Buying a villa or building. What is more profitable?

When planning to invest in property in Bali or construction villa in Bali, most buyers are wondering which option is the most profitable, buying a finished property on the secondary market or building, which we will try to answer in this publication, based on many years of experience in the local real estate market.

According to Udayana University, represented by Agug Suryawan, in the first half of 2019, there were more than 146,000 rooms in Bali, excluding private villas, while the needs of tourists do not exceed 90,000. Despite an abundance of rooms, the construction of new hotels does not stop. According to data provided by the Bank of Indonesia, the increase in the number of rooms in the second quarter of 2022 was 3.44% compared to the first quarter.   Growth is due mainly to the construction of hotels in the south of the island. 

The academician said that if the growth in the number of tourists does not increase by 20% per year, then the next 10 years the island of Bali will not need new hotels, and urged to finally stop building them.

However, the rental business in Bali is thriving despite high competition.In fairness, it is worth noting that not everyone achieves success, but only those who, in addition to a high level of service and comfortable living conditions, can offer guests a breathtaking view of the ocean, jungle, rice fields or terraces. The competition among such places is much lower, since most of the objects in Bali do not have any kind of view. If the villa or plot is located within walking distance from the ocean, then such an object will undoubtedly be in demand even without a view. If we talk about private villas, the vast majority of them are built on small plots, not exceeding 3 acres and surrounded by a three-meter fence around the perimeter, which does not add to the attractiveness for tourists, as this creates an unpleasant effect of limited space, and guests want to plunge into tropical paradise atmosphere.

Thus, in the current situation, when choosing a villa in Bali for purchase or a plot of land for construction, it is highly desirable to consider the presence of a good view as one of the main criteria. In this case, the competition will be significantly lower, and the load and, accordingly, the profit will be higher.

I would like to note that in popular areas, such as Seminyak or Canggu, you can buy or rent a plot without a view, but within walking distance from the ocean, so if you are not constrained by funds, this option can be very promising, despite the higher cost than in most other areas of Bali.

So, if you have a good view, renting a finished villa with 2 bedrooms and a pool for 25 years, say, in the Ubud area, will cost at least $180,000 - $250,000. You can build a similar villa for $130,000 - $200,000, including the lease of the site, which clearly indicates significant savings. At the same time, the quality of materials and construction is likely to be much higher. As a result, you will be able to get a completely new villa at a more attractive price, even though the construction process takes an average of 3 to 9 months. If you use this time for promotion, then by the time of opening, you will already be able to ensure a good download. I would also like to draw the attention of readers to the fact that the order of prices for the construction of villas in Bali ranges from $450 to $1000 per square meter.

If we talk about buying a villa on the secondary market in the southern part of the island of Bali, in areas such as: Nusa Dua or Ungasan, where there is practically no cheap land left, then this option can be very profitable, since practice shows that in some cases the cost of a villa in the secondary market may be lower than the cost of an equal plot in the same area. Therefore, before making a decision, it is necessary to check and compare the order of prices.

One of these options that can confirm the above statement can be the following villa:

Three bedroom villa in Ungasan. The area of ​​the plot is a little less than 3 acres, the area of ​​the house is about 180 square meters. m., and the purchase price of the property is $180,000. In this case, we can say that buying land in this area will cost no less than $90,000 - $120,000, and the construction of such an area will cost about $120,000, so the cost of this villa can be considered very attractive. Of course, to put the villa in order, you will need additional investments in the region of $30,000, but even in this case, buying this villa will be more profitable than buying land and building it. This option can be considered an exception to the rule, since the owners are selling the villa below market value, so this option cannot demonstrate the advantages of building over buying on the secondary market of the island. The main advantage of construction, in this case, is only the fact that at the end you can get a completely new villa, which will not have to be repaired for the next 3-5 years. As for the payback, in this area such a villa can hardly be rented for more than $150 per day due to high competition. Thus, a profitable purchase below the market will be able to provide a payback in 7-9 years. If the villa is bought for one's own residence, then this option can be considered a godsend, since there is all the infrastructure here, including shops, hospitals, schools and kindergartens, and the distance to the ocean does not exceed 5 kilometers. a bargain purchase below the market will be able to provide a payback in 7-9 years. If the villa is bought for one's own residence, then this option can be considered a godsend, since there is all the infrastructure here, including shops, hospitals, schools and kindergartens, and the distance to the ocean does not exceed 5 kilometers. a bargain purchase below the market will be able to provide a payback in 7-9 years. If the villa is bought for one's own residence, then this option can be considered a godsend, since there is all the infrastructure here, including shops, hospitals, schools and kindergartens, and the distance to the ocean does not exceed 5 kilometers.

