What rental yield can you realistically expect in Bali?

This article distinguishes gross yield, net yield and a projection. It does not publish a market statistic and does not announce a yield that has been secured. How do you distinguish these notions in a calculation? And, above all, which parameters should you watch in order to assess objectively the return on investment of a villa in Bali?

This article distinguishes gross yield, net yield and a projection. It does not publish a market statistic. The figured example is a hypothetical simulation, excluding tax, to show the method.

The fundamentals of rental yield in Bali

On this attractive Indonesian island, showing a good rental yield rests above all on the ability to generate stable income through short-term or long-term letting. It is essential to understand the difference between gross yield, net yield and real return in order to avoid any disappointment.

• Gross yield: the ratio of expected annual rental income to the total purchase price (including ancillary costs).
• Net yield: takes into account all current costs, taxes, rental-management commissions and the applicable tax.
• Real return: includes the potential change in property value, unforeseen costs (works, rental voids) and fluctuation in the occupancy rate linked to seasonality or to the tourism context.

The confusion maintained in many listings often comes from an exaggerated focus on gross yield. Only the net calculation — or even the real one — faithfully reflects the performance of a property investment in Bali over several years.

What levers affect returns in Bali?

Several key factors directly influence the return on a villa in Bali. The simple choice of a location or a pricing strategy strongly conditions the return on investment.

The purchase price and the structure of the leasehold

For a foreigner, access often goes through a hak sewa, and not through hak milik. The term is that of the contract. The longer the remaining term, the more value the right keeps on resale. The purchase price weighs directly on the yield.

No range per square metre is stated, for want of a dated official source. The property’s real price remains the denominator of the yield.

Location, occupancy rate and seasonality

Occupancy depends on the location, the season and the management. Canggu, Uluwatu and Seminyak are areas heavily frequented by Western clientele. Ubud has more irregular demand. No occupancy percentage is put forward as a market average. BPS reports, on the BPS Bali website, describe tourism in Bali. They do not give the occupancy rate of a villa.

Amed and Lovina are not, in themselves, areas of capital growth. Price and demand are checked for the property in question. No capital gain is assured.

Average nightly rate and rental management

The nightly rate is observed property by property. No dated scale is reproduced here. In the simulation below, a rate is chosen only in order to make the calculation work.

Rental-management costs — welcome, housekeeping, maintenance, platforms — are deducted from income. In the simulation below, a commission of 20% is a calculation hypothesis, not a market average. More direct management changes this item, and it takes time.

Comparing areas without a market scale

Comparing areas remains useful. No table of prices or occupancy is published here, for want of an official source. The gap between a busy area and a quieter location is measured on the property, from the price paid, the rate and the nights let.

The method stays the same everywhere: annual income divided by the price, then deduction of operating costs. Taxes come afterwards, separately.

A method for calculating rental yield in Bali

To keep control of a project, every investor needs to know how to move from theory to practice. Here is how to build a projection from written hypotheses. The result is not an observed yield.

Step 1: calculate the gross yield

Gross yield is calculated as follows:

• Expected annual income = average rate per night × number of nights let per year (that is, available days × occupancy rate).
• Gross yield (%) = (annual income / purchase price) × 100

A hypothetical simulation, not an observation. The hypotheses are chosen to show the calculation: a villa at 260,000 dollars, a rate of 150 dollars a night, occupancy of 76%. Seventy-six percent of 365 days is 277.4 nights, rounded to 277 for this demonstration.

• Income = 150 × 277 = 41,550 dollars
• Gross yield = 41,550 / 260,000 = 15.98%, or about 16%

Step 2: deduct operating costs, excluding tax

What follows excludes tax. Taxes are calculated separately, according to the structure and the activity. They are not deducted below.

• Rental management, a demonstration hypothesis: 20% of 41,550, or 8,310 dollars
• Fixed costs, a demonstration hypothesis: 7% of 41,550, or 2,908.50 dollars

Balance after these operating costs: 41,550 − 8,310 − 2,908.50 = 30,331.50 dollars. As a share of the price: 30,331.50 / 260,000 = 11.67%, or about 11.7%. This simulation excludes tax. Taxes depend on the structure and the activity: they are calculated separately and then deducted. The result is not an observed yield and is not guaranteed.

Lower occupancy, works or tax reduce this balance. None of these hypotheses should be read as a market average.

FAQ for French-speaking investors: yield and risks in Bali

Many questions come up when ROI (return on investment) in Bali is discussed. Here are the answers to the most frequent ones, to make a property investment decision in Bali easier.

Letting for the year or short-term: which option should you favour?

Short-term letting and letting for the year are not ranked one above the other. Occupancy, costs and management change the result. Neither mode is safer or more profitable as a matter of principle.

What mistakes should you avoid when buying property in Bali?

Be wary of a yield presented as guaranteed. An announced gross rate does not hold as it stands once costs, vacancy and tax are included. In particular, check:

• The solidity of the leasehold and the clarity of the contract
• The operating licences required for the activity, under their current name
• The exact valuation of annual costs and tax levies
• Client references or official reports on occupancy rates in the target neighbourhood

A final piece of advice: be ready to adjust your strategy. A well-advised investor knows how to move between rate adjustments, optimisation of rental management and anticipation of tourism trends in order to make the rental yield last.