Asia’s growing villa attractions
Dominique Gallmann, Exotiq Real Estate, talks about the appeal of buying a villa in Bali, comparisons to Phuket, and other islands.
by John Higginson (property-report.com)
Dominique Gallmann of Exotiq Real Estate talks about the appeal of buying a villa in Bali, comparisons to Phuket, and other island markets in the region worth considering.
Exotiq is rapidly expanding, with a host of new offices in Indonesia and Thailand. Where and when your offices are opening up?
We actually started our business in Thailand and had our first office in Phuket, followed by two offices in Bali. We’ve just opened new offices in Pattaya and Koh Samui in Thailand and are about to open in Chiang Mai, Hua Hin, Koh Chang and Krabi, as well as reopening a new office in Phuket. In Indonesia, we’ve now sold all our franchises and have five offices in Bali. The next offices to open up in Indonesia are in Lombok, where we’ll have an office in the north as well as in the south. We’ll then be focusing on Malaysia.
What was the Bali residential property market like in 2001, when you set up your office?
The residential market in 2001 was just coming of age and we could see the potential lying ahead. Back then, it was mostly dominated by individuals who had built their own homes and villas, which were then put on the market. There weren’t any major developments, although a few pioneer builders started to create small developments. Since then, the real estate market has developed dramatically and in 2002 and 2003 bigger players entered the scene and set new standards. It has been a rocky road, with good years mixed with all sorts of unfortunate events: some home-made in Indonesia, others of a more regional nature.
How did the Bali bombings in 2002 and 2005 affect those living in Bali, as well as the perception and number of visitors?
It was a huge shock. People here suddenly and sadly realised that Bali was not isolated from the rest of the world. Yet it was somehow comforting to see how the majority of the Balinese dealt with this shock. Amid anger and disbelief that such a cowardly act of terror could happen here in paradise, there was also a lot of introspection and searching into the more subtle causes of the tragedy. The harmony between the microcosms and the macrocosms needed to be restored once again, and the communities spent a lot of efforts in cleansing the island. All of a sudden, visitors perceived Bali on a par with places where similar acts of terrorism had happened and the number of visitors dropped sharply in the aftermath of the bombs. However, similar to what happened in Egypt, tourism was rapidly recovering a year after the attacks.
How did the residential market react to these tragedies?
The market almost came to a halt in the aftermath of each bombing (on October 12, 2002 and October 1, 2005) and recovered slowly, eight to ten months afterwards. Interestingly, prices never came down but levelled and stayed for some time until the market picked up again. The reason is that vendors are not experiencing the same mechanics as we now see happening in the sub-prime crisis in the US, for instance. Residential real estate is not bank financed here and that makes all the difference when it comes to market resilience.
Today, what makes Bali an appealing prospect for potential property buyers, both as a place to live and as an investment?
As a place to live, Bali is unrivalled in Asia and perhaps worldwide. It’s a vibrant international village on an island that’s big enough for residents not to experience the island syndrome. Combine this with a culture that has never felt inferior to the outside world and is therefore tolerant of foreigners and has smartly made use of tourism dollars to keep it alive and growing in strength. Cultural and religious tolerance, diversity, nature and the Asian rhythm of live combine to create that magic mix that continues to attract people since the days of [German artist] Walter Spies and friends.
Some people say that Bali has confusing tenure laws. Could you explain simply what’s on offer to foreigners and explain what difficulties or confusions there are, if any?
The tenure laws are not confusing at all. For clarification, I advise people to visit: http://www.exotiqrealestate.com/buying_property_in_indonesia.asp. Recently, with the new investment law, longer terms for right of use title are now in place, sending out the right signal to buyers that the government wants to ease the process for foreigners to enjoy property here.
What are the pluses and minuses of buying in Bali compared to Phuket, the best known and most developed villa market in Asia?
Bali is much larger than Phuket and has a better connected international airport. Property prices are still more attractive than in Phuket. Phuket has better beaches than Bali and better road and telecom infrastructure. The worry with Phuket and Thailand in general is the current uncertainties regarding foreigners’ tenure and control of properties other than condos and apartments.
Do you see Phuket as a rival to Bali or will there be sufficient demand to sustain villa markets in many more islands in Indonesia and Thailand?
There is rivalry among the two destinations. I guess Bali is currently benefiting from the legal and political woes of Thailand, but the demand is big enough for both markets to strive.
