Down my street there is a new house, well probably a couple of years old now. It is what I call toytown design, what you might see in Jakarta-very suitable accommodation for Noddy and Big Ears.
It was built by someone trying to make a quick dollar. A modern house set on a couple of are of land and built to local standards that would probably not survive a serious earthquake. At an excessive price of over Rp. 3 milliar it has not sold and has not been occupied since it was built. Further down the street is another new house, even less likely to withstand an earthquake (although an unsuspecting buyer would never know) crammed onto a 1 are piece of land. It has also been standing empty since it was built and already stone facings are starting to fall off it, dereliction is setting in.
Both houses have had their prices reduced by 10 to 15% but still no buyers and shirts are starting to slide off people’s backs.
The real estate bubble appears to have well and truly burst and buyers are rarer than elephant feathers. Last September a buyer was spotted in Seminyak but before Sidney “Trust me I’m a real estate agent” Greasynuts could manage to get him in an armlock he fell down a hole in the footpath and hasn’t been seen since.
Unfortunately there may be a lot more of this to come. Dereliction may well become a common feature of Bali.
Sorry I should correct that – it already is and we are not only talking about the age of the guests.
Anyone who has travelled down Jalan Kartika Plaza will have noticed an overgrown reinforced concrete skeleton of a building right on the side of the main road, a building whose construction was halted back in the 1998 financial crisis. Still it stands, a blot on the landscape in the heart of Bali’s tourist area.
But this is only the tip of an iceberg (not many of those in Bali). Look around and you will find many empty properties. All over the island there are derelict, overgrown dreams. Some are left half built because the money ran out, some met a hurdle (such as a building permit) that couldn’t be overcome, others were completed but were pie in the sky ideas that couldn’t pay for themselves and yet others were simply follies, the inane constructs of people whose relationship with the real world is tenuous to say the least. Some people decide to build a hotel or villa with about as much knowledge of the industry as Justin Bieber knows about brain surgery (even though he could do with a bit himself).
Some represented very large investments. There is the derelict funpark (not a lot of fun there these days) of Taman Bali Festival that stands on the Padang Galak beach. Another of particular note is a large hotel that stands on the Eastern side of the road that winds up to Bedugul, a huge development that was never finished and abandoned many years ago. Everywhere there are derelict blots on the landscape which, owing to the complex legal difficulties of removing or completing them, will probably stand for generations to come.
These days there is a constant stream of barechested men getting on planes with one way tickets out leaving a thriving business in second hand shirts on every street corner. This stream may well turn into a flood.
Bali depends on its tourist industry and many building projects are investment properties be it hotels, villas, apartments, funparks, bars, restaurants, spas and the odd statue or two, all of these need a constant supply of spending visitors.
But what is happening to tourism in Bali? Experts are confused. We are told that more and more tourists are coming but strangely many people report that there are far fewer tourists walking the streets this year than in previous years. Restaurants are reporting that it has been quiet since last November and that Christmas was only a seven day flash in the pan.
It has been suggested that the explanation for this is a reduction in Australian tourists but an increase in Chinese tourists. Australian and European tourists are regarded as the preferred tourists because they tend to stay longer (weeks rather than days), they are interested in Balinese culture and they get out onto the streets and spend money which goes directly into the local economy.
Chinese tourists, on the other hand, tend to pay for their holiday as a complete package before they leave China, they stay only 2 or 3 days and their whole visit is closely managed. Hotel rates, meals, buses and everything else are aggressively negotiated down and they tend to frequent only selected facilities and activities through their stay. This dramatically reduces the amount of money passing into the hands of the people of Bali.
The tourism industry has been facing other problems recently: a downturn in the Australian economy, the threat of alcohol being banned, volcanic eruptions closing Ngurah Rai airport, a bombing in Jakarta, garbage on the beaches, horrendous traffic and – too many hotels.
As anyone in the hospitality industry knows, the fact is that people have a herd mentality, they like to be where everyone else is. People attract people but the reverse is also true. People staying in half empty hotels get the feeling that the place is not popular. The fewer people that come to Bali and the fewer will come in the future. Overbuilding of hotels can be disastrous for the hotel industry.
The last few years has seen a huge surge in hotel building activity and, in spite of the pleas for a moratorium by the Governor of Bali, hotels have been constructed (and are still being constructed) at an alarming rate.
The Bali Chapter of the Indonesian Hotel and Restaurant Association recently reported that, with 130,000 rooms on the island in 2015, Bali is heavily over supplied with hotel rooms. As a result hotel occupancy rates are running at an average of around 30% to 40% well below the usual break even level of around 60%. Many hotels are struggling and some are starting to go out of business. It is interesting to note that 75% (98,000) of the available rooms are in the regency of Badung.
Sadly many locally owned older hotels are really struggling being undercut by brand new hotels who are slashing rates to win customers. With ever declining income many of the older hotels are starting to look very tired making them even less competitive.
Dereliction is looming.
For restaurants the situation is probably even worse. As we all know restaurants, bars and spas are multiplying like rabbits on viagra. Every man and his dog, his cat, three parrots and fourteen pet piranhas are all trying to get in on the act. Many are struggling to survive and even large operators are getting into trouble and selling up.
“Hello Fred what are you going to do in your retirement?”
“I’m going to blow my life’s savings by opening an empty restaurant in Bali, it must work – everyone is doing it you know.”
“But won’t you need customers?”
“Customers? Oh no, customers are just a pain in the buttocks and bad for your reputation. They come, they want service and good food at cheap prices then go away and whinge on Whipadviser. Oh no, much better off without customers.”
We must remember however, that not everyone is struggling. There are still some hotels, private villas and restaurants that are always busy. A lot depends on their location and the networks of patrons they have managed to build.
So what can we learn from all this?
- If you are investing or have invested in property or a business it is well to remember that we are in tough times. The high price of land makes it very difficult to make projects viable. You need to think very carefully and do a full financial analysis of the project before you start spending any money. You should keep in mind land costs and location, building costs and how to keep them down, maintenance costs to keep the property in good fettle and costs of licenses, tax, etc if you are going to rent out.
- Ifyou are buying land or property then argue the price down as far as you can. The excessive, over inflation of land prices is a main factor in bringing things to a standstill. When prices come down again the property market may well start to pick up again.
- If you are not an Indonesian you must not be persuaded to buy freehold land – the nominee ownership arrangement is illegal and this has scared a lot of property buyers away.
- Buy property that can sell, avoid unusual or querky design with limited appeal. Location is very important. Inspect regularly and keep the property in good condition through regular maintenance. You only need a small leak in the roof to cause extensive damage and you only need a wall panel to fall off and potential buyers will walk away.
- Youmust also keep in tune with the property market which is, of course, directly affected by the tourism market. At the moment there is a shortage of customers and it is a waiting game, waiting for the market to pick up again or for the fluke buyer to come along.
Want to buy an eco hotel? Be at one with nature, ample gardens, lots of trees, shrubs and wildlife to keep you company and no troublesome people to disturb the tranquility.
Previous “Fixed Abode” articles can be found subject indexed on our website at www.mrfixitbali.com. Opinions expressed are those of Phil Wilson. He can be contacted through the website or the office on 0361 288 789 or 08123 847 852.
Copyright © 2016 Phil Wilson
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