The Case for meaningful relative Asset Appreciation vs Australia and other Developed Markets
If you have owned property in Australia, UK, US and most other developed markets over the past few years you will have seen significant asset appreciation. In contrast, Property in Emerging markets, such as Indonesia have not been so lucky largely due to severe impact COVID has had to tourism, foreign investment and no substantiative Government support to offset the effects. However, with interest rate hikes hitting the brakes on asset appreciation and growth in Developed markets, like Australia there are numerous indicators to suggest it is Indonesia and more specifically Lombok’s time to outperform meaningfully and for this recent widening of the gap to close.
Indonesia is entering a period of High Growth
Unlike other countries who are now encountering stagflation (high inflation; slow economic growth) Indonesia is still seeing high growth and there are numerous factors offsetting the negative effects of inflation. Its emerging middle class is further insulating it from the global slowdown. This was evidenced by its 2nd Qtr GDP rising to 5.44% YoY and a surge in demand for investment loans being witnessed. This has reinforced the longer term target to be a top 5 global economy by 2050.
Accelerating Foreign Direct Investment (FDI)
In the 4th Qtr in 2021 FDI in Indonesia reached an all-time high of IDR 122.30 trillion (+10.1 percent YoY) and this momentum has continued in 2022. (1H2022 net FDI inflows = US$9.9bn).
Ongoing stable Government
As one of the world’s largest democracies and an incumbent government with special majority, Indonesia is expected to see continued stability and significant reforms and investment. Key areas of focus include an improvement of education, being more competitive to attract investment and entrepreneurship, an enhanced regulatory environment, and more cost reflective energy prices.
Influx of Tourism
Thanks to the easing of travel restrictions, preparations for the G20 summit in November, and an increase in ASEAN and countries whose citizens are eligible for visa-free visits for tourists Indonesia has witnessed a significant rebound in International Tourists. Revised FY 22 targets are expected to be achieved. COVID numbers are decreasing rapidly and Hospitalisations/death at an all-time low as majority of people having received vaccinations.
Foreign Workers & Retirees
The Indonesian government has recently announced new initiatives to attract retirees and digital nomads to live and work in Indonesia and is actively promoting Indonesia as a lifestyle destination that welcomes skilled workers, foreign investors, particularly Australians to relocate to Bali and other resort destinations such as Lombok.
While Australia and other developed Markets have seen a hockey stick in capital appreciation through COVID responding to a loose monetary environment, Indonesia largely flat lined. This has presented a unique opportunity to invest as this gap closes.
As one of Indonesia’s over 17,000 islands and located next to Bali, Lombok has had numerous false starts over the past 20 years but finally the stars are aligning for it to “come of age” and emerge from the shadows of the world renowned Bali Island. Lombok has long been known for beautiful scenery (Waterfalls, Mountains, Farming), world class beaches and surfing, particular in the South. Now as a result of a multitude of factors summarised below, there is an expectation that finally, Lombok can arguably be seen as the best way to play the ‘recovery’ trade in Indonesia and, as an investor you are likely to see a sustained period of YoY capital appreciation and yield:
Bali has historically made up close to 40% of all international tourist revenues received by Indonesia. However, as the Government strives to grow the overall figure they are doing so by looking to spread further demand across archipelagos, with the “10 new Bali project”. 4 key specific destinations have been prioritised, including Lombok given their attraction, access, and amenity. Lombok’s popularity will be further aided by:
- The Moto Gp – first race was last year and whether you like racing or not, it is an global event with over 40 million followers, ensuring Lombok is put on the map.
- Mandalika – has been stop/start but progress is building momentum with strong progress on the basic infrastructure of the 450-hectare site and hotels such as the Pullman set to complete this year. Within Kuta, there is there has been a significant increase in high quality F&B offerings to create more desired diversity.
- Expanding International Airport (see below) & improving Roads – there are now high quality 2 & 4 lane highways helping to provide ease of access to key Areas.
Bali has bounced back aggressively and already there is talk of pre COVID numbers being hit next year. This year, Airlift has focused on Bali, however Scoot will resume flying direct from next month from Singapore and by early 2023, Air Asia is expected to fly from both Melbourne and Perth direct. As witnessed, when the Perth direct started pre COVID this saw significant influx of Tourist arrivals for Lombok. In the 12-months before the pandemic, Lombok welcomed 1 million tourists, around 20% year-on-year growth and had been the fastest growing tourism market in the region, according to the Indonesian Tourism Authority. Further, Indonesia’s national Airline, Garuda has been able to halve its debt obligations and is looking for new investment from ‘Hub Players’ such SIA, Qatar or Emirates.
The number of foreign tourist visits to Indonesia through the main entry points from January to June 2022 reached 743,210, an increase of 929.66 percent as compared to the number of foreign tourists visiting during the same period last year. However, as compared to the period before the COVID-19 pandemic, or during the January-June 2020 period, this condition had not yet fully recovered. During that period, the number of foreign tourists visiting Indonesia reached 2,131,737.
Spectacular Natural Beauty And Local Culture
Not only does it offer some of the best beaches in Asia (with associated surfing, diving or snorkelling), it also offers one of the world’s most spectacular climbs; numerous waterfalls and a hospitable, traditional, local Sasak culture.
Value For Money
Many investors are turning to Lombok for more reasonably priced land and property investment opportunities. Whilst land prices in Bali had jumped prior to COIVD, Lombok has yet to meaningfully move and often significantly cheaper. Furthermore, there is
- Less Crowded and better quality beaches and surf Spots
- Closer to more untouched nature
- Emerging Resorts, such as Selong Selo Resort that not only have high end Resort facilities & services we have grown accustomed to (Fully Equipped Gym, Spa, Restaurants, Concierge etc) but also have more space, privacy, better views and have an enhanced feeling of ‘escaping’ the hustle and bustle of their daily lives. Selo has plans to build further on this with the creation of an Eco Park that integrates Reforestation, Agro-forestry for the community and further eco activities within such as Mountain Biking