Below are some of the important things to consider when you are looking to invest in Residential Resort Projects that have common area facility usage. The statistics are alarming on developers that go under, rebrand or just disappear in developing countries. However, these can be easily avoid by following a few guidelines to protect your investment and allow you to enjoy your villa.
1. Building COMPLETION Covenants
If you are planning on owning a villa in a Branded Residential Resort that markets itself as having common area facilities, restaurants and beach clubs, the only way these will operate successfully is to ensure that the residential and hotel operations has sufficient scale and is completed within a timeframe.
Having completion time frames that the Resort must be finished by is an absolute necessity, otherwise you could be stuck within a building site forever; severely impacting your ability to achieve a sustainable yield, capital appreciation and enjoyed from your villa. Ongoing construction is an owner’s worst nightmare and the same for any guests. Issues can arise across maintaining proper security, contractors impeding your privacy, dust, ear piercing noise from rock breaker and trucks speeding around site (which all create safety issues)
2. Indonesian Tax
Having consulted with numerous prominent tax consultants and lawyers, Selo Group’s view (since the Tax Amnesty of 2016) is that the tax situation has been the biggest driver in people moving away from the nominee structures versus the questionable legalities of them. The nominee was deemed as the tax subject, not the beneficial owner. There are numerous examples of people now trying to exit these structures and get funds out of Indonesia, which is time consuming and expensive.
If you start a business in any country the commonly accepted logic is to incorporate a company for asset protection and personal liability reasons. The same applies in Indonesia, although most people have the perception it is too difficult or costly. This was the case previously, however these days a company can own a Villa for Commercial and Recreational Use. Companies can be setup and licensed within two weeks – on par with Singapore for time and cost. For further information on this please see here.
3. International Team
Having a verifiable record building 35 bespoke luxury villas in remote location in Indonesia we know how difficult it is to ensure that quality control, security of site, COVID protocols and the like are followed. Below is a checklist for prospective investors to ask:
- Does the developer have a large team of international project managers that have in-country experience?
- Is there correctly structured construction contracts with strong warranty & defect periods, retention periods?
- Will I get regular updates of site progress and photos?
- Is there a dedicated project manager for my villa that will report to me on progress?
- Do they have a completed show villa or similar project they have completed? Don’t get fooled by glossy brochures and promises from sites that have no market data from sources such as STR or Elite Havens