FEASIBILITY STUDY OF PT MELALI REALTY’S VILLA PROJECT IN SEMINYAK, BALI

• Main Author: Anthony, Darren
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/82874
• Institution: Institut Teknologi Bandung

The tourism industry in Bali, a cornerstone of the local economy, experienced a severe downturn due to the COVID-19 pandemic, leading to declines in both tourist arrivals and accommodations. However, the sector has witnessed a robust recovery, with tourist arrivals now exceeding pre-pandemic levels. Despite this resurgence, the recovery of accommodation facilities has lagged, creating a discernible disparity in the market. This gap presents a significant opportunity for new investments in high-quality accommodations. PT MELALI REALTY, recognizing this opportunity, aims to leverage its existing land in the prime tourist area of Seminyak to develop a luxury villa, targeting the middle-to-upper segment of the recovering tourist market. The planned investment for this initiative is IDR 2,227,435,605, fully financed through equity. This study aims to determine the financial feasibility and identify potential risks of the project. This feasibility study employs a comprehensive methodology to assess the financial viability and potential implementation risks of the proposed villa project. The initial step involves constructing pro forma financial statements to forecast the financial operations of the villa over a projected period of 20 years. These financial projections lay the groundwork for detailed cash flow analysis, which is critical in evaluating the project’s financial feasibility. The study calculates Free Cash Flow (FCF) and Terminal Cash Flow to understand the financial performance across the project’s lifecycle. To assess the cost of the capital invested in the project, the Weighted Average Cost of Capital (WACC) is used. The hurdle rate, crucial for discounting future cash flows to their present values, reflects the expected rate of return required by investors. Employing capital budgeting techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Payback Period, and Discounted Payback Period, the study meticulously evaluates the potential financial returns and the time required to recover the initial investment. The analysis indicates a positive NPV of IDR 2.67 billion, suggesting that the expected cash inflows considerably outweigh the investment costs. An IRR of 20.54% demonstrates that the project is likely to yield substantial returns over the cost of capital, affirming the project’s financial allure. The project's profitability index of 2.20 indicates a strong value proposition, as every IDR invested is expected to generate IDR 2.20 in returns, underscoring its financial viability. Furthermore, the Payback Period of 6.02 years and Discounted Payback Period of 11.52 years shows a rapid recovery of the initial investment still falls well within the project's lifespan. Risk assessment is an integral part of the study, conducted through sensitivity analysis and Monte Carlo simulations. These techniques are applied to examine the impact of variations in critical financial assumptions such as the land price increase rate, daily rates, and occupancy rates. Sensitivity analysis pinpoints these variables as highly influential on the project’s profitability, while Monte Carlo simulations quantify the likelihood of negative financial outcomes, revealing a mere 0.3% probability of encountering a negative NPV. Based on the financial analyses and risk evaluations, the study proposes several strategic recommendations. These include monitoring the land price increase rate, adopting a dynamic pricing strategy to optimize revenue during varying tourist seasons, and enhancing the overall guest experience with exclusive amenities and services to ensure customer satisfaction and repeat business. Moreover, to increase visibility and booking potential, it is recommended that the property be listed across multiple Online Travel Agencies (OTAs) and create a targeted digital marketing campaign. In conclusion, PT MELALI REALTY’s proposed development of a luxury villa in Seminyak is not only financially viable but also promising. It is poised to capitalize on the current market dynamics where the demand for premium accommodations in Bali continues to increase. Implementing the recommended strategies diligently is expected to lead to significant financial gains, substantiating PT MELALI REALTY's strategic expansion into the hospitality market.