As a pilot with Cathay Pacific Airways, Chris Allan has visited many Asian destinations, from Dubai to Phuket, but when he decided to build a villa none appealed more than Bali. 'The main reasons for investing in Bali are that it's a fantastic location for sailing, and has great surf, golf courses, top restaurants and an international airport. I looked at Phuket, Koh Samui, the Philippines and Sri Lanka, but Bali wins hands down,' said Mr Allan, 48, a former Royal Air Force fighter pilot. 'It's more a lifestyle decision than an investment, but equally I don't expect to lose money on it.' As part of a broader property portfolio, he recently invested in a modest villa development in Seminyak, an upmarket tourist area, conservatively estimating a return on his investment within five years. He also bought another block of land on which he plans to build a villa, which he will let out when he and his family are not using it. Mr Allan is part of a growing trend among Hong Kong expatriates who are leading foreign demand for villas in Bali that double as investments and second homes. 'The September 11 attacks, the Iraq war and Sars made people more cautious than they would be normally about investing, particularly in overseas jurisdictions,' said Philip James, founder of Hong Kong wealth management company Lighthouse International. 'But over the last 12 months, we've seen confidence returning to Hong Kong and people are a lot more comfortable investing in Asian property.' Another factor is the US dollar's weakening against other major currencies, which has inflated property prices in Europe. 'British expats are leading the way and are tending towards holiday destinations like Bali, where they can make it a second home while enjoying capital appreciation and rental income,' Mr James said. While wealthy Hong Kong residents have long bought luxury properties in Bali, the number of micro investors inquiring about villas in the US$100,000 to $200,000 range has jumped 80 per cent since January last year, according to real estate agents. Increasing demand and the rupiah's strength against the dollar have trebled Bali's property prices in rupiah terms since 1999 and optimistic estimates put current growth in prime areas at 25 per cent annually. Prices on Indonesia's top tourist attraction are stabilising, but even conservative forecasts put annual growth at 7 per cent to 8 per cent over the next five years. In addition, next month's Indonesian presidential election is expected to result in a stronger government with increasing political and economic stability, which will support Bali's recovery from the tourism fallout following the October 2002 bombing attack that killed 202 people, mostly foreign tourists. Foreign arrivals to Bali rose 57 per cent year on year in the first four months of this year, driven by an 82 per cent rise in Asia-Pacific visitors. However, the total figure is still 9.5 per cent behind 2001. 'There is definitely political and economic risk associated with Indonesia, but Bali's been very resilient, which is positive for investors seeking returns from rental income,' said Angus MacLachlan, founder of Exotiq Properties, an independent broker whose biggest client base is Hong Kong expatriates. Tapping into the interest in Bali, Hong Kong financial institutions like Lighthouse are forging alliances with Bali developers, or getting into resort-style developments themselves that offer clients guaranteed returns on investment. An advantage of this is that although investors cannot borrow against land in Bali, they can organise finance through the Hong Kong company. Mr James said a 'test run' with diversified property firm Elite Havens to pre-sell villas to his clients in a US$2 million, 26-villa development was so successful they were now working together on a US$14 million to $15 million cliff-top project called Tepi Kahyangan (Heaven's Edge) scheduled for completion by 2007. There are also several other large developments under way. Bali's first eco-friendly villa project has started construction with 80 per cent of the 16 villas overlooking Jimbaran Bay pre-sold for US$450,000 on average, and developer Tropical Homes is also selling leases on apartments in Legian for US$175,000. Exotiq Properties, which has offices in Bali and Phuket, is preparing to buy a block of land in Bali for a 24-villa project to be developed by a Hong Kong financial company. All of this development activity is closing the gap between Bali and its main competitors, Phuket and Koh Samui, which are considered more stable economies. 'Phuket and Koh Samui have seen a crazy rate of development over the past few years, but they are 40 per cent to 50 per cent more expensive than Bali in prime locations,' Mr MacLachlan said. 'Bali's loss has certainly been Phuket's gain, but that is coming back now.' Property experts said in Bali, where ownership of rice fields was often divided between several relatives, an individual could buy a small plot of land independently. In contrast, Phuket is rubber plantation territory: plots are typically too big for anyone but developers, and investors usually pay more for second-phase land.
