Seminyak LeaseHold

[rjdietz]

Hello all,

First want to say thank you to everyone that contributes to this forum... I have been reading the various posts for about a year now and find them very helpful.

My partner and I decided about 2 years ago that we wanted to build a small villa complex in Bali.. We spent the last 2 years looking for land in the right place for the right price and also trying to familiarize ourselves with the market. Ultimately we came to the conclusion that leasehold was the best option for us since the price of freehold in the Seminyak area can be "prohibitive" to say the least.

I am happy to say that we found some land in the Seminyak area (not too far from the beach) for what below the average market price (I believe that 5,000,000 per are/anum is average in this particular area now). We are currently in the due diligence process and am extremely nervous. I am embarrassed to say that even after 5 trips to bali (over the last 4 years) I still feel somewhat uneducated.

I am hoping that someone can give some honest feedback on our plans...

What we want to do is build a small villa complex (boutique villas) only 6 - 8 units each with their own pool (each villa sitting on about 2 are and maybe 85 sq. meters under roof). We figure in the Seminyak area we should be able to rent for avg. $120US per night (List would be much higher of course, but this is what we *think* we could actually get). We are also figuring about a 60% occupancy rate (not the first year but maybe by the 3rd or 4th year of operation).

Does anyone have any opinions on this or information on rental prices or occupancy rates for the Seminyak area?

We are working with an agent from Exotiq Real Estate... Has anyone ever worked with them before? Does anyone have any information they can share?

The land we are currently looking at is zoned 'Residential'. Is that appropriate for what we are planning to do?

I understand that there is a lot of controversy about illegal villas and I understand that the government has even stopped issuing IMB's but my understanding is that is in the Bandung Regency (Uluwatu and Pecatu areas) and not the Seminyak area. Do I understand correctly?

We want to do this the right way and be completely within the laws of Indonesia. We have been advised that it would be best for us to setup a PMA (does anyone have any experience with that? How long does it take? what are the costs?).

Here are some of the assumptions that we are making...

We are looking at spending about 110,000USD for the land (20 years lease, with option to extend another 30).

We figure the cost of constructing the villas (nice but not too nice) to be around 225USD per square meter (as mentioned earlier about 85 sq. meters per villa) = About 20,000USD per villa.

We figure a pool is going to cost us about 4,000USD (per villa).

We are figuring about another 4,000USD for landscaping and furnishings (per villa).

We are figuring in terms of staff that we would need about 20 people in order to maintain a 24hr presence (reception and security). This includes:
(4) Reception (1,000,000 rp per month per),
(2) Housekeeping (900,000 rp. per month per),
(1) Groundskeeping/Maintenance (900,000 rp. per month),
(5) Security (900,000 rp. per month per),
(3) Cook (900,000 rp. per month per),
(1) Driver (900,000 rp. per month),
(1) Manager (1,400,000 rp per month),
(1) Assistant Manager (1,250,000 rp per month)

Does that seem like overkill for 6-8 villas? We are figuring that all total labor will be around 2,000USD per month. Does that sound completely out of whack? Does anyone have any guidance? Did I leave out any important roles?

I could really use some input of the costs of utilities (keeping in mind 6-8 villas). What would things like Electric, Cable, Phone, Internet, Water, Sewer, Garbage Disposal run us? I am figuring about 1,000USD per month but that is a complete swag.

Just for the record, we are not millionaires. We make good money and have saved up over the last few years but do not have an unlimited source of funds. We are however tired of the corporate rat race and ready to do something a little less stressful.

I apologize for the length of this post and all the questions. I realize that most of you probably have better things to do than answer all my questions and provide free advice. Any and all responses will be greatly appreciated.

You may now tell me how ignorant I am and all the things I failed to consider. :cry:

All the best,

Russ

 

[mat]

labour costs seem high. My fiance works 7 days a week, 12 hours a day in a hotel, cooking cleaning and doing the garden. She takes home 300,000 a month.

 

[spicyayam]

Good luck with the project. It sounds interesting. What occupancy rates are you predicting? I would create a spreadsheet and check if your numbers add up with worst and best scenarios.

I would also be interested to know what kind of visas you are planning to get.

 

[rjdietz]

Good luck with the project. It sounds interesting. What occupancy rates are you predicting? I would create a spreadsheet and check if your numbers add up with worst and best scenarios.

I would also be interested to know what kind of visas you are planning to get.

Thanks for your reply. We are planning based on a 60% occupancy rate... We have been told that we should be able to easily achieve this in the Seminyak area. If we have say 6 Villas that rent on average for $120 per night with a 60% occupancy, that's about $157,680 USD per year.

The $120 per night includes 21% tax and service which for a year comes up to $26,800 (157,680 - 26,800 = $130,880USD).

