, and later Karma Kandara, Anantara Legian, and another in Uluwatu, Peppers Seminyak and a scattering of others.

In the lead-up to the global financial crisis (GFC), the booming Indonesian economy ignited a?considerable number of condominium (condotel) projects aimed at domestic buyers. These often featured guaranteed returns and were concentrated in Kuta, Sunset Road, and peripheral areas.

In the same period with land prices skyrocketing, a series of master-planned, mixed-use projects were planned in Tabanan, New Kuta/Pecatu, and Pandawa featuring such luxury brands as Mandarin Oriental and Rosewood. The economic slowdown and impact of the global financial crisis brought these projects to a halt. At the same time, there was some movement in non-branded developments being sold and converted such as the COMO Uma Canggu.?

Bali’s real estate market during the pandemic experienced an influx of domestic land and villa buyers, most notably from Jakarta. At the same time, the second most active buyers were Russians and Eastern Europeans both for retail transactions and investment. The attraction of investing in a fully foreign-owned Indonesian PMA company along with visas was and is widely popular. Another rising sector has been primary and secondary medium-cost townhomes and smaller villas for foreigners on leasehold ownership in areas such as Canggu, Umalas?Pererenan, Bukit, and Jimbaran.

Viewing the state of development for branded residences in the Island of the Gods, land costs for larger projects that typically feature hotel and branded real estate have enormous barriers to entry. Smaller, more entrepreneurial developers, often foreigners have moved quickly into leased land and are selling projects with a great degree of success. There is movement though with larger Jakarta developers activating shelved projects or restructuring stalled developments. Typically, the size of these projects requires longer timelines, so they remain the elephant in the room for branded properties.

Taking a closer look into branded residences in competitive regional markets Thailand, Malaysia, and Vietnam it’s important to look at pre-and-post COVID trends. Winding back the calendar to 2018-2019, in Thailand, ?Mainland Chinese buyers were mass largescale buyers. While for Vietnam, the momentum was domestic purchasers with widely available developer and bank financing.

Moving past the pandemic, Russian buyers have flocked to many Southeast Asian markets. In branded condominiums, previously lower price points for the mass market drove unit sizing down. After COVID-19, size matters and lifestyle changes have altered the demand for larger spaces. Another impact on the broader regional space has been a return to bricks and sticks as a preferred investment class.?The fallout from the crypto crash, volatility in tech stocks and low bank saving rates have lowered buy return expectations who are now flocking to the assumed safe haven of real estate.

So why hasn’t Bali seen the same penetration of branded residences as say Phuket in Thailand? You have to look back at the development cycle of luxury and upscale hotels in Bali and these for the most part of Indonesian owners, with the most notable exception being Singapore’s HPL Group. The mindset of many Jakarta-based groups has been that tourism in Bali is a sustainable tourism market. Looking back at the end of the 1997 Asian contagion financial crisis, capital flight to land and hotels in Bali grew exponentially. This has re-occurred in the COVID-19 era. The outlook for many of these groups is recurring growth in land prices and they have been hesitant to go the mixed-use route. This thinking can be seen reflected in many of the branded residences in the early 2000s where developer buy-back clauses were standard in sale and purchase agreements.

Viewing Bali’s biggest resort real estate competitor Thailand, the most notable advantage is favorable regulations for foreign ownership. The latter allows long-term leases of up to 90 years and freehold ownership of condominiums up to 49% of a building.?There are also simplified government programs such as Thailand Elite for long-term visas, a retirement visa regime, and dependent family visas for international schools.?Tenure in real estate is longer term and more in common with international property markets, hence it has a well-established resale market.

Switching over to Bali, shorter leasehold terms, condominium ownership for foreigners limited to those holding residence and work permit and few other incentives have impacted take up. But taking a look at the sheer volume of foreign residents the destination continues to hold vast appeal. Three impacts that bode well for resort-grade real estate are the ‘Zoom Boom ’ work for home culture, urban flight, and economic transmigration (Russian and Chinese moving abroad).

Looking at the remainder of 2023 and into 2024, C9 Hotelworks research in our new joint report Bali Hotel and Branded Residences with Horwath HTL points to a significant restart of the branded residences market in Bali. One banner project that will come up for sale is villas at the Raffles Bali in Jimbaran later this year. There are a number of larger shelved mixed-use projects currently in the planning and new greenfield ones in early-stage development. A notable attraction for Jakarta developers to bring branded properties to the island has been the success of a similar product in the capital city such as the luxury Langham Residences . We expect more institutional investment into the sector and cyclical uplift in the months ahead. Stay tuned, real estate in Bali is on the move again.