How To Value a Bali Villa

The Correct Price

So how can we assess a fair value for a particular property that makes most sense. We can approach this in 3 ways:

1. Recent sales comparison. Make assumption about properties value by comparing with similar properties sold.
2. Cost of construction. What it the cost of construction and land plus time to build.
3. Income. What is the rental income generated by the property and future forecast.

In Bali there is no database of recent transaction to look into. You can only consult with bigger real estate agencies about their transaction history and advise.

Better option is to assess the market value by estimating the value of construction and land price. By asking for quotation from a few or more developers you can come up with a solid estimate about the cost of construction of such property. Land is more difficult to asses, its mainly depends on the location and if this location is getting popular or hyped up by tourists and trending at the moment. But you can still get a fair market price by region.

While this value estimation principal is a good way to estimate a property price, the most crucial factor is the current demand.

Leasehold properties and valuations

Important factor for leasehold properties is the remaining lease term. Usually buyers expect at least 25 years remaining on the their property. Property that have less than that will also need to follow quite different value approach and villa be sold with a discount.

Income approach

All this leads us to the most economical approach by assessing rental cash flow and profit. We would need to take into account the history of bookings and occupancy off the property and calculate its profitability and compute net present value at a discount rate of 5-10%.

Example:

• Let’s imagine that Villa Heavenly earns a net profit of 10,000 per annum from rent.
• Also lets assume that the leasehold is for a period of 25 years the the owner is expecting a 8% ROI on this investment.

Having all this, what is the present value of this villa?

By doing these simple calculations you get?

• Payments or Income per annum: USD 10,000
• Interest Rate or Discount Rate: 8.0 percent
• Years during which income is earned: 25
• Net Present Value  USD 106,747

This means that the owner by buying this villa for 106,747$ will make 8% ROI if the villa make annual profit of 10,000$.

We personally like this approach the most because it is the most finically sound approach that is used in many sectors for valuation purposes.