Why Indonesia switched from Bali to Lombok and new opportunities for investors?

Rethinking tourism destinations in Indonesia

The Indonesian government has decided on a change of focus in the tourism sector, which implies a decrease in attention to the island of Bali, which has long been in the foreground. Now other islands are being prioritized, and one of them is rapidly gaining popularity. This creates an interesting question as to why investors should pay attention to these new horizons.

Angelica Mir, who is the founder of Alesinvest Group and its CEO, shared her insights and analytical findings. She noted that while Bali is still a popular place to live, it is no longer an attractive investment destination.

Historical background on Bali

A few years ago, Indonesia was generally little known outside of its most famous island, Bali. However, it is just one of more than17,000 islandswhich make up the archipelago. Bali's fame began to grow about two decades ago when the parastatal ITDC began investing in tourism infrastructure.

With tourism recovering from the pandemic, especially after the official end of the pandemic, the number of tourists from Russian-speaking countries increased significantly, leading to a new round of interest in travel. These trends were quickly picked up by locals and companies in the construction and service industries in Bali.

Real estate market dynamics

Due to the skyrocketing demand for real estate and soaring prices, experts today recommend that Bali should only be considered as an ideal place to vacation and live. Many real estate offers with promises of40% profitonce the construction work is completed are no longer relevant.

Nevertheless, the situation on the rental market looks rosier, although it is not as impressive as before. Initially, the expected yield of20%dropped to10%due to increasing competition and rising house prices. In addition, many new housing developments have sprung up in Bali in the last 12 months and a serious shortage in the real estate market is expected in the future. Thus,The days when Bali was considered an ideal investment destination are a thing of the past.

Attractiveness of Bali for accommodation

It is important to emphasize that for those considering purchasing a home for personal use or temporary vacation, Bali remains an attractive destination.

• Developed infrastructure
• Dynamic social life
• A variety of recreational opportunities
• Magnificent natural views

All of this makes Bali a tempting place to live and vacation.

Disadvantages of buying real estate in Bali

However, one of the major disadvantages associated with buying real estate in Bali is that approx.97%the proposals are in the formatleasingwhich effectively means a long-term lease. Thus, clients are essentially pre-paying for a long-term lease, rather than becoming full-fledged homeowners.

Given this point, it makes sense to consider other islands that are now being actively developed and can offer significant opportunities for foreign investors looking to purchase real estate in Indonesia.

Overview of the real estate market in Lombok

Land and freehold (full ownership) properties are available on the island of Lombok. However, it is worth noting that the selection of properties in this category is very limited and they are priced above average. It is expected that property owners will be able to obtain approx.100%annualized returns, although it should be understood that this is likely to be a temporary phenomenon.

Development of new tourist destinations

The Indonesian government has launched a program to develop new tourist destinations, as Bali is already under serious pressure from tourist traffic. As part of this initiative, attention is also being paid to the island of Lombok.

Nature and availability of real estate

Lombok is essentially like Bali of at least two decades ago: the natural beauty has been preserved, but land and real estate prices are much more reasonable. In addition, Lombok has many plots of land and properties that can be fully owned, which is a significant advantage.

Project Mandalika

The island is being promoted by the same structures that previously invested their resources in the development of Bali. In particular, they are implementing a projectMandalikawhich is similar to the popular Nusa Dua in Bali, a world famous resort.

Development of the race track

In addition, this company has built a modern race track that attracts famous motorcycle racers from different parts of the world.

Adaptation of expats

However, as personal experience of relocating to Bali shows, acclimatization to a new place does not always go smoothly. We have seen many expats who prefer an English-speaking environment, such as Australians, New Zealanders, Brits and Europeans, decide to move from Bali to Lombok. This has an impact on the real estate market situation.

Demand for housing

Currently, the demand for housing on Lombok far exceeds the supply, especially during motorcycle races. However, it is worth emphasizing that land prices are many times lower, often by a factor of ten or more compared to Bali, and such plots are still available for sale with freehold rights.

Investment opportunities

Thus, a skillful choice of land plot can bring a significant profit: for a year you can count on a yield of100%. However, our estimates suggest that such a trend may not continue beyond thesix months.

