Monday, August 02, 2010

As the Bahamas real estate market starts to recover from the global recession, there are many factors making the market attractive. With high yields on rental properties, tourist arrival rates climbing, expansion of the country’s infrastructure underway, no restrictions on foreign buyers, and no income, sales or estate taxes, there are many advantages for foreign investors looking to buy real estate in the Bahamas. See the following article from Global Property Guide for more on this.

The Bahamas property market is gradually recovering from the effects of the global recession as US and UK buyers return to the islands. There is a considerable amount of development in the second-home market as investment interest from Latin American and Asian buyers also increases.

The Bahamas does not release official house price figures, but the average price of a luxury home is about US$1 million. Condominium and apartment units range from US$300,000 to US$100,000, depending on the location. In the Bahamas, it’s not uncommon for wealthy buyers to go for properties that cost as much as US$14 million.

The Bahamas has enjoyed stable economic growth , with an average annual GDP growth rate of 3% between 1997 and 2007. However, due to sharp declines in tourism and financial sectors in 2008, GDP growth was estimated to have slowed to 1%. In 2009, GDP declined by 3.9%.

A low rate of growth of 2% is anticipated from 2010 to 2011 as tourism receipts by air and sea improve due to increase in air services and cruise operations.

Tourism-related construction projects led by the government are also expected to encourage development plans for real estate projects and attract more foreign investments.

Tourism and construction

Tourism and tourist-driven construction remain the backbone of the Bahamas’ economy, accounting for approximately 60% of its GDP and employing more than 40% of the total workforce. Offshore finance, the second largest industry, accounts for around 15% of GDP.

A construction boom in the private sector (hotels, resorts, and residences) began in 2006 due to a steady flow of tourist arrivals and increased foreign investments, which resulted to a solid GDP growth. As the recession deepened, the tourism industry saw a significant decline in visitor arrivals and occupancy. The country’s GDP declined by 2.4% in 2009, from 1.5% in 2008.

During the first quarter of 2010, there was a slow but steady increase in tourist arrivals, which recovered by 9.2% to 1.4 million from a 2.9% decline in 2009, according to the Central Bank of the Bahamas (CBOB). Stopover arrivals improved in Grand Bahama (up by 14.9%) and New Providence (up by 16.9%), where new cruise ships are operating. This, however, meant that passenger delivery to the Family Islands in the southeastern part of the Bahamas, once the first port of entry, declined by 4.8%.

In 2009, there was an estimated 3.5 million tourist arrivals in the country, dominated by Americans and Europeans. To stimulate economic activity and boost the real estate market, the government approved the plans for a new harbor for larger cruise ships are under way. This will transform a run-down, industrial part of Nassau, New Providence  and can spur the development of more residential and construction projects in the area.

Construction of several government infrastructure and facilities projects is also either completed or ongoing. These projects include:

• The US$275 Phase I redevelopment of Lynden Pindling International Airport - new US Departure Terminal to open in 2011
• The US$130 million New Providence  Road Enhancement Project, (part of the US$1 billion infrastructure program to be invested over the next five years) - new road corridors completed in June, 2010
• The road networks in the Family Islands: Abaco, Acklins, Current and Current Island, Eleuthera, Harbour Island, and Ragged Island
• And two new ports, in North Abaco and Exuma, respectively.
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Market focus: multi-use resorts and second homes

Several high-profile projects were halted in 2008 as foreign investors lost partners and found difficulty in obtaining funds. Unemployment rose from 8.7% in 2008 to 12.4% in 2009 as many workers were laid off, and construction workers were disengaged from projects.

Beginning in 2010, however, with the best construction workers in the island now available and with less competition in the market, developers of large projects have become more optimistic and construction activity has resumed (see Prime Minister Ingraham’s 2010 State of the Nation Address), creating thousands of much-needed jobs. 

These include:

• The newly opened luxury Sandals Resort at Ocean Bight, Exuma

  The nearly completed US$75 million Phase I of the Caves Heights condominium on West Bay St and Blake Road; the US$25 million Phase II is ongoing

  The Phase I development of Albany, an oceanfront resort with a mega-yacht marina and golf course in New Providence

  The US$2.6 billion Baha Mar Resorts on Cable Beach, Nassau, with residential condominiums available for private ownership, to be completed in 2013

  And the US$4.9 billion multi-purpose Ginn Sur Mer development with residential, hotel and entertainment facilities, marina with boat slips, and a private airport, in Grand Bahama.

   

The majority of the country’s second-home buyers come from the UK and the US, which were the most affected by the global financial crisis. Residential prices fell by as much as 20% in 2008.

According to John Christie, Vice-President of HG Christie Ltd, a leading real estate company and exclusive affiliate of Christie’s Great Estates in the Bahamas, conditions in the property market have improved from the previous year. Sales are up by 10-15%, which is fairly good. Homes worth US$1 million and up sell well in the islands of Abaco, Nassau, and Paradise Island.