I have also factored in labor (mentioned in my original post) which currently I am estimating at about $25,000USD per year (130,880 - 25,000 = $105,880USD).

I am also factoring in for utilities and other monthly operating expenses such as Electric, Internet, Cable, Water, Sewer, Garbage Disposal, Telephone, Etc. As I mentioned in my original post, I am not sure how accurate this is but right now I am factoring about $5,000USD per year (105,880 - 5,000 = $100,880USD)

The pessimist in me is factoring about $2,000 for Bribes although as I mentioned we want to do this completely by the books and within the legal framework (100,880 - 2,000 = $98,880USD).

I am also planning on offering complimentary breakfast of course so I figure that would cost about $3 per person per day... so based on 2 people to a room and a 60% occupancy rate, that comes to about $8,000USD per year (98,880 - 8,000 = $90,880USD).

I am also planning another $5,000USD per year for supplies (Cleaning suppliers, toilet paper, soap, shampoo, etc). So factoring this in (90,880 - 5,000 = $85,880USD).

So let's say I spend a total of $350,000USD on the project (110,000 for the land/20 year lease) and $240,000 for the construction, landscaping, furniture, linens, etc, etc, etc and I want to recoup the $350,000 over the life of the lease... let's say it takes 3 years to get the villa up a running so I have 17 years remaining on the lease so 350,000 / 17 = $20,588USD, we will call this the yearly loan payment (Since I am using cash, I will give myself an interest free loan ). So factoring in my loan (85,880 - 20,588 - $65,292USD).

So I am coming up with a yearly income of $65,000USD... I figure the 2 of us could live reasonably well in Bali for about 2,500USD per month or $30,000 yearly. So that leaves an additional $35,000USD unaccounted for (I'm sure I can figure out something to spend that on in Bali) <Grin>.

We also plan to possibly do some consulting which would provide additional income however I don't want to count on that.

As for our Visa's, we are planning on establishing a PMA (Foreign Investment Company) which If I am not mistaken then gives me the ability to obtain a work visa (I think this costs about 1,200USD per year per individual so I have factored that into our monthly living expenses already.

Thanks again for your reply... If any of my assumptions seem incorrect or if I have overlooked something significant I would appreciate being told... better to find out now rather than later right?

Russ

 

[rjdietz]

labour costs seem high. My fiance works 7 days a week, 12 hours a day in a hotel, cooking cleaning and doing the garden. She takes home 300,000 a month.

Mat,

Thanks for the reply. In what area does your fiance work? Is it the Seminyak area? I would love to find out that I have over estimated something. :twisted:

Kind Regards,

Russ

 

[spicyayam]

I am sure some people here would say you are crazy but it sounds like you are putting together a plan. Just keep researching your idea and try not to let your emotions take over from rational thinking.

I have a dream to do something similar, but perhaps not on scale of investment you are considering. You need to build a good team of builders/architects and lawyers. People who you can trust and aren't going to rip you off.

Then you need a good marketing plan. How are your villas going to be different from the hundreds of others in Bali.

I just wonder why you feel the need to build individual pools. Why not just one nice big shared pool.

 

[gilbert de jong]

hi...
I'll jump right to the questions you asked,

The land we are currently looking at is zoned 'Residential'. Is that appropriate for what we are planning to do?

I think commercial zoned is necessary, since you're planning to set up an PMA which would hold the title of the land in question, furthermore your plans (building an renting out villa's) are commercial and not residential. I mean...you want to do everything within the law (very smart) so you would need several Business-licenses for the location, don't know if one can get those licenses for a commercial business located in a residential zone, and staying within the law..

We are also figuring about a 60% occupancy rate (not the first year but maybe by the 3rd or 4th year of operation).

you mean 60% on average per year? I mean for example, jun-juli-aug-sept occupancy of 90%, okt-nov 30%, dec-jan 90%, feb-mar-apr-may 30%...

We want to do this the right way and be completely within the laws of Indonesia. We have been advised that it would be best for us to setup a PMA (does anyone have any experience with that? How long does it take? what are the costs?).

There are alot of different opinions floating around to costs and what is needed to set up a PMA, I would advise you to contact Bali Ide (link bottom of page) to get info direct from an independent source who can help you setting it up completely within the law. just want to add that one could also buy an existing PMA, instead of setting one up from scratch.

We are looking at spending about 110,000USD for the land (20 years lease, with option to extend another 30).

if your mentioned price of 5.000.000 per Are per annum is correct and innitial lease period is 20 years...would mean you're looking at a piece of land approx. 11 or 12 are, which would be big enoug for 5 "villas" and service rooms. Do you already have some sketches drawn up yourself or by an architect?
A pool will cost you about 150 euro per sqm. depending on shape an finishing tiles?

