Buying off the plan in Bali is much like the culture – enticing yet intricate. It can be rewarding for both investors and relocators alike, but like any property purchase, there are risks and rewards.
Buying off the plan in Bali is like investing in a dream, after all, the property you’re purchasing is really only on paper. But it’s also a dream in that what you’re buying may well be the perfect home or investment in your ideal location. The benefits range from lower prices and value appreciation, to staged payments and design customisation. However, there are some risks too, so it’s important to arm yourself with all the necessary details before signing the dotted line.
What does it mean to “buy off the plan?”
Buying off the plan is essentially purchasing a property that is yet to have been built. It’s an investment in a digital model or detailed blueprint, where you sign a contract and put down a deposit based on the future completion of the home, apartment or villa.
The process for buying a house off the plan typically involves meeting with a developer or selling agent and looking at floor plans, design renders and architect drawings. You may also be able to visit the site where it’s being built and then visualise what it might look like when completed. Once you’re confident with what you are buying, have sought the necessary legal advice and done some due diligence on the developer, you then sign the contract and put down a deposit of 10 to 20%. The amount varies depending on the developer’s terms. When it comes to financing the purchase, you wont be able to get a mortgage for a Bali property from Australia, so you’ll need to explore other options like using the equity of an existing property you have in Australia.
Future payments are staged throughout the build period and can either be based on time, for example quarterly installments, or key milestones during the construction, such as foundation, roofing and interior fit out. Once complete there’s a final handover fee to complete the transaction.
What are the benefits of buying off the plan?
There are several benefits to buying off the plan in Bali:
- Lower purchase price: The first benefit of buying off the plan is that you generally start with a lower price than purchasing a completed property. You’re taking a small amount of risk by building new, so it’s only fair you get some savings.
- Customisable: The next thing is that you’re able to customise elements of the design and fit out to suit your taste, needs and budget. It allows you to inject your own personal flair so that your investment reflects your personality or what you think your potential renters would like.
- Staging payments: the staging of payments means you don’t need to be handing over the full amount and be servicing that potential debt for several months before living in or renting out your new property.
- Appreciation through the build time: The major advantage of buying off the plan is that in the dynamic and growing property market of Bali, there’s a very good chance that your purchase will have appreciated, or gone up in value, even before the keys are handed over.
What are the potential risks of buying off the plan?
The potential risks of buying off the plan in Bali include construction delays, unpredictable market swings, poor due diligence or a lack of compliance by the builder and the potential for unrealistic promises.
There are various factors that can lead to the construction of your investment taking longer than planned. The weather in Bali can have a significant impact on build time, plus other things like access to materials or financial issues for the developer can lead to things moving slowly or even stopping at times. This can test your patience and is why you should ensure your payment plan is based on milestones and the finances held in an escrow account until completion.
When it comes to due diligence, it’s important that you engage an independent local property lawyer to handle all the paperwork and review any documents. You have to ensure that the developer has all the necessary permits and the area you’re buying in allows for commercial leasing and resale. It’s also a good idea to research the developers track record by visiting other properties they’ve built and talking to their past clients.
How common is “buying off the plan” in Bali?
Buying off the plan in Bali is very popular with foreign investors.
The low cost of the real estate market, the allure of the amazing locations and the benefits of staged payments and owning something ‘new’ are huge drawcards.
To fund construction, developers price early-stage units and villas below the expected market value at completion. This means that investors capture the appreciation, or are building equity even before moving in. Once the investment property is finished you can move in, lease it out or even sell and capture the gains immediately.
Are off-plan property transactions more risky in Bali vs. Australia?
Put simply, yes, buying off the plan in Bali is riskier than in Australia. But with the risk comes rewards. So let’s delve into what the key differences are that lead to the risk.
In Australia, the market is highly regulated, with legal and financial safety nets that protect buyers. Similar structures don’t exist in Bali. In Bali, foreigners are unable to buy freehold, instead you have to rely on long term (25-30 year) leasehold agreements. Alternatively, you have to establish a foreign-owned Indonesian company (PT PMA).
This is the best option for investors as it provides a Hak Bangun (Right to Build) title, which simplifies the process of acquiring commercial rental licenses and to resell the property.
Another key difference between buying off the plan in Bali versus Australia is that construction delays in Bali are common and without proper contract structures and payment terms, the buyer can be left with greater costs than expected. However, many of these risks can be avoided if you do your due diligence before purchasing, and are aware of the common Bali property scams.
Is it worth buying off the plan in Bali?
In a word – yes!
Bali is a great place for investors to purchase property off the plan. The low cost entry to the market, the possible immediate appreciation, strong rental market and amazing locations make it a fantastic location for buyers to either build or extend their property portfolio.