The Bali real estate market attracts investors because of the strong tourism flow. According to the Indonesian Statistics Agency, the country welcomed 11.68 million international visitors in 2023, which is nearly 2.5 times higher than in 2022. Moreover, during the first nine months of 2025, Bali received approximately 5.3 million international arrivals, which represents an increase of about 11.5 percent compared to the same period in 2024.

As the market becomes more appealing, the number of mistakes made by investors also grows. This is especially common among those who are entering the Indonesian real estate market for the first time and are unfamiliar with local land regulations, construction requirements in a tropical climate, and the specifics of tourism-driven demand.

This article examines the most frequent mistakes that can occur when purchasing property in Bali and explains how to avoid them.

Contents:

  1. Choosing the Wrong Area for Investment
  2. Lack of Proper Legal Due Diligence
  3. Mistakes in Calculating Profitability and Payback Period
  4. Choosing a Reliable Developer
  5. Insufficient Evaluation of Construction Quality
  6. Investing Without Analyzing Future Tourism Demand
  7. Ignoring Taxes and Operating Expenses

Choosing the Wrong Area for Investment

Location is a critical factor because in Bali, the difference in average occupancy rates between areas can reach 20 to 30 percentage points, which has a direct impact on ROI.

Why location has a decisive impact on profitability:

  • Infrastructure gap between areas. Canggu and Seminyak have two to three times more restaurants, coworking spaces, fitness centers, and tourist services compared to the northern and eastern parts of the island.
  • Growth potential of land value. Leasehold land prices in popular areas increased by an average of 35 to 50 percent from 2020 to 2024. In the developing areas, the growth rate remained at 15 to 25 percent.

How to choose the right location:

  • Evaluate data on average rental rates, occupancy, and payback period for the specific area rather than the island as a whole.
  • Analyze the presence of popular cafes, clubs, and infrastructure, since these are direct indicators of demand.
  • Compare development trends over the past two to three years, including new hotels, rising land prices, new roads, and commercial facilities.
  • Identify the target audience of the area. Families, surfers, premium traveler,s and digital nomads have different stay durations and booking budgets.

Foreign investors face the highest level of risk during the legal processing stage. Indonesia's land law differs significantly from European systems. According to the Indonesian Notary Association, about 27 to 30 percent of land transactions in Bali require corrections or reveal violations after a legal review.

Key legal aspects of property ownership for foreigners:

  • Foreigners cannot own land directly. Indonesian law does not allow non-citizens to hold full freehold ownership. For this reason, alternative ownership structures are used: Leasehold (long-term land lease) and Hak Pakai (right of use).
  • Land status verification. Each plot in Bali has a specific zoning classification, and only certain zones allow residential or commercial villa construction. Yellow / Residential allows housing development. Pink / Tourism is suitable for commercial use, such as guesthouses and rental villas. Green / Agricultural does not permit construction or allows it only under strict limitations.

How to avoid legal mistakes:

  • Conduct full land due diligence that covers boundaries, title, ownership records, zoning status, and the history of transactions.
  • Check for an operational certificate (SLF).
  • Sign agreements through an independent notary instead of one recommended by the seller.
  • Ensure that the lease contract is registered with the official land registry.
  • Include a clear and fixed formula for leasehold extensions in the contract.

Mistakes in Calculating Profitability and Payback Period

Incorrect financial modeling is one of the most common reasons investors experience disappointing results. Bali offers strong income potential, but only when calculations reflect realistic data on occupancy, daily rates, operating costs, and seasonality. An error in even one parameter can cut the actual ROI in half.

According to property management companies in Badung and Canggu for 2023 to 2024, professionally managed villas show an average annual return of 12 to 18 percent. Investors who miscalculate expenses or ignore seasonality often achieve only 6 to 9 percent.

How to calculate returns correctly:

  • Use a month-by-month occupancy model that reflects seasonal fluctuations.
  • Rely on actual data from management companies for the specific area instead of island-wide averages.
  • Always factor in management fees.
  • Allocate a contingency reserve of 10 to 15 percent for unexpected costs.
  • Compare several scenarios such as optimistic, base case, and conservative projections.

Choosing a Reliable Developer

According to Real Estate Indonesia and local developers' associations, up to 35 percent of project delays in Bali are linked to missed construction deadlines or financial instability of contractors. For investors, this results in frozen capital, additional expenses, and a significant shift in the expected return timeline. At the same time, the quality of property management after completion can affect actual occupancy by 20 to 40 percent, which is critical for calculating payback.