I am a little in a hurry now, so I'll adress he rest of your post at a later time...it does seem your wages for employees are on the high side of the scale, and a little unbalanced. ok, have to run now....
Take care and friendly greetings, Gilbert.

 

[rjdietz]

Then you need a good marketing plan. How are your villas going to be different from the hundreds of others in Bali.

I have though about that pretty extensively... I have a couple different ideas for making our villas different from most of the others. Primarily, I think the nightly rental rate should be a differentiating factor... most villas in the Seminyak area with private pool (I am talking POOL, not plunge pool) go for much more than 120USD nightly.. or at least that has been my experience. I also plan on offering services (massage, transportation, laundry, room service, etc) at little or no markup.

I just wonder why you feel the need to build individual pools. Why not just one nice big shared pool.

I guess it's just a matter of preference. We still have to work out the exact design of the villa and there may very well end up being some rooms that have a shared pool. For me, I prefer my own personal pool and am more than willing to pay a premium for it. In most cases when you have have private pool villas, they are sharing a pump with one or more other pool villas, so this cuts down on the cost (from what I understand).

Greatly appreciate your comments, keep them coming all!

Russ

 

[rjdietz]

I think commercial zoned is necessary, since you're planning to set up an PMA which would hold the title of the land in question

The zoning is what is causing me the most concern at this point. The property is zoned "Residential", but my real estate agent (Exotiq) assures me that the area is zoned "Tourism" and that the residential zoning is perfectly adequate for what we want to do.

you mean 60% on average per year? I mean for example, jun-juli-aug-sept occupancy of 90%, okt-nov 30%, dec-jan 90%, feb-mar-apr-may 30%...

Exactly... 60% occupancy on average. We have some 2004 tourist arrival data from which you can pretty clearly see Low and High season. If anyone has more recent tourist arrival data, I would love to see that.

if your mentioned price of 5.000.000 per Are per annum is correct and innitial lease period is 20 years...would mean you're looking at a piece of land approx. 11 or 12 are, which would be big enoug for 5 "villas" and service rooms. Do you already have some sketches drawn up yourself or by an architect?

5,000,000 per are per annum is what I believe to be the market price in the area. We are actually paying less than that. The land size is 15 are. Now that I have the exact dimensions of the land, I have started drawing up how I think the villas may lay out. We are lucky enough to have a couple of indonesian friends from Jakarta that we have known for 10+ years... and one of them is a architect and has designed a few small villa complexes in Bali. Also, my real estate agent seems to be pretty connected.

A pool will cost you about 150 euro per sqm. depending on shape an finishing tiles?

Thanks! Does that include the pump? I am thinking a pretty simple rectangular design (nothing elaborate) and probably a natural stone tile (something local). Also as mentioned in a previous post, I am planning on getting a good pump and then sharing the pump between more than one pool villa. Hopefully between doing 6-8 pools all at once and sharing the pumps, I should be able to get the price down a little.

it does seem your wages for employees are on the high side of the scale, and a little unbalanced. ok, have to run now....
Take care and friendly greetings, Gilbert.

Do you have any recommendations on what would be more appropriate? Are you familiar with wages in the Seminyak area? Any guidance you can give in this area would be greatly appreciated.

Thanks so much for your (and everyone else's) comments. It makes me feel so much better knowing I am talking to people who understand the market. As you can imagine, my friends and family here think I have gone off the deep end (none of them have been to Bali so I expected that).

Thanks Again!

Russ

 

[spicyayam]

I don't have the experience in Indonesia (yet) in buying property but have done some property investment in other countries.

but my real estate agent (Exotiq) assures me that the area is zoned "Tourism" and that the residential zoning is perfectly adequate for what we want to do.

Don't trust your real estate agent on this. They are looking to make their sale and get their commission. You really need to consult with a lawyer.

I would also find people on my own, who have no connection to the agent.

Just out of curiosity have you looked around at established places? In some ways, I think that could be a lot safer investment and you should be making money from day 1.

 

[troy]

Hi,

I think you may get an unpleasant surprise with PLN - that is electicity - search this forum for "PLN" and pay attention to the minimums (if referenced). The Bali PLN site is misleading as it doesn not mention the minimums, e.g. I understand a 23kva connection will incur a minimum of at least 5.4jt/month. I assume you'll need more than 23kva for 6 villas and remember 5.4jt (USD 540/month) is just the minimum, you'll likely use more than that.

I would also speculate your building costs are very low by assumption. I'm not aware of anyway to pull it in at under 2.8jt per m2 and that is truly as basic and as non-luxury as you get. I'm talking painted walls and a few ceramic tiles. Add any "bali flavor" to it and you'll see that number rise sharply. To create a special place, I would (and I'm not saying I'm definitely right) assume at least USD 380 /m2 - and that would still be tight in terms of materials.

