With Bali’s property market heating up again in 2023, an increasing number of off-plan properties are proposed to the savvy investor. This is particularly true for the most sought-after locations like Canggu and Uluwatu.
Buying off-plan presents many benefits but it has its risks too.
What if the final product doesn’t match the lofty promises of the developer? Or worse, what if the developer pockets all the money and simply disappears? Goodbye, sayonara, arrivederci, selamat tinggal!
In this article we explore all the benefits and potential pitfalls of investing in an off-plan property and we give away tips how to navigate the process of buying off-plan safely and without regrets.
What is off-plan property?
Off-plan property refers to real estate that is sold off the plan or in other words, real estate that is not yet built or in the process of being built.
Here is how it works: a developer has secured a piece of land, invested in drawing up architectural plans and (hopefully) obtained building permits for those. Maybe he has started building the access roads and other facilities. But that’s usually all there is!
To entice buyers, it is common to create fancy 3 dimensional drawings or even a video to illustrate the final product.
Typically, an off-plan property comes with staged payments and detailed building specifications.
Developers also like to add special guarantees or bonus for those early bird buyers.
Why invest in off-plan property?
There are several benefits that make it attractive for investors to buy off-plan properties.
The main reason is that you get to acquire an off-plan property for less money than a finished product. In other words, you can expect to flip and sell the property once it is finished for a hefty profit of up to 30% and that in less than two years!
The second huge benefit is customization. With off-plan properties, you can still choose your materials, finishes, colors, fixtures and perhaps even the layout of your future home. That makes your own property unique and adds value.
And last but not least, developers offer attractive payment plans, discounts and all sorts of guarantees to motivate buyers to commit.
Pros and Cons of Buying Off-Plan Properties In Bali
Here is a list of pros and cons when buying off-plan properties in Bali:
- Lower Price: you can save when buying off-plan.
- Customization: you can influence the end-result by choosing materials and colours.
- Payment terms: you can pay in stages as the construction progresses.
- Capital Appreciation: your property can be worth quite a bit more if you buy in the right location.
- Modern features: off-plan properties usually boost the latest features and technologies.
- Lack of track record: many developers in Bali have little experience and no-track record.
- Uncertain quality: it is almost impossible for you to ensure that the quality of the construction is following the specifications that you have been given unless you hire someone to do that on your behalf.
- Delays: very few projects get delivered in time.
- Breach of contract: The developer may not be able (or willing) to live up to the guarantees he has given.
- Legal uncertainty: in case of default of the developer, legal recourse is costly and the outcome is uncertain.
- Market changes: you never know how the market will look like when you will finally get your property.
Factors To Consider When Buying Off Plan Properties
#1 Track Record of the Developer
This is the most important single factor when deciding whether or not to buy into an off-plan villa development. There are only a few developers in Bali that have a solid track record. Most of them are doing this for the first time, lured by profits from hearsay. It pays to do your homework and find out as much as you can about the developer and his track record in the business.
Go and visit projects that he has developed before. Talk to owners about their experience with the developer. Are they all happy campers or do they wish they had never done this?
Should you decide to go with an unexperienced developer without any track record at all but you have fallen in love with his design and project, then you need to be extra careful when it comes to structuring your agreement with him. Make sure that the payment schedule is conservative and in your favour. If things go wrong and you have to finish the work with another contractor, you will not lose money because you had advanced more than what was delivered on site.
In addition, make sure that you or a representative of yours is inspecting the site at least once a month and is reporting to you. This will allow you to compare real progress on site with progress reported by the developer.
#2 Location – Location – Location
The second most important factor is location. Most off-plan properties are developed in the hot spots of Bali, like Canggu, Uluwatu and Ubud. Here the turnover of properties is faster than in other areas and you may lose out on getting your dream property unless you are willing to buy into an off-plan project.
Having said that, the micro-location risk in these tourist hotspots is what you need to be concerned about. Is there a loud discotheque or party spot nearby? What about traffic to and from the property? And what about traffic noise? What’s the quality of the access to your property?
Is it likely that a new development will happen right next to you that may reduce the value of your property? Don’t sign before you have checked all these points and have satisfied yourself.
#3 Sale & Purchase Agreement: check the fineprint!
Know this: the sale and purchase agreements for off-plan properties are never in the advantage of the buyer!
This is definitely an area where you need professional help from a legal expert that has experience with this type of agreement. Believe me, the money you will spend on getting the contract right is worth every penny. If the developer tells you that he doesn’t want to adjust the agreement, then you should walk away. This is definitely a warning sign!
Here are a few points you need to pay particular attention to in your sale & purchase agreement for an off-plan property?
- The first thing is to have a clearly defined period of time for the delivery of the final product. For a simple property this may be 12 – 18 months, and for a more complex one up to 24 months. Make sure there is a clause in the contract that deals with delays and penalties caused by the developer.
- Secondly, make sure that the specifications of materials, fixtures and furnitures is as detailed as possible and does not to allow for any dispute when delivery is due. Toto is Toto! Grundfos is Grundfos! And Daikin is Daikin! For all the building materials, it is best to have samples agreed upon and have them stored in the office of the developer so you and your rep can inspect them whenever needed. Note: if the developer proposes to change the specification of some materials, he needs to get your approval.
- Equally important is to make sure that you have a solid dispute resolution process that doesn’t involve the Indonesian courts. We recommend that you chose arbitration. BANI is the Indonesian arbitration body (https://baniarbitration.org/) established in 1977 and has a good track record.
