Hak Milik & Gold – Which of the Two is Better for You?

Property of the Week

Hak Milik & Gold – Which of the Two is Better for You?

Or perhaps you feel more comfortable in a nice leasehold investment?

Bali Nirmana Property is an AREBI (Association of Real Estate Brokers in Indonesia) licensed agency operating in Bali since 2007. Since then a significant portion of our business model has been geared towards finding or creating profitable property transactions for our clientele ‘outside the box’ of traditional real estate brokerage. To be sure, our foundation is built upon the day-to-day transactional transfers of property from one party to another, however, we do like to thoughtfully look at investing in Indonesia in ways which are not as typical the traditional models. Hotels, land banking and PT/PMA share investment in ongoing concerns, and the like.

Today our thoughts have turned towards finding a soft spot in the current Bali property market that IS NOT EXPLOITATIVE of people’s circumstances, but rather looks at the fluctuating currencies (IDR, USD, EUR, AUD) to see if there isn’t a window here to strike while the iron is hot. To get a more “what is happening on the ground in Bali” understanding in today’s investment climate requires a bit of opportunistic thinking and a set of fair and equitable expectations between buyer and seller.

A Bit of Background first, and an Example

If, after the GFC reached a new height (or depth I suppose) in October of 2008, you purchased USD500K worth of gold at USD725/ounce, that investment would be worth USD1.05 million today; an increase of 104% in less than 12 years.

Here comes the currency angle. It’s a little bit complicated, but it also makes complete sense to me. I must preface the following with the claim that I am not a futures analyst, a commodities trader or a foreign currency exchange trader either. I am, however, among other things, a broker who was here in Bali selling real estate to foreign and domestic investors alike when 2008 turned our market upside down for a brief spell. So I am in no way an expert on the international currency/financial markets and I will allow for the chance that I may have it wrong (I welcome you to run your own calculations,) I am pretty sure that this all adds up and I have a couple of investors from 2008 who would agree.

If, for example, for USD500K (IDR 5 Billion at the time +/-) you purchased a 3 or 4BR villa on 500 m2 of land in Bali, Hak Milik, and used it as an investment property in which you and your family would take the occasional holiday for the duration of those same 12 years, we calculate the land alone would have increased by 33% in value based on today’s conservative market values. The huge swing in the strength of the USD against the IDR over the course of the 12 years means that while you would be taking in triple the amount of rupiah than you would have 12 years ago if you were able to say, sell the property, the value would only represent growth of 33%. Still pretty darn good though. Super conservative calculations of your property’s performance on the daily rental market show USD 400K in net operating profit, creating a return on your investment of more than 110% to you over the 12 year term.

Now, let’s say that you have done your homework and you know how your self-managed Super Annuation Fund can invest in Bali and you’ve got a million AUD to spend.

  1. purchase the asset in AUD and continue operations under the current conditions
  2. over the course of 5 years, the global real estate and currency markets will have reverted to a more balanced state. While nobody knows where the “new balance” is going to be fulcrummed, there are some general assumptions that can be made with reasonable predictability.
  3. acknowledge that in today’s market, at this very instant, the AUD and the IDR are losing value against the USD/Euro with never-before-seen volatility.
  4. lastly, if you can afford to, buy today in AUD while it and the IDR are struggling. Here’s the rub. While we evaluate and list property for sale using IDR as the prime currency and the IDR/USD currencies for global marketing purpose, the true fact is that nearly all of our negotiations and agreed upon selling prices are nominated in AUD and IDR.

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To learn more about how a foreigner can acquire property that is marketed as ‘Freehold’ or how we calculate capital appreciation on a leasehold investment with options to extend the lease term, visit Bali Nirmana Property’s News & Advice pages and click on the topics that catch your attention.

Or, contact Patrick on WA & Handphone on +62 817 973 3031 or by email at [email protected]