End of Year Observations – 2019
There’s no doubt 2019 has been a challenging year for both tourism and real estate investments in Bali. But it’s also been very positive in how Indonesia is waking up to its enormous potential.
In the first half of 2019, the market was quiet slow. Many put this down to the presidential and provincial elections. This sense of caution continued into May and June with Jakarta seeing riots and some civil unrest while everyone was waiting for the final constitutional court decision on the contested results.
What we were thinking in April 2019
Have a look at what we were thinking about last April regarding Bali’s property and real estate market. There are two blogs: Part 1 and Part 2 that address the issue, basically coming to the conclusions that “we need to focus on words and initiatives around being Eco-friendly, encouraging upmarket and integrated tourism, implementing real spatial and urban planning with better and more consistent zoning.” And when I say ‘we’ I mean everyone in the real estate and tourism industries.
Election of Jokowi to his second term
When Jokowi secured his second term, the focus shifted to whom he would appoint to his new cabinet. I’m sure it raised a few eyebrows!
Here’s a blog we posted on what’s being called the Indonesia Onward cabinet 2019 – 2024 in October, which looks at the more ‘surprising’ appointments.
Omnibus Law geared to attracting investment
Since the cabinet was sworn in there has been a lot of work focusing on continuing to attract Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI).
Indonesia has launched several investment packages in the past but we feel these will not have the same kind of impact as the much-anticipated Omnibus Law is likely to have.
Here’s our contribution to Gapura Bali, which looks at the relaxation of expatriate Income Taxes, the axing of the Dividend Tax, a review of tax penalties and Corporate Income Tax, the Digital Economy Tax and the Netflix law.
The Omnibus Law is being driven by a team dominated by business people and a few ministries are fast tracking this. The Chair of the National Assembly has promised to resolve everything by April 2020 at the latest.
We think this will be the game changer Indonesia has been waiting for!
Running along side these significant changes are the ratification of several trade agreements with EFTA, Australia and others.
The CEPA agreement with Australia is seen as being particularly important and both sides are excited about the opportunities. Here’s our contribution on this in Gapura Bali.
Waste and infrastructure
At long last, Bali has started to realize it seriously needs to deal with its waste management and infrastructure problems. We’re now seeing major programmes taking off from the provincial level down to the villages and several more are slated to be breaking ground in 2020.
There’s a real sense Bali is serious about making “Green the new Black.” Last January, Governor Koster introduced a regulation banning single use plastic bags in retail stores and supermarkets in Denpasar and it quickly gained traction across different industries and regencies.
We know there’s still an issue, but we’re encouraged by the fact that a start has been made. Let’s hope it gains momentum. Here’s what we think about some of these green initiatives.
Award winning destinations
Interestingly, even with these serious challenges, Bali continues to be a preferred destination on various travel platforms.
Villa Finder placed Bali as the #1 spot for villa rentals in Asia Pacific, saying the market has grown by 18-percent in the last two years, boasting more than 4,000-villas with a value of more than USD 162-million. Here’s our take on that in Gapura Bali.
According to Agoda, Bali, took the top spot on its list of winning cities or regions in 2019 and Travel + Lesiure Magazine rated Bali and Sumba as having Indonesia’s best resorts.
Conde Nast Traveler Reader’s Choice Awards also placed Indonesia as the #1 best country in the world to visit. It’s impressive stuff!
All this will hopefully bring new excitement into markets, both in Bali and other areas such as Lombok and Flores.
We’re noticing new investors are more willing to comply with regulations and be honest with their taxes, which is a great sign and they’ve started to set up their structures properly from the get go, using PT PMA’s or various forms of JVC and PT PMDN.
If they’re investing in residential or retirement then a Hak Pakai title is the way to go.
There are still a lot of investors however, that have overly complicated set ups, and unfortunately, they’re getting caught up with taxation or permit issues.
These problems tend to be around “borrowing” someone’s Pondok Wisata” license, or “borrowing an IMB,” which is in someone else’s name and then having a different entity operating the business. This is not the best way to do things!
A big problem with this is how it opens you up for two, or sometimes three levels of taxation, permit issues and sometimes being held to “ransom” by the nominee of a Pondok Wisata or other aspects of that structure.
Check out what we wrote about checking to see if your Bali is villa is legal and some not so far fetched possibilities about what could go wrong if you don’t do it right!
It’s definitely not the way to go, which is why we recommend developing an Investment Roadmap. You can read more about that here.
The bottom line
At Seven Stones we take great care to be totally transparent on the do’s and don’ts. And we always look at various options available to you and how you manage the risks involved.
The bottom line(s) is this …
make sure you fully own and control your asset in the best possible way,
then look at how management and related permits can be worked out,
and finally make sure you do tax planning NOT tax avoidance.