Budget hotel growth predicted to slow down

After remarkable growth over the past several years, the development of budget hotels in Bali is predicted to slow down this year, property analysts said Friday. “Budget hotels have become overbuilt, especially on the southern part of Bali. We’re expecting to see slower growth in this segment,” said Made Ariyana, owner of Bali-based Ariyana Property. The mushrooming of budget hotels on the island in recent years, which has led to fierce competition and price wars, was caused by a failure to enforce spatial planning regulations, he said.

In some cases, developers could lobby officials to build in desired areas, including locations where developments were not allowed, he added. Bill Barnett, a specialist on hotel and property development in Asia Pacific, said that rising land costs would be an issue for those wishing to build new budget hotels. “Bali is facing an oversupply of accommodation facilities at many tiers; it’s a significant issue. I believe the budget segment will see similar competition to the other tiers, like midscale, upscale and luxury accommodation.

“The problem in the market here is that there are too many copycat projects that don’t work on strong fundamentals, like a strong location or a well-executed business plan,” said Barnett, who is also managing director of C9 Hotelworks.What remains a key factor in the island’s property market is its tourism development, which has been complemented by improvements to its fundamental facilities, including the expansion of Ngurah Rai International Airport, a new toll road and underpass and a strong domestic economy.

Both Ariyana and Barnett forecast that the growth of new apartments and condo hotels (condotels) would be slower this year. “We are red-flagging condo hotels, especially in south Bali, as they are becoming overbuilt. Many projects are built in non-prime areas, like Sunset Road, for example. Given that Bali is seeing an overall hotel oversupply, the existence of many condotels will have an impact on hotel rates, especially midscale hotels,” Barnett said. The condotel is a real-estate concept that sees hotels selling units to people who want vacation homes.

When not in use by the buyer, the units are rented out as hotel rooms. With entry prices from US$3,000 per square meter, condotels have proved popular among Indonesian buyers, who buy them to support their lifestyles and as an investment. “This condotel trend has been going on for three to four years now, with domestic Indonesian property buyers making up 80 percent of Bali’s real-estate market,” Barnett said. He pointed out that many condotels were not a stellar investment due to their locations, which were usually away from the prime areas.

As a result, condotels could lose out to hotels in strategic areas, such as near beaches, in terms of attracting tourists. It is also predicted that the growth of luxury villas and hotels will remain strong this year. “This year, we are seeing a lot of hotels and branded residences coming to market at the luxury level. We expect Rosewood in Tabanan, Raffles/Fairmont in Bukit, Jumeirah in Pecatu and more,” Barnett said. Many luxury hotel developers are listed Indonesian firms that are looking to sell residences to improve project returns and create early cash flow.

It has yet to be seen the extent to which the market will take these units, he added. According to Barnett, many property segments had yet to appear in Bali’s market, including more quality domestic grade housing and also gated residential estates for foreigners. “One thing that is still missing from Bali’s property market are gated estates, which are more visible in other parts of Asia, such as Thailand. There, they have large estates and overseas buyers who come, perhaps, to retire or to have a second home. That’s probably going to be the next shift and we’ll see more of that coming to Bali.”

source : bali daily

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