The Out Islands of Exuma, Eleuthera and Long Island, however, are lagging behind. Several tourism-related projects that were resumed, like the Sandals Resorts in Exuma, should help renew interests in the property market.

Reports on the Bahamas by the Oxford Business Group indicate that homes priced at US$1 million and up are easier to sell because they are used mainly as second homes and not for investments. On the other hand, there is less demand for homes and condominiums priced between US$300,000 and US$1 million.

More plans for second-home developments are under way. Investment interest and private purchases have been coming from South America, particularly Venezuela. This was partly due to aggressive promotions by hotels, resorts and their airline tie-ups. Developers are also now looking as far as Russia and China for potential buyers and investors.

Increased interest in Grand Bahama 

Grand Bahama is the closest Bahamian island to the United States by way of Florida. In the past years, promoting the island as a tourist destination has been a little problematic because it has an Americanized appeal, compared to Nassau, the country’s capital, which has retained much of its traditional charm.

Grand Bahama is receiving a considerable amount of attention from the government and private sectors. The island is four times bigger than Nassau, and like the capital, its income relies on tourist arrivals by sea.

With the expanded cruise operations in the island, it is anticipated that more visitors will come beginning this year.

The construction of the large-scale Ginn Sur Mer multi-purpose development not only creates much-needed jobs in Grand Bahama (unemployment in the first quarter of 2009 was 9.2%), but will significantly increase the number of rooms in the island. Cottages in Ginn Sur Mer have an average price of $1.5 million.

Ginn Sur Mer is expected to help boost the local economy by attracting more long-stay visitors to the island and by encouraging more foreign investments in tourism and real estate development.

Mortgage market and stamp duty

From February to March 2010, the interest rate for residential mortgages dropped by 6%, from 8.29% to 8.23%. Rates hovered around 8% to 9% from 2007 to the first quarter of 2010, mainly because the Bahamian bank rate has been almost static.

In 2005, the CBOB reduced the benchmark rate to 5.25% from 5.75% (where it had been since 1999). The key rate has since been unchanged.

The Bahamian mortgage market has expanded significantly, from 26.7% of GDP in 2003, to 40.9% of GDP in 2008.

Local banks largely lend to Bahamian households with loans denominated in local currency (BSD1 = USD1). Real estate purchases by wealthy foreign buyers are mostly paid in cash.

A 2% increase in stamp duty took effect beginning July 1, 2010, which the real estate industry fears will cause confusion on ongoing transactions, and put off some potential buyers. The new rates apply to all transactions, excluding those involving first time buyers, and are as follows:

Properties between $0 and $20,000 – up from 2 to 4%
Properties between $20,000 and $50,000 – up to 6%
Properties between $50,000 and $100,000 – up to 8%
Properties between $100,000 and $250,000 – up to 10%
Properties higher in value – up to 12%

Rents and yields

Properties in the Bahamas give good rental yields, according to Global Property Guide research (based only on long-term rentals).

Among the different types of properties in Nassau, inland houses have higher yields (ex: 8.40% p.a. for 250 sq. m.) than houses along the waterfront (ex: 5.88% p.a. for 250 sq. m.). Nassau waterfront condominiums have slightly higher yields than inland condominiums.

In Nassau, the average rent for houses is around US$5,000 to US$6,500 per month while penthouses rent for US$9,500 per month. In the Out Islands, three-bedroom houses can be rented for US$3,000 per month.

Rent in the Bahamas is 15% of the value of the dwelling. There is an additional charge for furnished homes, which is 15% of the value of the furniture (Rent Control Act).

Property ownership by foreigners

There are no restrictions on foreigners buying property, except for a permit from the Government before the transaction, if the property is on undeveloped land with an area greater than five acres (20,234 sq. m.).

Foreigners who own properties in the Bahamas are eligible for a homeowner’s residence card (renewable annually) and those who purchase properties valued at least US$500,000 are given priority in permanent residence applications. However, neither permanent nor annual residence gives a foreigner the right to work in the country.

There are many tax advantages and incentives for foreign real estate buyers in the Bahamas. There are no income, sales, and estates taxes. The only direct tax is real property tax.

On July 22, the National Oceanic and Atmospheric Administration reopened portions of previously closed areas in the Gulf of Mexico to commercial and recreational fishing. The reopened area, still in effect, comprises 26,388 square miles, according to NOAA.

The current fishery closure boundary remains more than 260 miles to the northwest of Key West.

Areas to the southeast of the zone including the Dry Tortugas and the Florida Keys island chain are not under restrictions.

All commercial fishing and recreational fishing including catch-and-release is prohibited in the closed area. However, it is permissible for vessels to transit through the closed zone.

The presence of scattered light oil sheens and tar balls from the Gulf oil spill in the southern Gulf of Mexico was the reason for the initial closure, according to NOAA Florida Keys National Marine Sanctuary officials.

NOAA said it will continue to evaluate the need for fisheries closures based on the evolving nature of the oil spill, and reopen closed areas when deemed appropriate.

Courtesy of fla-keys.com

 Graphic courtesy NOAA