Hey all, thought I share an article I'm writing for escapeartist.com about the villa biz and my take on it - not done yet but I'll add the talking points I plan to finish with. I believe the best of these villa projects will offer most of what their buyers expect but many are more than questionable.
That said I also believe real estate is worth what someone will pay for it, at least for that person, and of course large luxury homes or villas in good areas, i.e. in the south or the Ubud area, are pricey - that's to be expected. Bottom line is that value of residential real estate should be based on using and enjoying it, particularly if it's for recreation. When considering investing in the new "boutique hotel" villas you should consider it to be a commercial real estate investment and that requires serious investigation of the financials and of the people behind the project. Watch out for blue smoke and mirrors :roll:
... Selling a house of cards – on the Island of the Gods!
Imagine … “an exceptional opportunity to live an exclusive life on a mystical island once reserved for the gods.”
or to know that the … “residence will offer residential pleasures others may only attempt to replicate…”
oh, by the way the … “Owner has the right to stay one month
(30 days) each year. 2 weeks in Low season and 2 weeks in high season…”
(actual quotes from a single real estate development promotional website)
Whenever I read the sales material for high-end villa complex developments sprouting up everywhere like weeds here in Bali I have to chuckle. The sales promos are designed to seduce buyers with intoxicating fantasies of a dream like paradise. Yes, you can get a life. And to ensure you live it to the max these developments will generously permit the “owner,” after having paid $300k and up, to actually occupy their holiday “home.” And for a full month of the year, as in the case above. Wow, somebody pinch me!
Before you laugh any louder, It’ only fair to understand the general concept behind such villa developments in greater detail and how these projects are marketed as a must have lifestyle accessory – a hot investment and a holiday home all in one tidy package. You may then understand how such a purchase may be, or merely appear to be, attractive. And while my aim is to be objective I do have many years experience building high-quality single family homes, including second or “vacation” homes, and I am biased as to the comparative long term value of my product.
The Concept -
The resort Villa complex developments here in Bali generally consist of a cluster of individual villa homes, some common facilities, professional management, and on-site staffing. Those purchasing a villa are allowed limited use of their villa and when in not in use by the owner, which is most of the time, the villa, along with all the others in the complex, is marketed for rental to holiday makers. In fact these developments are to be run like hotels, only with small houses instead of rooms. So buyers are buying into a “boutique resort” (the sales buzz) and ownership is often promoted more as an investment than a holiday home.
The villas themselves are typically 2 & 3 bedroom units, include a private pool, and often include a garden and other water features within a walled enclosure. The most common “common” facility is a restaurant but they often include a clubhouse or a gym, or both and more. Management responsibilities would include rental marketing, maintenance, along with management of the common facilities and staffing. In addition the management manages the money, the owners’ money, both coming and going. Ownership of the villas is typically leasehold, though some are available as freehold property.
The concept for these developments is in theory not unsound and there are a number projects on this beautiful island that are clearly impressive – superior planning and execution that’s also indicative of the quality management behind the project. However, there are literally hundreds of villa units within close proximity either planned for or in progress (that’s before and after the negative fall-out from the 2005 Bali bombing) creating intense competition for sales. Then know that regulation of the industry here is almost non-existent, and in particular for sales agencies and their marketing practices. Having read the financial projection the financial viability of many projects is questionable and making me suspect of the “professionals” involved in promoting them.
Own a Piece of Paradise -
Yes, I know these are typical flowery enticements used to seduce through fantasy those dreaming of a life in paradise. But now imagine that you can not only live the dream but also bank a bundle in the process. Where do you sign you ask?
*All I have so far and it is subject to edit, main points to add will include quality control and financials - expanding on the following:
How will all these "5 star" resort ammenities pay for themselves, and in particular the restaurants - no way most will make a going of it off a small villa complex that may tire of it. And what what about this newly trained staff? In all, I think there is potential for constant struggle in some cases and in that event I can imagine the vibe that will eventually surface.
Capital appreciation may suffer with the age of villa complexes, especially if rental returns fall short of expectations. And the projected rental returns being suggested; some are based on yearly occupancy rates of 50% and more - Get F'n Real.The security of the investment is assumed because it's part of a complex, but what happens when absentee owners bail when their interests start to fade or a combination of negetive things I have concerns with? An individual owner will have little control over matters that impact long-term value. If things do go bad they will likely proceed to guickly worsen.
Thus the House of Cards analogy.