Another representative of properties that can be considered extremely profitable is the two-bed villa Jawa , also located in Ungasan, which is being sold for the price of bare land in the area, namely $130,000. The villa is located on a plot of 3 acres, the cost of which is about $120,000. In addition to the 2 bedroom house, there is a large swimming pool. In addition, the site adjoins a sheer cliff from 2 sides, which is a rarity. Thus, this villa, like the previous one, can be considered an exception to the rule, since it is not possible to obtain ownership of a villa at the price of land in case of construction.

As additional examples, we suggest you consider several options in the secondary market.

1. One bedroom house in Ubud area. This house is well located in a quiet village near Ubud and has good potential, especially considering the house is being sold as a freehold. The area of ​​the plot is 5 acres, and the area of ​​the house is ~ 130 sq. m.. The size of the plot without any problems allows you to make a pool, which will undoubtedly increase the interest of tourists. This house is being sold for $156,000. To complete the purchase, you will additionally need to open a legal entity, in addition to pay 5% purchase tax and 1% notary services for registration. Thus, a purchase with registration will cost approximately $170,000. To bring the villa into a proper condition for a rental business, a small reconstruction and a swimming pool will be required, which will additionally eat up at least $15,000. As a result, a property ready to receive guests will cost about $188,000 including license for rental, but excluding marketing costs. The net profit from renting out such an object will be approximately $17,000 - $20,000 per year at a 60% load and a rate of $100 to $150 per day. If it is possible to increase the load to 80%, then the profit will be more than $25,000 per year. Thus, the payback of the object is 7-9 years.

2. Two bedroom villa in Ubud . This villa is located close to the center of Ubud and besides the location, boasts a very attractive price. The cost of renting this villa for 20 years is $79,000, and the property is selling for $135,000.

Thinking about the possible rental rate, the following points can be attributed to the minuses that will not allow renting this object for more than $120 per day:

• lack of a road to the site;
• modest plot area (1.8 acres);
• small area of ​​the house (90 sq. m.);
• lack of view from the site.

Considering that it is possible to rent such an object for an average of $70 per day, then with a load of 60%, the payback can come no earlier than in 7-8 years if you take it on a long-term lease, and after 12 years if you buy it as a property.

To build something similar with similar characteristics and, of course, a swimming pool, will cost no more than $100,000, including furniture, as well as the purchase of land or its lease for 25-30 years. As a result of construction, payback, as a rule, is reduced by at least 2-3 years, and if you choose a site with a good view for development, then even more.

3. Villa with 3 bedrooms in Canggu. This villa is located on a plot of 7 acres, has an area of ​​250 sq. m., a large swimming pool and is being sold as a property for $460,000. Given the cost of land in the area and construction, it can be argued that an option similar in all characteristics can also be obtained much more profitable than the purchase price of a finished villa, namely within $410,000, including purchase of land, swimming pool and furniture. Villas for rent in this area are pretty good, but given the lack of a view and the rather high cost, the payback in case of purchase will be more than 10 years!

Someone can say that in the secondary market of the island of Bali, there are offers at a lower price, but even without looking at these options, it can be argued that the commercial potential of such objects will be much more modest, due to the lack of a good view, a tiny plot and, most likely, the state is not the first freshness, requiring repair. If one of the readers can refute our statements with a real example, we will be very grateful if you do this in the comments to this publication.

Of course, there are exceptions, and someone manages to acquire something worthy on the secondary market, but such objects, as a rule, still do not reach the market and the probability of this is not very high and is comparable to winning the lottery or found on the path of a diplomat full of money.

Summarizing the above, it can be argued that, in most cases, construction is the most effective and inexpensive way to acquire a villa in Bali.

For more info, you can contact us at baliconstruction.net