Bali prepares villa market reform: classification system and stricter rental controls

Villas in Bali to receive hotel-style star ratings

BVRMA proposes introducing a one-to-five-star rating system for private villas. The new model is intended to become a unified benchmark for tourists and market participants, replacing the current fragmented system where property quality is often difficult to compare.

The classification is expected to take into account service standards, property facilities, construction quality, and alignment between price and offered conditions. The criteria are being developed in cooperation with academic institutions and universities in Bali.

The lack of unified standards currently leads to villas of very different quality competing within the same price segments. As a result, tourists struggle to assess value for money, while high-quality property owners face downward price pressure.

BVRMA chairman Kadek Adnyana stated that the initiative is still in the research and preparation phase. After completion, the proposal will be discussed with villa owners and industry stakeholders. The criteria are expected to be finalized within a year, after which implementation may begin.

Why Bali’s villa market is being restructured

Industry participants note that the short-term rental market in Bali developed without unified classification rules. This has resulted in properties of very different quality being offered at comparable prices.

Owners of higher-quality villas are often forced to reduce rental rates to compete with lower-end listings. This intensifies price pressure and blurs the distinction between premium and standard properties.

The introduction of a star-rating system is seen as a way to organize the market and make pricing more transparent. Tourists would be able to rely not only on price but also on a clear property category.

The transition may also redistribute demand, as some properties could be placed in lower categories, affecting their competitiveness.

Crackdown on illegal rentals in Indonesia

Authorities in Indonesia are also strengthening enforcement against unlicensed accommodation on Bali. Over the past year, regional governments have increased inspections of villas operating without proper permits. Measures include closing properties, removing online listings, and setting deadlines for compliance with regulations.

Around 12,000 accommodation units are registered in Bali, while a significant share of villas still operate without full licensing and remain outside effective oversight. The Indonesian Ministry of Tourism has identified about 1,600 unlicensed listings on online platforms. Violations also include improper land-use practices and lack of business registration.

Authorities are working with international platforms such as Booking.com and Airbnb to cross-check licensing data and restrict illegal listings. Starting June 2, lists of such properties will be shared with booking platforms. Owners are given a deadline until 1 August 2026 to complete registration; otherwise, properties may be removed from booking systems.

Platforms are being encouraged to verify the legal status of listings, including business registration numbers. Villa owners are also being supported in completing documentation and licensing procedures. Authorities emphasize that the goal of the reform is to ensure fair competition and improve tourist safety.

Deputy Minister Ni Luh Puspa stated that the government does not aim for mass closures, but rather focuses on legalization and bringing all operators into a unified regulatory framework.

Tourism in Indonesia

In 2025, Indonesia received 15.39 million international tourists, exceeding the projected range of 14–15 million, according to Travel and Tour World. For 2026, arrivals are forecast to reach 17 million. Growth is driven by expanded air connectivity, post-pandemic recovery, and strong demand for beach and cultural destinations. Key destinations include Bali, as well as major cities and regions such as Jakarta, Yogyakarta, and Lombok.

Bali remains the main tourism hub and a key area of regulatory reform. It hosts the largest short-term rental market, where online platforms play a dominant role. Local authorities have repeatedly raised concerns about illegal rentals and lost tax revenue. The new rules aim to establish a unified regulatory standard across the entire market and reduce the gap between legal and informal operators.

Impact of reforms on Indonesia’s housing market

The reform in Indonesia reflects a broader regional trend where short-term rentals are expanding alongside stronger government regulation. Similar discussions are taking place in Singapore, Thailand, and Vietnam.

Analysts at International Investment note that stricter rules are expected to reduce illegal listings and improve transparency in booking systems. At the same time, short-term rental prices may rise. For property owners, the changes bring additional costs and may reduce profitability, forcing some owners out of the market.

Bali is seeing a shift toward a more formalized property sector, where undocumented construction and transactions are gradually disappearing. For investors, this reduces risks linked to opaque schemes that could result in financial losses. At the same time, some market participants are adopting a wait-and-see approach, assessing how the new regulations will affect returns and investment attractiveness in Indonesia’s real estate sector.