An in-depth special focus on Asian real estate hot spots, as well as key interviews with important industry figures and analysis
Leading Edge: Landing in Indonesia
Jun 12, 2012
By Sofie Lisby.
With land prices in Bali reaching a level where only a few can participate, investors are increasingly looking to Indonesia’s other islands, where land is averaging at around one-tenth of the price.
The Indonesian government is currently running a promotional campaign designed for overseas investors entitled “Remarkable Indonesia”, a nod to the country’s long- anticipated rise as a real prospect for foreign business interests. Islands like Lombok and Sumbawa have languished in the shadow of Bali for years, but with a new international airport and the opening of two new power stations on Lombok in the last year, significantly improving the reliability of power supply, new opportunities for real estate investors are fast emerging beyond the traditional resort markets.
“We’ve had a number of inspiring news in the last couple of years,” says Mark Sullivan, director and head of sales and marketing of Avantura Land Consulting (ALC) Indonesia, a due dilligence and research-based real estate services advisor.
ALC recently joined Bali-based Elite Havens Group to reflect the growing interest in Lombok and other Indonesian islands. Sullivan is confident they have what it takes. “People traditionally have gone to Bali for the culture – the Hindu heritage is very attractive – but Bali has become incredibly busy. On islands like Lombok you can still find peace and tranquility, and most people don’t realise that it’s also culturally rich.”
For the ones who do, looking beyond Bali promises strong monetary returns. “In South Lombok we have seen 100 per cent gains y-o-y for the past four to five years,” says Peter Hunt, real estate director of Asia Prospects, an investment and asset management company specialising in Indonesia’s emerging property markets. “With the opening of the new international airport, the development of boutique resorts and continued work on general infrastructure we continue to see great upside potential in Lombok on a three to seven year view.”
Sullivan agrees on the ROI but says that kind or margin will likely not continue moving forward. While there is still plenty of room for growth – one Are, the equivalent of 100 sqm, on the most expensive beach front land in Seminyak sells at around RP1 billion (US$108,400) while the equivalent on Lombok will set the investor back RP100 million (US$10,840) – the rate of growth is slowing, Sullivan says, estimating around 20 per cent yearly gains is sustainable in the years to come.
Risks remain relatively few, say both Sullivan and Hunt, the main ones being changes in government land policies and the overall performance of the global economy. “Historically, land titles have been the main challenge, however with new centralised systems, professional lawyers and trusted notaries this really is in the past if buying is carried out systematically,” explains Hunt.
With the global economy weighed down by US recession and the European debt crisis, island investments are now coming from Java-based Indonesians, Western Australians and expats living in Hong Kong and Singapore. Not only are these investors continually looking for new opportunities, they have also grown increasingly wary of jittery financial markets, prompting a return to the oldest form of banking – that of land.