What could be nicer than your own beachside villa in Bali boasting a plunge pool, ocean views and personal chauffeur? For some, owning the debt that built it.

Dollar-denominated bonds of Indonesian developers, including those building luxury projects on its main resort island, are outperforming. Property firms have issued almost half of ex-government dollar notes outstanding in the nation as they bypass local lending curbs, Bloomberg-compiled data show. Their debt has returned an average 5.4 percent this year, while paper in other industries has lost 0.3 percent.

Bali’s surf, volcanic-brick architecture and rice-paddy landscapes are high on wish lists of millionaires seeking beachfront havens, with top home prices rising 15 percent last year. The island is a bright spot in an economy growing at the slowest pace since 2009, as corporate governance is clouded by more than $3 billion of defaults on U.S. currency notes in the past seven years.

“As a foreigner, if you want to buy for capital appreciation, fine, but do remember Indonesia is a high-risk market. Regulations and policy keep changing,” said Jacintha Poh, an analyst at Moody’s Investors Service in Singapore. “The residential price index there is a straight line up.”

Hot Market

House values across Indonesia’s 14 biggest cities have surged 37 percent in the past five years. Moody’s and Standard & Poor’s estimate at least 15 million new homes are needed to meet the demands of a growing population, which reached 252.8 million at the end of 2014.

To finance the market, developers are issuing more bonds in U.S. dollars, given the lower interest rates and bigger amounts available offshore, according to Fitch Ratings Ltd. At home, meanwhile, real estate companies’ funding is curbed by laws barring the acquisition of land using bank loans.

“Developers can’t borrow from banks for land expansion and the local capital market is still relatively small,” said Jakarta-based Erlin Salim, an associate director at Fitch. “There’s an increasing need for developers to find long-term funding to replenish land bank inventory as housing demand increases.”

High offshore costs aren’t dissuading them. Gross profit margins for Indonesian developers can be as high as 90 percent, according to Moody’s. That means even coupons ranging from 6 percent to 11 percent on top of the currency mismatch aren’t enough to deter them from dollar debt.

Cheaper Too

U.S. rates can also be cheaper than local onshore debt. Developer PT Lippo Karawaci, which operates a mall in Bali and is planning a hotel there, paid 11.5 percent for a 50 billion rupiah ($3.7 million) 11-year loan agreed in 2008. Four years later, it issued a seven-year dollar debenture more than 100 times that amount costing 6.125 percent.

PT Modernland Realty, which builds luxury townships in Indonesia, has the best performing dollar bonds among developers this year as the government looks to ease restrictions on foreign ownership of local property. The company’s two securities have returned 7 percent and 8 percent.

As other traditional high-yield issuers from Indonesia are forced to restructure or stop investing amid a slowing economy, home builders are filling the gap.

“The number of property issuers has increased in recent years,” said Clement Chong, a Singapore-based senior credit analyst at NN Investment Partners, which managed about 203 billion euros ($223 billion) as of March 31. “At the same time, the number of non-property issuers has not increased that much for a number of reasons.”

Four Defaults

At least four Indonesian companies have defaulted on dollar debt in the past three years, including a shipper, two commodity-related firms and a mobile phone operator. But as the prices of basic inputs from coal to palm oil drop, developers seem to be weathering the downturn.

“The sector is still stable,” Singapore-based S&P analyst Kah Ling Chan said. “They’ve been hitting their sales targets over the past few years, unless when the regulation is uncertain. The problem with the Indonesian government is that when they roll out regulation, they are not very clear.”

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