Investors rediscover Bali, but deals are like needles in haystacks

BALI, Indonesia - Bali is paradise rediscovered for investors, thanks to its heady tourism rebound from the pandemic, which is fueled not only by an international travel resurgence but a domestic market that has become enamored with the island. Finding good investments can be tough, though, especially upscale to luxury hotels, a segment that reigns supreme with high-net-worth individuals (HNWIs) and established hotel operators vying for existing properties.

There’s a “multitude” of investors endeavoring to enter Bali through asset acquisition, equity participation, or hotel management contracts coupled with equity or key money, according to Julien Naouri, senior vice president, Investment Sales, JLL Hotels & Hospitality Group.

But fact is, Naouri said, owners of upscale to luxury hotels in Bali are primarily large domestic conglomerates or family-owned assets with no intention of selling. Beachfront properties for sale in Bali are “exceedingly scarce.”

And why would any owner want to sell now when demand is robust? Last year, Bali welcomed 5.3 million foreign visitors, up from 2.2 million in 2022, data from Central Statistics Agency show. Domestic travelers kept rising to a staggering 9.9 million or 23% more than 2022.

Most beachfront resorts from Jimbaran to Canggu along the west coast of the island already recuperated their monthly cashflow by the end of 2022 or 2023, Naouri added.

Andreas Bergel, GM, Hotel Indigo Bali Seminyak Beach and IHG area GM for Indonesia

In most cases, GOP has increased over the last three to four years despite rising costs and inflation, said Andreas Bergel, general manager, Hotel Indigo Bali Seminyak Beach and IHG area general manager for Indonesia.

There is pent-up demand for Bali, which was hit by more than just COVID-19. The devastating earthquake in nearby Lombok in 2018, and the eruptions of Bali volcano Mount Agung in 2019, kept foreign visitors at bay. Hotels put more focus on the domestic market. Today, local travelers have never love Bali more.

“Before, they did not enjoy coming to Bali. It was too ‘Western’ – menus were made for foreigners, marketing was driven to foreigners, and they felt nobody respected them,” Bergel said. “Then suddenly they are there and you don't ever want to push them out.” In fact, the domestic market accounts for 25% of business at the Hotel Indigo, owned by Agung Podomoro Land.

At the Apurva Kempinski Nusa Dua, opened in 2019, 30% of business is domestic, putting to rest to any notion that locals aren’t high spenders or are less keen to embrace local heritage and culture, which the hotel painstakingly showcases in majestic ways. It also attracts them with fresh dining concepts, such as the first aquarium restaurant in Bali. F&B is 35% of the hotel’s revenue, said Kempinski General Manager Vincent Guironnet.

Not so liquid

Despite talks of distressed assets, the only major deal in 2022 was the sale of the 415-key Sofitel Bali Nusa Dua Beach to South Korea’s ST International for a reported 190 billion won ($140 million), according to Ross Woods, founder and CEO of Jakarta-based Hotel Investment Strategies.

Last year saw slim sales of around $20 million comprising acquisitions of boutique and eco-resorts by small HNWIs in locations such as Ubud, Ungasan, Lembongan, Seminyak and Canggu, he said.

But that’s not surprising. Excluding new-builds, hotel M&A in Bali has been “volatile” over the past 10 years, ranging from zero to about $180 million, or an average of $70 million per year, Woods said.

Lack of transparency is a fundamental issue. Properties aren’t advertised publicly. It’s also hard to find clear information on who owns property and what the laws are. Rules aren't always the same and there isn’t a centralized place to find all the information you need about land and buildings. “Foreign investors are accustomed to more transparent markets,” Woods said.

JLL’s Naouri said Bali is less liquid than Phuket or the Maldives, owing to factors such as foreign ownership, currency fluctuations, accessibility, cost of onshore debt, and most significantly, the tightly-held ownership.

This is Bali 2.0 for branded residences. In the past you had Bvlgari, W and Alila successfully combining hotels and residences. A number of Jakarta developers who own existing hotels are looking to accelerate their investment through branded residences.

Bill Barnett

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Nevertheless, both expect a higher hotel sales transaction volume this year than in 2023. JLL is working on two big deals and just heard of another major transaction that may occur in Bali this year, Naouri said. Woods is projecting a transaction volume of $30-$70 million this year, stemming from “delayed transactions during the peak COVID-19 years which are now materializing as the market stabilizes.”

Branded residences 2.0

The most liquid segment is midscale to budget, typically with transaction volumes below $5 million. Alas, the sweet spot numerous players aspire to be in is “undoubtably” upscale to luxury, Naouri said.

“Consequently, investors in this sector must consider developing their own resorts,” he said.

Indeed, greenfield development is on the upswing, with both Indonesian and foreign capital groups going into mixed-use projects, said a Horwath HTL and C9 Hotelworks report. For example, a big Indonesian developer is rolling out a new mixed-use project, which includes a famous luxury hotel and branded residences in Pandawa, South Kuta, said C9 Hotelworks Managing Director Bill Barnett. Foreign investor Kajima Development, which partnered with Jimbaran Greenhill for Raffles Bali, will expand the hotel with branded residences, Barnett added.

“This is Bali 2.0 for branded residences,” Barnett said. “In the past you had Bvlgari, W and Alila successfully combining hotels and residences. A number of Jakarta developers who own existing hotels are looking to accelerate their investment through branded residences.”

Barnett added that it is similar to Phuket where [branded residences] developers were initially foreigners, “but eventually larger domestic groups with access to debt and domestic buyers came in.”

Future outlook

It is clear that Bali’s future lies in overcoming infrastructure strain, environmental degradation and decline in quality experiences. The island is getting negative reports of “over-development” and persistent cries of traffic congestion and plastic waste in the waters. All this as pressure mounts on investors to prioritize sustainable development.

The traffic gridlock has changed the way people visit Bali, said Apurva Kempinski’s Guironnet. “Tourists spend two nights in Ubud [north] and three nights here in the south. Before, it was possible to do a day trip to Ubud from here. Today, you can’t even do it in 1.5 hours because you get stuck in traffic,” he said.

But that may drive investors and operators to rethink how to keep the business in the same pocket. Real estate developer Panorama Indah Dewata is a good example. It is building another Apurva Kempinski in Ubud, scheduled to open in 2027, thereby offering two distinct Bali experiences combining a hilltop hideaway in Ubud and beachfront bliss in Nusa Dua.