Property Report is a big fan of Malaysia, a beautiful country with a stunning coastline, islands, a variety of local cultures and encouraging regulations for foreign property buyers. Why has it been so late coming into the villa property market compared to Bali and Phuket?
I agree. We also think Malaysia has a lot to offer and believe it will catch up with Bali and Phuket. We looked at Sabah and think this is going to be the next great destination in Southeast Asia. The environment is perfect and it’s just waiting to be discovered. With Malaysia addressing its ‘image’ problem, we see no reason why it should not take off soon.
Which parts of this diverse country do you see as offering the most exciting villa properties and investment potential over the coming years?
I believe Sabah is where the action is going to happen. It’s big enough and has lots to offer. We’ve been talking to people there about opening a franchise and are ready to consider serious applications. Penang is more developed and we aim to have an office there too, by 2008.
Why do you think Exotiq has expanded so quickly, and what’s next on your agenda?
We’ve been able to create a successful model in the region and our franchise has proven to be very attractive to entrepreneurs in the real estate agency business. One reason is that we’ve heavily invested in marketing tools and technology to efficiently manage large numbers of listings and clients. We’ve also chosen to position Exotiq as an independent real estate consultant.
Our aim is to establish Exotiq Real Estate firmly in Asia first before venturing into Australia, New Zealand and a few Pacific destinations. That will then form our launching pad to get Exotiq into selected European and American destinations in the next phase of our expansion plan.
Indonesia tenure laws
Indonesian law recognises different rights on land depending on the status of the titleholder. Only individual Indonesian citizens – not companies – are entitled to own land with freehold status (Hak Milik). Indonesian companies, domestic or foreign owned, as well as foreign individuals are entitled to leaseholds, rights of use, rights of exploitation or rights to build.
In practice, there are four different ways for foreigners to acquire property in Indonesia:
1) A popular method is to enter into a legal contract with an Indonesian citizen (‘nominee’ as they are referred to), whereby he/she holds a freehold title to the property but signs over practical control to the foreigner through power of attorney to sell the land and a loan agreement with the property pledged and secured as collateral.
2) Forming a foreign investment company, Penanaman Modal Asing (PMA), is the preferred choice of those intending to operate a business in Bali. A foreigner can fully control a PMA company and the title of the property will be in the company’s name in the form of a right to build - Hak Guna Bangunan (HGB). The HGB expires after 25 years and can be renewed several times. However, there are tax implications to be considered and the Department of Trade will review PMA companies after 25 years so it may be necessary to re-apply for the PMA license.
3) The Government has recently introduced a right of use, Hak Pakai, title for foreigners. This title ‘floats’ over a freehold title in the name of an Indonesian citizen and is granted for an initial 25 years term. It can be extended up to three times adding up to a total tenure of 100 years. A foreigner is entitled to only one Hak Pakai title for a property not exceeding a certain size. The Hak Pakai is transferable or renewable if sold to another foreigner.
4) Acquiring the leasehold, Hak Sewa, of a property is a straightforward approach for a foreigner. At the expiry of the lease, the property reverts back to the Indonesian owner with all structures built on it. This method is popular in commercial property situations where a return on investment can be achieved within the lease period, but less popular with individuals who wish to make longer-term investments. Lease periods vary and extensions are often agreed in advance; 20-30 years is a common lease period in Indonesia.
For more details, visit: www.exotiqrealestate.com/buying_property_in_indonesia.asp.
Dominique Gallmann, Director and Founding Partner, Exotiq Real Estate
Exotiq Real Estate is the largest real estate specialist in Bali, with offices in Lovina, Nusa Dua, Sanur, Seminyak and, soon to come, Ubud, while the Exotiq Villa Services office in Legian provides villa management and holiday rentals. This year, the company is opening two offices in neighbouring Lombok. Exotiq is also expanding its presence in Thailand, moving from its first office in Laguna Phuket to recently opened new branches in Pattaya and Koh Samui, while new offices are set for Chiang Mai, Hua Hin, Koh Chang and Krabi. By 2008, Exotiq is set to offer over a dozen offices in Indonesia, Thailand and also Malaysia, its next major market. Exotiq Real Estate is a brand of Exotic Properties Ltd. In some parts of Asia the company is represented by Exotiq Equities Asia Ltd, a subsidiary of Exotic Properties Ltd. Both companies are registered and incorporated in the British Virgin Islands and are Swiss and British owned.