November 22, 2002

Bali buyers will play for time
ERIC ELLIS

You had that fabulous holiday in Bali at the gorgeous villa of a friend of a friend. And you marvelled at how cheap his estate was, discovering that a basic house can cost as little as $20,000 (GBP12,800), stretching to $1m at the top end - and with much more for your money than Europe or the Caribbean.

So you had that important talk with your partner and decided to buy in Bali instead of getting that Provencal mas you've long promised yourselves, partly because the bank's posting you to Hong Kong. You even bought a celebratory new sarong and a chillout CD mix to get the right hippie chic tone.

Then terror struck Bali - and your plans - on October 12, killing 200 mostly foreign funseekers. Tourists have since deserted its resorts in droves. Hotel occupancies are in single figures.

But what's happening to the property market on the exotic Indonesian island? Well, in a word, nothing. Literally. "You can't say prices have fallen because there hasn't been any serious transactions since October 12," sighs Angus MacLachlan, a London-born Scot and former hotel executive who part-owns House of Bali, the leading property agency on the island.

Simple logic suggests Bali should be a buyer's market after October 12. Terrorism, naturally enough, is usually no friend of house prices.

Take New York, for example. In the months after September 11 2001, an attack on the symbol of US American capitalism but equally at the heart of the world's hottest real estate markets - buyers fled, sellers panicked. Prices have since started to recover but the average sale price last year was down about 40 per cent for many agents.

No such movement yet in Bali which, while a world away from London and New York, was increasingly becoming an oh-so-hip Tribeca East as western "bobos" (bourgeois bohemians) snapped up "conversation piece" Balinese villas, simply because they could.

"The westerners like me who already live here don't see any reason to go," he says. "And the Balinese who make up 95 per cent of the sellers, are happy to simply go on farming the rice padi if they don't get the price they want.

"I've got a client in Hong Kong who wants to renegotiate some land down by 25 per cent after the bomb," says MacLachlan. "But the Balinese side simply don't care."

Western hedonists have long been drawn to Indonesia's tropical Hindu enclave, building sumptuous villas on the beaches of Sanur, Seminyak or along the stunning ridges of the artistic mountain retreat of Ubud.

But by western standards, Bali can be a confusing - and volatile - market for property. Since 1997 and the Asian financial crisis that virtually collapsed the Indonesian economy, the island's prices have boomed. Jakarta's Chinese community, suddenly victims of ethnic pogroms as law and order broke down with the fall of the dictator Suharto, invested millions in Bali's land, turning it into Indonesia's Switzerland.

They made a killing, buying land priced in Indonesian rupiah with US dollars that suddenly bought Rp10,000 as against Rp2,500 pre-crisis. Prices have tripled in rupiah terms in the past five years, earning local padi-owners relative fortunes. True, US dollars are more expensive to buy now but there is not a lot of call for greenbacks when you're a humble rice farmer.

Balinese title, or the lack of it, also scares off many western buyers. Non-Indonesians are forbidden from owning freehold land. The most comfort the system offers is a leasehold investment for up to 25 years. One leases the land and builds a house. The actual improvements are owned but at the end of the 25 years, the property technically reverts to the landowner. Foreigners can get around it by having an Indonesian nominee, who then signs over complete power of attorney to the effective buyer.

As Indonesia careers into political disarray, the other word spooking buyers who don't know Indonesia is "Mugabe", the spectre of state seizure of assets. Nothing is certain, admits MacLachlan. Indonesia's rule of law is at best quixotic (or as Indonesians like to describe their legal system, "the best money can buy".

But he's right to say Indonesia is not Zimbabwe. "There's not the race-based resentment here. The dynamic is very different."

MacLachlan senses prices may soften over the next six months as middle-class Balinese who had migrated from rice farms to the tourism sector are thrown out of work as travellers stay away.

But he doesn't expect a Manhattan-style slump. "The cost of living if you are Balinese is so low," he explains. "If they need some money, they might just sell a few plots here and there just to get them through while times are tough."

MacLachlan says westerners who work in the Bali tourism sector and are exposed to bank lending might be forced to sell. But most foreigners with Bali property are determined stay-puts, partly to cock a snook at terrorists but mostly because they can afford to.

Post October 12, MacLachlan says Bali is extremely safe. But that's more than him talking up the island, where he's lived with his German wife since 1998. Last year, his 75-year-old widower father James retired to Bali from England. "Dad's friends were all worried after the bomb and telling him to come back home. He just laughed at them."

Singapore-based investment banker Alex Hill and wife Kiki bought a three-bedroom villa at Seminyak, about 10km from the Kuta bombsite, off-the-plan in January last year, paying "somewhere in the mid-six figures".

"I didn't buy because it was a speculator's paradise," he says. "It was a lifestyle decision and it still is."

Hill's villa, replete with an army of staff, rented for $750 a night before October 12, at the high end of Bali's luxury market. Now, he says he's "very negotiable" and doesn't see the rental market turning around before next Easter.
"Bali was always going to be a long term investment for us," he says.
"It's just that it's got a little more long term."
Angus MacLachlan can be reached at sanur@houseofbali.com. His villas can be found at www.houseofbali.com and www.exoticproperties.com.