Bali Real Estate: How Do We Calculate ROI?

When discussing Bali's real estate market with clients, a common concern is that the potential returns seem too good to be true. And to be honest, in most cases… it is.

However, with careful planning, selecting the right property for your budget and goals, and investing with the right partner, they are achievable. Bali's thriving tourism industry means investors can benefit from properties in popular areas with steady rental income and professional property management.

When we evaluate projects, we have stringent criteria that the projects and the developers must uphold. If they check all the boxes, we are confident that our investors will enjoy fruitful returns and benefits.

✔ Area validation - Is it in a popular area with rental demand and rising property values?

✔ Project validation - Is it well-designed with amenities and attractive to travellers?

✔ Developer validation - Do they have a history of completed projects and high building standards?

✔ Strong ROI and cash flow - Will it be professionally managed for hassle-free investment and income?

✔ Investor benefits - Does our model offer free stays, cashback during construction, and fractional ownership?

Below, we outline the steps to estimate ROI in Bali real estate investment, demonstrating how strategic investments can yield substantial returns. We also highlight the leasehold model and its impact on cash flow and overall ROI.

If you have questions about leasehold property and overseas investments, we have covered our most popular FAQs here: Overseas Property Investment: Our Top FAQs Answered!

With each step, we break down our model for calculating ROI and discuss our maximising strategies to reveal how our Bali property investments stand to earn income and build long-term wealth.

To understand how we arrive at our forecasted ROI, we start with the price of the unit or villa. This is not just the purchase price of the property; it includes all associated costs, such as taxes and insurance. At GPFG, when you see the prices on our website, the listed prices are comprehensive, ensuring transparency from the outset.

Starting prices for units with our partner developments:

• Beraban Luxury Lofts, Seminyak - 1 BR Studio - A $155,320
• The Cruise, Berawa - 1 BR Apartment - A $372,730
• The Luc Luxury Villas, Berawa - 2 BR Villa - A $890,000
• Home Hills, Bingin - 1BR Apartment - A $337,650
• Home Cliff, Bingin - 3 BR Penthouse Apartment -A $1,668,950

Leasehold vs. Freehold. Compared to the Australian property market, Bali's purchase prices are often lower. This is due to Australian prices hitting records and Bali properties typically being leasehold rather than freehold because of foreign ownership laws. You are purchasing the right to use the land, not the land itself.

Fractional property and prices. We offer fractional property investment, allowing investors to buy a share of a property. This provides flexibility to invest at a comfortable level while earning returns equivalent to a whole unit purchase. This option makes otherwise inaccessible properties attainable and allows for diversification with multiple properties.

Read more: Fractional Real Estate: Why Our Clients Love It.

For example, a 1BR studio at Beraban Luxury Lofts starts from A $155,320, while a 2-level loft 1BR apartment starts from A $314,500. These are luxury studio and loft apartments within a brand-new hotel with 5-star facilities in the heart of Seminyak. The forecasted ROI is 15-20% p.a. Fractional investments start from 25%, and the rate of return is the same no matter the investment.

To determine potential income, we start by estimating nightly rental rates, drawing on current market data from comparable hotels or villas in the same area. In popular tourist locations, properties rented out on a nightly basis generally yield higher returns than those rented long-term. The nightly room rate can vary based on the size, location, amenities, and seasonal demand of the unit or villa.

Nightly Room Rate example at Beraban Luxury Lofts: a 1BR loft apartment that sleeps up to 4 guests, compared to luxury hotels in the area.

The second part of estimating income is to consider occupancy rates. Although areas like Seminyak, Canggu, and Bingin often experience occupancy rates around 90%, we use a conservative estimate of 75% to ensure our projections are realistic and achievable. We examine multiple industry reports on hotel occupancy and the Bali tourism statistics to provide accurate forecasting.

Income is estimated by multiplying the Average Nightly Rate x Occupancy. For the example above, the 1BR Loft in Berban Luxury Lofts, the estimated gross income is:

$370 per night x (365 x 75% occupancy) = $101,287.50

For fractional investment, the income is proportional to the level of investment. A 25% investment would earn $25,322 per year.

Investors should be aware of the costs associated with owning and managing Bali real estate. These include:

• Management fees. Hiring a local property manager is essential for overseas investments. We work with experienced developers who offer property management within branded hotels, resorts, and residences, ensuring a hassle-free investment. Management fees are a portion of the gross rental revenue, covering day-to-day operations, maintenance, and other fees.
• Sinking funds. Property owners set aside a portion of revenue each year for future renovations and repairs. These funds maintain property standards and appeal. Ensure you understand these fees in the contracts.
• Insurance. Insurance is necessary and may be included in the management fees or be a separate cost. Verify if it's included in the contract to understand the overall expenses.

All of these costs are listed in our contracts, so our investors are aware, and they are capped with agreements by the developers. This way, no costs are unexpected, and it prevents any future confusion or disappointments. This way, we are talking about true NET ROI.

For our example, with Beraban Luxury Lofts, we have the following costs: Management fee, Maintenance fee, Online Travel Agency booking & Marketing fees, and the Sinking Fund. The management of the lofts comes with luxury amenities and services for guests, and investors don't have to lift a finger. The profit share for the investor is 50% of the net income, and this amount is stated and capped in the contract.

As an Australian owning property in Bali, you'll need to manage tax obligations in both Indonesia and Australia. In Australia, you must declare any income from your Bali property, which will be taxed as foreign income. Indonesia withholds 20% of rental earnings, but thanks to the Indonesia-Australia non-double taxation treaty, this tax is credited against your Australian tax obligations, preventing double taxation.

Download PDF: Double Taxation Avoidance Agreement between Indonesia and Australia

Now that we have the price, yearly income, and costs, we can calculate the ROI. Let's use the example of The Beraban Luxury Lofts, 1BR Loft Apartment.

For this calculation, the ROI for the first year is 15.55%, and then, we can also account for average nightly rates for hotels to increase 3-5%, driven by Bali’s growing tourism sector and rising demand. So ROI will improve year over year.

We have an investor-centric approach and are happy to empower clients with strategies to enhance investment returns to earn as much potential income as possible.

• Strategic Tax Deductions. Australian investors benefit from tax deductions that reduce taxable income. Deductible expenses include management fees, repair costs, and property depreciation. New constructions offer significant tax savings through depreciation schedules, allowing you to write off up to 70% of the purchase price.

Read more: How Can Property Investors Maximise Their Tax Savings?

• Investment Diversification. Fractional ownership lets investors diversify portfolios by acquiring stakes in multiple properties or locations, spreading risk and enhancing exposure to various real estate markets, potentially increasing returns.
• Immediate 8% Cash Back During Construction. Earn immediate returns with an 8% cash-back offer during the construction phase. This opportunity provides income before the property is operational, transitioning to regular income once the property opens.
• 5-8 Year Payback. With high returns, lower prices, and minimal costs under the leasehold model, most properties achieve full payback within 5 to 8 years. After this period, investors enjoy pure profit, offering a solid pathway to financial security for retirement.

Investing in Bali is a personalised journey which starts by understanding your goals. From there, we build a strategy for you with the right property and the right ROI to increase retirement income and investment success. Talk to our team to learn more about our Bali real estate investment options.