Equity Gain is proud to launch our latest endeavor stretching beyond our local boarders and into Indonesia.
With tourism numbers increasing back to pre-pandemic numbers and old accommodation no longer favorable, Bali offers extremely unique opportunities for savvy investors that are simply not achievable in Australia.
This is the obvious first question. The answer needs to be broken down into several parts though to gain a full understanding as to why we are turning our focus to Bali for investment. Here’s the main reasons why we want to offer this opportunity to our clients.
In Australia the owner of the land is the homeowner (title holder). There are a few different types of land titles depending on what the landowner owns, but mostly they prove the landowner has a title deed to their land. In Bali this is the same under the Free Hold land option which is only available to Indonesian people. No foreigner can own a Free Hold title in Indonesia, in their own name by local law. As a foreigner you have a different option known as Lease Hold.
This option is seldom understood at first by homeowners of countries outside of Indonesia. As an Investor, you don’t need to own the land to make a profit. This is a very different concept than many people would grasp at first. Rather than owning the land, you can control the land and any assets built on this land through what is known as a Lease Hold agreement. This agreement is common place in Indonesia and holds full legal weight to both parties.
Lease Hold gives the lease hold owner the same rights as the land owner for an agreed amount of time, without actually ever owning the land. Normally a new lease hold agreement will be approximately 25 – 30 years and this can also be extended for another 20 – 30 years based on the land owners agreement. These agreements are officially completed through a legal service known as a Notary, which provide both the land owner and the lease hold owner their rights to the land over the agreed term.
There are many benefits to being the lease holder over the Land owner. There are no land taxes paid by the lease holder as the land owner must pay these. The entry price is much lower as the land is basically being rented for an agreed time rather than purchased outright. This allows a much higher return on investment as the person renting the villa doesn’t care who is the land holder and who is the lease holder. The renter simply pays the rent.
This unique opportunity allows the lease holder to control the property and bank the rent payments each month.
Low cost of entry is permitted by smaller block sizes and smaller villas to suit the demand of the market where the new villa will be built. We specialise in sourcing the right area for the type of villa being built to maximise the rental return on a smaller budget.
Since the land is leased and not bought outright the numbers of the investment are now heavily weighted towards the lease hold owner when it comes to positive cash flow. There is absolutely no debt on any property which remove the need for repayments to be added to the expenses. There are also no annual land taxes to pay as these are paid by the land owner. You simply need to cover any maintenance costs and management costs of the villa and then bank the returns allowing for a much higher ROI than in most other countries. Depending on the rental type the lease hold owner may also be responsible for electricity, Water and Insurance.
Bali has always been a favorite place for Aussies to holiday due to the close proximity of Australia. Aussies get out of the winter blues and into tropical surroundings to escape the cold.
Many other Asian countries with money to spend have now also found this hidden gem in the south. Rental demand has never been stronger than it is right now.
Through our Bali Invest package, investing into Bali has never been so simple. We look after all aspects of your investment on your behalf and introduce you to Accountants, Notary’s, Lawyers and Property Management companies that will handle the day-to-day processing of your investment. It really couldn’t be any easier than this to invest in a foreign country.
Using our proprietary Bali Invest model, you simply buy shares in a company owned and operated in Bali Indonesia. The company that you become a shareholder of, will own the property and have the legal rights over the lease hold for the agreed period of time.
To make this extremely simply to understand, let’s use $300,000 as the property price on a lease hold agreement for 30 years. We need to allow a safety buffer of funds for each project of $10,000, then we need to allow set up costs for the company of $3,000 and accounting and legal fees of a further $5,000. Equity Gain charge a once of Facilitation Fee of $15,000 to source the land, builder, legal team, accountant, and management team and put the entire package together from inception through to the rental.
| Property Cost | $300,000 |
|---|---|
| Safety Buffer/Float | $10,000 |
| Professional Fees | $5,000 |
| Company set up fee | $3,000 |
| Facilitation Fee | $15,000 |
| Total | $333,000 AUD |
As part of the investment, you will buy as many shares in the company as you choose. Each share costs the equivalent of $25,000 AUD in Indonesian currency. As the amount above is $333,000 we need to increase this to $350,000 to start the company. Any excess funds will simply be distributed back to the share holders once the Villa is completed and rented.
This means that there will be 14 shares available within this company for purchase. Once they are sold, they will no longer be available, and the property development can commence. Any investor can choose to buy 1 – 14 shares. As soon as any shares have been purchased, then remaining number will be available until sold out. This allows someone who would like to invest $100,000 to purchase 4 shares and someone only wanting to invest $25,000 to purchase 1 share.
The structure allows all shares holders to receive the same percentage return of the total based on the number of shares purchased.
As part of the entry strategy, we need an exit strategy. For this it is very simple. All projects that we put together have a default timeline of 10 years. This means that in 10 years’ time the accountant managing the company will put a vote to the shareholders as to if you would like to continue or if you would like to sell. If continue is chosen, then the following year and each year there after the accountant will require the same response.
If the consensus is to sell the property, then the price the property is sold for, less any marketing/selling costs, will be paid out by the accountant to each shareholder based on the number of shares owned. At this point the company would be dissolved and the investment is at an end. Remember that the original lease hold was for 30 years and we are now 10 years into this agreement. The property you will be selling is the same property with 20 years lease hold remaining. Depending on the market conditions at the time, it would not be an unlikely event to sell the property for the same amount as it was purchased for 10 year earlier due to the price of the land increasing in value over that period. In this case you have had 10 years’ worth of free cash flow each month and your original investment back after 10 years!
As a shareholder you have the right to sell your shares at any time to anyone. The price you choose to sell your shares for is between you and the purchaser. There is no restrictions on this at all. Your accountant can also ask if any other shareholders would like to buy out your shares by request.
Our staff will walk you through this very simple process step by step. Our Indonesian accountant will open a new company called “Bali Invest One” or similar. Once this company is opened, they will determine how many shares will be available to purchase within the company based on the property and leasehold arrangement that Equity Gain put together. Using the above example, they would issue 14 shares. The accountant will then open a bank account in Indonesia for the company and they will be the only person authorized to make transaction on the bank account on behalf of the investors/share holders.
Equity Gain will work with clients interested in buying shares until all the shares are sold and the company is funded to capacity. At this point Equity Gain can then move forward on their preselected parcel of land under a lease hold agreement in the company name. All this information will be presented to our investors/shareholders prior to entering into this agreement. Your lawyer/notary will complete all the paperwork on behalf of the investors/shareholders and arrange for the land owner to sign the lease agreement with the company.
As soon as the lease agreement is signed and made official, the builder will be contracted under a build agreement to commence work on the construction of the new villa. The builder will also look after all building permits and visas required under Indonesian law. The team at Equity Gain will monitor the process of the build process and like Australia, only pay the builder as per the build agreement in stages once each stage has been completed. Please refer to the build agreement for more information.
This build process in Indonesian takes approximately 12 months to complete. As the build is nearing completion, the property manager will be assigned to the property and the rental preparation will commence. As soon as the build is completed, the furniture package will be installed making the villa ready to be advertised for rental.
As a share holder you can expect to receive your first rental payment 13-15 months after the villa construction commences. Then every month you will receive a payment from your management company after any expenses are deducted.
It really is that simple
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