Value the unit as if the guarantee did not exist. A guaranteed return for the first few years is often funded from the sale price itself — the unit is marked up and part of the buyer’s own money is paid back as “income” — and when it ends, the villa has to earn from its real net operating income on a shorter remaining lease. Information only.
Where does the guarantee money come from?
Usually from the price you paid. The unit is priced above what its income would justify, and the difference is handed back to you over the guarantee period. In effect it is a discount presented as a dividend — your own money, returned in instalments.
What happens when the guarantee ends?
The villa has to earn on its own, from real net operating income — what is left after platforms, staff, upkeep, tax and management. By then the lease is also shorter, so there are fewer years left to earn. That is when the true yield shows. See where villa income goes.
So how should you value the unit?
On the net income it can actually produce, with no guarantee. Use the rates and occupancy that comparable villas really achieve, take off realistic running costs, and allow for the lease counting down. See gross versus net yield and how to work out a realistic rate.
Is a guarantee always a trap?
No. If the net number works on its own, the guarantee is a bonus. If it does not, the guarantee is the product you are buying. It is also worth asking who pays it, from which account, and what happens if that party cannot. If the developer runs short before handover, see what off-plan buyers can do.
Sources: Ascendure commentary. General information about the Indonesian market, not legal, tax or financial advice.
Have a project in Bali, Lombok, Labuan Bajo, Sumba or elsewhere in Indonesia that needs completion or expansion capital?
Tell us about the project