Hope this helps - I think you're going about things the right way - by thoroughly checking your assumptions with a wider audience I mean.

One thing that hasn't been noted is the reported moratorium on commercial villa operations - that is the issuance of new permits. From what I've read on this forum, all commercial villa's and hotel applications, that is new applications for building licences and operating licences will be rejected. Perhaps others can share more light on the details and how true or untrue they may be.

All the best.

Troy F.

 

[rjdietz]

I understand a 23kva connection will incur a minimum of at least 5.4jt/month. I assume you'll need more than 23kva for 6 villas and remember 5.4jt (USD 540/month) is just the minimum, you'll likely use more than that.

Ummm.... Wow... :shock: I have absolutely no idea what will be required. I guess I will need to start figuring out how much power I will need.

Thanks for the info Troy!

Russ

 

[spicyayam]

Just saw this article this morning:

http://www.thejakartapost.com/news/2009 ... -rate.html

 

[mimpimanis]

labour costs seem high. My fiance works 7 days a week, 12 hours a day in a hotel, cooking cleaning and doing the garden. She takes home 300,000 a month.

I hope that includes accomodation & food :shock:

 

[rjdietz]

Just saw this article this morning:

http://www.thejakartapost.com/news/2009 ... -rate.html

So if I am reading this correctly, this seems to validate my assumption of a 60% occupancy rate. I have been told that you can achieve higher in the Seminyak area which seems to make sense given that Seminyak is probably more touristy than other areas in the regency.

Russ

 

[spicyayam]

The figures are averages so one place might be doing much better than another. I suppose eventually you will set up load and high season rates.

Also we are in a global downturn so the figures could go higher when the economy bounces back. SARS, Swine Flu, terrorist threats, natural disasters will also affect the tourism business.

I did read though that Australians were opting to take their holidays in Bali as it is cheaper than say going to Europe or the US. China is also a new and developing market.

 

[rjdietz]

I suppose eventually you will set up load and high season rates.

Exactly! $120USD on Average might be 150 during high season and 90 during low season. I haven't quite figured all that out yet.

Thanks to everyone for all the feedback thus far! The real estate company I am working with actually does property management for holiday villas so he is supposed to be providing me a detail line list of expenses for a villa that is currently in operation. Once I get that, I will post it here for anyone that is interested.

Thanks,

Russ

 

[mat]

I hope that includes accomodation & food :shock:[/quote]
No, accom and food not included. She has left the job now and the best she has been able to find is a shop job, again 7 days a week @ 200,000 IDR a month rising to 3 if the sales are good. This is the north [Lovina] where it seems to be the rate, where few imployers stick to the minimum/ advised wage. So little work about I suppose. She is an intelligent, good hard worker with good English language but no qualifications or education to speak ok. I suspect the lack of any formal education certificate leave her being taken advantage of and stuck in the poverty trap like so many. She is lucky that she does not have to work for the money as I will support her, but I do like her to work, if only for the education/ experiance in life [ restaurants and hotels where she can learn good home skills and cooking and maybe even a shop for business skills.]
Seems very difficult for the poorer and less educated, to afford to educate their children, thus breaking the chain, sadly jobs seem rare out of Denpasar and the main tourist areas in the south.

 

[mimpimanis]

She has left the job now and the best she has been able to find is a shop job, again 7 days a week @ 200,000 IDR a month rising to 3 if the sales are good

Even in Lombok where wages are lower than Bali a shop assistant earns a minimum of Rp400,000 for 6 days a week and more if they work in a big shop in the city.

I mentioned this post to my pembantu who's response was "not possible" She has freinds & family working in shops and hotels here in Bali & Lombok and none of them earn as little as that, most also have no certificates and none have English skills.

Just an idea, if you are wiling to support your fiance as you say and want her to learn from her work you might be better off putting her in some sort of training programme rather than see her working for 60c a day.

 

[mat]

I can only say ask other members in Lovina. I know some Hotels pay the rate but a lot do not as there is plenty of labour and little work to be had. It is an employers market. I could name a Restaurant 2 shops and a hotel she has worked for over the last 3 years and the most she has earned in any was 300 a month for long hours. I know others that work for the same. I am shocked. As to education and courses, yes we've done the basic computing certificate, driving lessons now and she knows I will support any requests for further classes and/or courses. Something I am keen to do for all the family. [maybe not driving lessons as they more expensive for 2 months than a year paid at college.]
Hey, anybody in Lovina looking for staff? she is a good hard working friendly Hindu girl, very social, great with tourists. Age 20.