Investing in emerging economies: Bali, Indonesia

Investing in property should never be a gamble. Individuals who invest are aiming to receive a return on their outlay. It’s a long-term project, with most investors planning to see real profit within three to five years.

Recent years have seen international property investors opting to put their money in emerging economies. This makes sense. With countries that are growing quickly, property values will increase rapidly too. 

Why invest in emerging economies?

The biggest advantage to investing your money into emerging economies is clearly growth potential. As an economy grows and more money flows into it, values go up and people experience an increase in their quality of life. Property prices rise and demand for that property does too. 

To understand the scale of the growth a developing economy can experience, think of the following three countries:

• Brazil: A GDP that has grown by over 6 trillion US dollars since 2019
• India: Growth of over 20 trillion US dollars since 2019
• China: Over 50 trillion US dollars in GDP growth since 2019

These countries are no longer seen as emerging economies. In fact, they are viewed as maturing economies or ‘upper middle income economies’. It’s easy to see why so many property investors opted to buy in these markets in the last five years. 

And right now, investors are looking for the next Brazil, the next India and the next China. 

Explosive growth and perfect conditions

Bali is a beautiful place. Sandy beaches and gorgeous views have helped it to become an island paradise for tourists. As well as those beaches, you can expect to find ancient, beautiful temples, amazing food, and a wealth of intoxicating culture.

This makes it a perfect place to invest. As it happens, investment has been happening for a while, with a property market that continues to benefit from new building projects and a vast increase in infrastructure spending. 

With a tourism industry that makes up 80% of the economy (Time Magazine) and an increase in high-net worth individuals, there is huge demand for rentals and sales in property. In the Wealth Report (Knight Frank, 2020) it was stated that the number of ultra-high-net-worth  individuals would rise 57% by 2024. That creates a growing demand for real estate, and much of that demand will be around luxury properties.

Domestic tourism (where an individual will travel to a holiday destination within their own country) is also on the rise. That rise shows no sign of slowing down, with analysts expecting an upward curve that will last until at least 2023. This means that rentals will be a huge part of the investment market. Investors who are able to purchase properties and then rent them for part of the year will see significant returns as demand continues to rise.

It’s also a sensible time to buy. The recent pandemic affected tourism globally, but as things are now getting back to normal, investors can take advantage of lower prices in the region. Bali has numerous properties that are at the point where their prices will naturally rise as tourism continues to be re-established. As long as you have a reasonable amount to invest in a property, you’ll find yourself entering a market that is on a stable growth curve.

The returns are impressive too, compared to other parts of the world. That explosive growth means that investors often see an annual ROI of over 10%. Many see much higher figures. This allows for the development of a portfolio that protects against any downturns in other investment regions. 

The numbers

Let’s get back to that ROI first of all. With the average yield from an investment property being around 5% annually, Bali looks very healthy at an average of 12-15% per annum in developments such as our very own, Magnum Residence.

Also consider:

• Bali has now been opened up (post-pandemic) to tourists from 19 countries and counting, including China, France, Italy and Japan. 
• Bali sees an average increase in the cost of rent of 15-20% per year
• Over the last five years, there has been a 300% growth in land values in tourist areas
• The country enjoys a 15% annual growth in tourist flow
• In 2020, the inflation rate was just 2%

These impressive numbers all point to one outcome. Bali is poised for huge economic growth. It currently shows the same growth profile as China, for example, in 2019. 

Investing in emerging economies

Indonesia is part of the famous Group of Eleven. These are still classed as lower-middle income countries, which means they have plenty of room to grow. 

If you’re going to invest in Bali property, it’s important to look at the next 3-5 years. Understanding the annual yield potential, the growth in the tourist industry and the demand for property among international and domestic tourists is essential. The smarter investor will weigh all of these factors up before committing. 

That being said, Bali is only going to grow and supply is only going to shrink. Investing should never be a gamble, and a destination with exciting growth forecasts is an opportunity too good to miss. 

If you would like to learn more about investing in Bali property or would like to browse our options, then look no further and get in touch today.