How to reduce risks:

  • Check the developer's portfolio and look for at least three to five completed projects.
  • Request a transparent contract with fixed deadlines and penalties for delays.
  • Arrange an independent construction inspection.
  • Choose a management company that provides proven occupancy statistics for properties in your area.
  • Evaluate the reputation of the developer and the operator based on feedback from property owners rather than marketing materials.

Insufficient Evaluation of Construction Quality

Bali's tropical climate creates serious stress on buildings. High humidity, heavy rainfall, abrupt temperature changes, and high salinity in coastal zones significantly reduce the lifespan of construction materials. According to technical auditing companies on the island, around 55 to 60 percent of newly completed villas have hidden defects that become visible within the first six to twelve months of operation. These issues increase maintenance costs, lower ratings on rental platform,s and decrease actual ROI.

Critical environmental factors that investors often overlook:

  • High humidity (70 to 90 percent). Without effective ventilation and waterproofing, mold and mildew develop quickly. These issues are among the most common sources of guest complaints. Eliminating the consequences may cost 1000 to 3000 dollars per year.
  • Intense seasonal rainfall. During the rainy season from November to March, the load on roofs and drainage systems increases dramatically. Mistakes in roof slope or insufficient drainage lead to leaks and interior damage.
  • Salty air in coastal areas. Metal components such as fittings, fasteners, and window hardware corrode rapidly. Low-quality materials may lose 50 to 70 percent of their lifespan when exposed to high salinity.

Investors often do not detect construction problems on time because many projects are completed during the dry season, and defects appear only once the rains begin. Developers also rely on presentation renderings that distract attention from engineering details.

How to assess construction quality before purchase:

  • Carry out a technical audit known as a snagging inspection. This includes checking engineering systems, thermal imaging of walls, waterproofing tests, and inspection of the roof and drainage lines. The cost of such inspections in Bali usually starts at 200 to 400 dollars and can save thousands in future repairs.
  • Request construction documentation. A developer should provide engineering plans, material specifications, and warranty obligations.
  • Evaluate the reputation of the construction team. Many projects in Bali rely on subcontractors, which makes it essential to identify who actually built the property and whether the team has completed projects in its portfolio.

Investing Without Analyzing Future Tourism Demand

Most investors focus on current occupancy and pricing but overlook what may happen to tourist and tenant flows over the next three to five years. As a result, a property that looks attractive today can end up in an oversaturated area or lose demand due to shifts in traveler preferences.

Key factors that influence future demand in Bali:

  • Infrastructure development. Any changes in infrastructure have a direct impact on tourism flow, including airport expansion, new road construction, improved access routes, and upgrades to high-demand areas such as Uluwatu, Canggu, and the northwest.
  • Changes in visa and tax regulations. Interest in Bali among digital nomads and long-term residents is strongly connected to long-stay visa options and the flexibility of tax requirements for non-residents.

How to assess future demand effectively:

  • Analyze booking trends for the past two to three years instead of relying solely on current rates.
  • Monitor the number of new and upcoming projects in the area since an oversupply of villas always puts pressure on returns.
  • Follow local news and infrastructure plans, including new roads, commercial developments, and upcoming attractions.
  • Consider shifts in target audiences. Young travelers, families, premium guests, and digital nomads have different expectations and booking patterns.
  • Build scenario-based forecasts that include conservative, base case, and optimistic models for both occupancy and pricing.

Ignoring Taxes and Operating Expenses

Even with the right location, a proper legal structure, and a realistic demand forecast, the actual ROI often drops because investors underestimate tax obligations and ongoing operating costs.

The specific tax structure depends on the ownership model, whether it is an individual, an Indonesian company, or an international entity. This makes consultation with a qualified tax specialist essential.

Common elements that investors overlook:

  • Rental income taxes. Renting through a local company or an Indonesian structure is subject to taxation, which reduces net ROI by 10 to 20 percent depending on the model.
  • Property-related charges. Annual land and building taxes, although not substantial, still create a fixed financial obligation. When selling a property, capital gain tax also affects the final profitability.
  • Operating expenses. Owners often underestimate the need for routine maintenance and repairs. The average annual budget required to keep a villa in good condition usually amounts to 5 to 8 percent of gross income.
  • Labor costs. Villas offering premium services, such as a chef, daily cleaning or concierge support, face higher staffing expenses. These costs often increase ARPU but must be accurately reflected in the financial model.
  • Insurance. Insurance coverage for fire, floods, earthquakes, and guest liability is essential. Many investors do not include insurance in their budge,t even though it significantly reduces the risk of large unforeseen expenses.