Disadvantages of Lombok

It should also be noted that Lombok has certain disadvantages. Unlike Bali, this island has no developed infrastructure, no variety of leisure activities and a rich social life.

Peculiarities of land sales in Bali

Bali has a unique system regarding the sale and lease of land. Locals are not inclined to part with their land property quickly, as renting is often more profitable.

The lease is usually for a long term of 25 to 30 years with an option to renew for the same period. This type of relationship to land is calledhak sewaThis is a leasehold arrangement, which is essentially a lease known in international practice as a leasehold. Foreigners can also take advantage of this scheme, but for this purpose a lease agreement is drawn up, which must be notarized. It should be taken into account that such a lease is not subject to registration with the state authorities, which makes it distinctive in comparison with other forms of real estate ownership.

Rights and obligations of foreigners in Indonesian real estate

There is another option for ownership, referred to ashak guna bangunan (HGB). This right allows a foreign investor to fully dispose of the land: to use it, to build on it and to carry out any operations with objects.

HGB requires the incorporation of an Indonesian company -.PT PMA. The process of this registration usually takes about one and a half weeks. After successful registration with the National Land Department (BPN), the investor receives the HGB right, which facilitates:

• land sale;
• transfer of land rights;
• using it as collateral for banks.

Initially, this right is granted for a maximum period of 80 years (initial 50 years with a free 30-year extension). However, renewal will require payment of a government fee and documentation proving that your PT PMA has been active, including regular tax reports and payment of taxes.

Opportunities for investors

It's interesting that having a companyPT PMAalso gives foreigners access to a long-term visaKitasFor investors. This visa is valid for two years and can be extended for 2, 5 or 10 years.

Right to use state land

In addition, foreign nationals may exercise the right tohow to useThis right is granted for a period of 25 to 30 years with the possibility of extension for another 20 years, but it is less common. This right is granted for a period of 25 to 30 years with the possibility of renewal for another 20 years, but it is less common. It requires the foreigner to reside permanently in Indonesia.

New opportunities for foreign citizens

More recently, the country has offered a new opportunity for foreign nationals to purchase and own real estate by providing a passport with any valid visa. However, such real estate will be subject to a minimum price based on market conditions in the region. It is important to note that while this law has not yet entered into full force, it is premature to talk about specific nuances.

The process of purchasing real estate for foreigners

When registering real estate for foreigners, the process includes the purchase of a plot of land, which also requires notarization. The notary in turn submits all the necessary information to the local land department (BPN). Potential buyers should be aware of the various taxes and fees that may arise during the acquisition process.

Tax obligations will vary depending on the terms of the transactions and type of ownership, which is definitely something to consider when planning a real estate investment in Bali and elsewhere in Indonesia.

Introduction to Indonesia's new trends

In conclusion, it is worth recognizing that Indonesia is experiencing important changes in real estate and tourism. As I have already noted, the return to active investment in Bali has become less attractive, which opens up new horizons for other islands such as Lombok.

Lombok as a new investment opportunity

With all the hallmarks of paradise, this amazing island finds itself in the spotlight because of its affordability and the potential for growth it shows.

• Lombok offers lower land and real estate prices.
• Here there is the possibility of acquiring full ownership of the properties.
• The development program launched by the Indonesian government creates an excellent environment for future investors.

Lombok's disadvantages and opportunities for entrepreneurs

However, Lombok also has its disadvantages such as less developed infrastructure and social life, but this creates opportunities for entrepreneurs. For them, this is the perfect time to launch new business ideas and services as the demand for housing and other offerings will only increase.

Key Business Opportunities:

• Potential for opening new businesses.
• The demand for housing among expats.
• Low price of land to start a business.

New opportunities for foreign investors

It's pretty obviousIn addition, as of 2023, foreigners have new opportunities to own real estate in Indonesia, which implies a sustained interest in the market. In such a situation, the most important advice for potential investors is to follow the trends closely and not miss the chance to participate in one of the most promising destinations.

Recommendations for investors:

• Research the market ahead of time.
• Find reliable suggestions.
• Integrate into the local community.

Ultimately, only steps like these will help you maximize your investment in this amazing country with its endless opportunities.