Bali Villa

Valuing a Villa in Bali

Determining the correct value of a villa in Bali can be quite challenging, especially considering that most properties on the island are thought to be overpriced. The luxury villa market, in particular, has seen a decline in sales in recent years due to these steep valuations. To make a wise financial decision, it’s critical to understand the true value of a property.

There are three primary methods to assess the fair value of a property

  1. Recent Sales Comparison: Compare the property value with similar properties that have recently been sold.
  2. Cost of Construction: Estimate the cost of constructing a similar property, including the cost of land and time to build.
  3. Income: Determine the rental income generated by the property and future forecasts.

 

In Bali, there is no public database of recent transactions, meaning you’ll need to consult with large real estate agencies for their transaction history and advice. It’s also a good idea to get several quotes from developers to estimate the cost of constructing a similar property. Land value can be harder to assess, but you can still get a fair market price by region.

Leasehold properties

An important factor to consider for leasehold properties is the remaining lease term. Buyers usually expect at least 25 years remaining on the property. Properties with less than this will typically be sold at a discount. 

However, arguably the most economically sound approach is to assess rental cash flow and profit. Consider the history of bookings and occupancy of the property, calculate its profitability, and compute the net present value at a discount rate of 5-10%. 

For example, let’s assume Villa Heavenly earns a net profit of $10,000 per annum from rent, the leasehold is for a period of 25 years, and the owner expects an 8% ROI on this investment. 

To calculate the present value of this villa, use the following inputs:

  • Payments or Income per annum: USD 10,000
  • Interest Rate or Discount Rate: 8.0 percent
  • Years during which income is earned: 25

The Net Present Value comes out to USD 106,747. This implies that the owner, by buying this villa for $106,747, will make an 8% ROI if the villa generates an annual profit of $10,000. 

This approach is particularly favored because of its financial soundness and its widespread use in various sectors for valuation purposes.

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