- Last but not least, payment terms need to be tied to real and verified progress on the construction site. The reporting of such progress should ideally be done by an independent surveyor, not only by the developer. If that is not offered by the developer, it makes sense for you to employ an architect to do that on your behalf, especially, if you are not based in Bali.
#4 Payment Plans and Terms
In Bali, payment terms for off-plan properties are either construction-linked or time-linked.
A construction-linked payment plan is tied to the property's construction benchmarks. The money is paid in phases, with the proportion of each instalment determined by the progress of the building. This is our recommended payment plan.
In time-linked payment plans, payments are due on a predefined schedule, typically monthly and over a fixed time regardless of building progress.
The very first payment you will likely have to make is a reservation deposit, that is refundable. It is either a small percentage of the price of the property, say 1% or a fixed amount of something like USD 10.000. This will allow you to study the paperwork and conduct due diligence to verify that the seller has what is needed, i.e., permits, track record and most importantly, that he owns the land he is wants to build on. If you are not satisfied after you have studied the documentation, your money should be refundable no questions asked.
In case you decide to proceed, your first large payment will become due upon signing the contract. It can be around 30% of the price of the property or more depending on the legal title that is involved in the transaction.
We recommend to our buyers, that this first payment should secure the acquisition of the land the property is built on. If things go wrong, you own at least the land and can either sell it or build on it yourself.
The next payments will follow the payment plan that you have agreed upon.
Before handing over the keys, your last payment will be due, typically minus a retention of 5%. The retention is to allow you to prepare a snag list and have the developer fix those defects. The normal retention period is 3 months or until all the defects are remedied to the satisfaction of the buyer.
#5 Warranties & Guarantees
In the western world, properties are sold with certain warranties. In Germany the law mandates a 5 year warranty on buildings, plus other statutory warranties on safety and fire protection.
In Bali this is sadly not the case. If your pool or your roof starts leaking after the retention period of 3 months, you are at the mercy of the developer. That’s why we recommend that you try to negotiate better construction warranties than what is normally offered. Some of Bali’s more professional developers have started to offer structural warranties for their work, albeit limited to one year only.
Besides those structural warranties, developers may offer a return on investment guarantee, especially for villa or apartment developments that come with a license to rent them out to the holiday market. It is not uncommon to have guarantees of 5-8% per annum on the purchase price for a limited period of 3 years.
Be wary of developers that offer you more than 10% per annum. Either they have factored in those payments into the property price or they are not serious and you should walk away.
Best Areas to Buy Off-Plan Property In Bali
The best and really the only areas to buy off-plan properties are in Bali’s hotspots of Canggu and Uluwatu and to a more limited extent in Ubud, Seminyak and Umalas.
For a more comprehensive look at Bali’s best areas to buy property, read our article about buying property in Bali which covers all the elements you need to take into consideration as a potential buyer.
No other area has seen more rapid growth than this district of Bali in the last few years. Even Covid 19 didn’t stop it! And as demand grows whilst land and good investment opportunities are getting scarce, more and more micro and small developers are trying their luck by selling off-plan projects.
Sometimes just a couple of villas, sometimes a few townhouses stringed together, rarely more. And so is the track record of these newly born developers: very thin!
FOMO, or fear of missing out on the part of the buyers is probably the largest contributing factor to the success of this new breed of developers.
Uluwatu or more appropriately, the ‘Bukit’ (hill, in English) or Bali’s southern peninsula is fast becoming a second Canggu. It attracts a similar crowd of hipsters, surfers and digital nomads than its more well-known cousin.
Here, property prices are still much lower than in Canggu. And if you are lucky, you may even get a view.
The artistic and spiritual centre of Bali has recently seen the launch of a few off-plan developments that are worth a closer look. Here too, land prices have gone up quite a bit in the last few years, particularly in those areas surrounding the village of Ubud.
Umalas & Kerobokan
The location of Umalas & Kerobokan nestled between Seminyak and Canggu makes this village an attractive alternative for residents that are looking for a more quiet space to live. Here too, good residential land is getting scarce. Recently, some large apartment buildings have sprung up particularly gearing to Russian buyers.
Seminyak & Petitenget
These posh two neighbouring areas have always boasted some of the best off-plan projects in Bali. If you want to be close to Bali’s best shopping, restaurants and 5 star beach resorts, this is the right area for you.
Browse our list of our Seminyak properties and villas and plots of land for sale in this area.
Are Off-Plan Villas Cheaper?
In comparaison to the general cost of real estate in Bali, off plan villas are indeed cheaper, or at least that’s what should be the case. You can expect to safe up to 30% by buying an off-plan property in Bali.
Do Off-Plan Properties Increase in Value?
Yes, normally off plan properties increase in value at the moment they are handed over to the buyer.
Why Would I Buy an Off-Plan Property?
You should buy an off plan property for three main reasons: lower price, customization and payment terms.
Can I Sell an Off-Plan Property?
Of course you can. As with any other property you are free to sell your off-plan property. You may even do so before it is handed over to you!
Buying off-plan properties has become increasingly common in Bali, particularly in the lower segment of the market with prices up to USD 250.000 and located in Bali’s property hot spots.
Canggu is definitely leading when it comes to choice of off-plan townhouses, small villas and apartments. It is closely followed by Uluwatu. Both areas attract a younger crowd, looking for a good surf and that silky cappuccino.
Buying off-plan offers three main advantages: a lower price, the ability to customize your property and the flexibility of paying over a period of time rather than in one go.
However, off-plan properties carry their own specific risks that you need to manage carefully, if you want this to be a purchase you don’t regret. Feel free to browse our list of off plan properties for sale in Bali. We are sure you will find your very own dream house in no time!