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Dec 16, 2014

The Bahamas property market is now improving


 

After several years of housing slump, The Bahamas' property market is making a comeback.

Property prices are stabilizing.

Residential construction activity is rising again.

Foreign demand is coming back, as investor confidence rise.

“The Caribbean luxury property market - and in particular the Bahamian market - was undeniably affected by the economic downturn. However, now that prices have bottomed out, we are seeing a marked upsurge in interest, with clients taking advantage of being able to pick up five star properties at reduced prices, in anticipation of prices increasing once more in the months and years ahead,” said Philip Button of Brookes & Co., a London-based investment company.

House prices are estimated by local agents to have dropped by 30% to 40% from 2007 to 2010, mainly due to the adverse impact of the global financial and economic meltdown, according to Savills Prime Residential Retreats 2014 report (there are no official house price figures).

The property market started to recover in 2012, thanks to improved tourism and a better economic outlook. Residential property prices rose by about 10% to 15% from 2012 to 2013 in the islands’ more established high-end residential developments such as Old Fort Bay and Lyford Cay.

Currently, ocean front units in the Royal Ocean Club, situated on Grand Bahama, are priced at US$156,070. In the Bahamas Rum Cay, the price of one and two-bedroom beach cottages start at US$128,095.

In the Lyford Cay, a private gated community on the New Providence, a six-bedroom colonial-style home, Cuckoo’s Nest, is priced at US$6.5 million.

Investor confidence is growing stronger. The Americans, who make up the largest homebuyers in The Bahamas, are coming back into the market. There is also a noticeable increase in the number of wealthy investors from Canada, France and Britain who are interested into buying a residential property in the islands. 

The Europeans currently make up 20% of homebuyers in the islands, twice as many as there were five years ago, according to Christopher Anand of Tavistock Group.
The Bahamas enjoyed GDP growth of 3% p.a. from 1997 to 2007.  Growth halted in 2008 (-2.3% GDP) and 2009 (-4.9% GDP), due to the global financial crisis.  Growth was since recovered, with 1.5% growth in 2010, 1.1% in 2011, 1% in 2012, and 0.7% in 2013.

The economy is expected to expand by 1.2% this year, according to the International Monetary Fund (IMF).

Residential construction increasing again, at last

Bahamas permits issued

Increased tourist arrivals and increased foreign investments paved the way for a construction boom in the private sector after 2006 - but then in 2009 the global recession caused a significant construction drop.

However residential construction activity is now rising again.

In the third quarter of 2014, the value of residential construction permits issued surged by 43.6% from a year earlier, to BSD108.75 million (US$108.75 million), according to the Department of Statistics of The Bahamas, though the number of residential permits issued was almost unchanged, at 808 properties.

Almost 90% of the residential construction permits issued in Q3 2014 were located in New Providence, 9% in Grand Bahama and the remaining 1% in other Family Islands.<

During the first three quarters of 2014:

  • Residential starts soared 27% y-o-y to 296 properties, and the value of residential starts surged by almost 30% to BSD75.13 million (US$75.13 million) over the same period.
  • Residential completions fell by 13.3% y-o-y to 327 properties while the value of residential completions plunged by 13.6% to BSD85.22 million (US$85.22 million) over the same period. However, both the number and value of residential completions increased in Q3 2014, compared to the same quarter last year.

New top-end residential developments

Bahamas completions starts

Activity in the construction sector has been boosted by a number of foreign investment projects, including the multi-billion dollar Baha Mar development and smaller tourism-based initiatives on the Family Islands, according to the Central Bank of The Bahamas (CBOB).

The US$3.5 billion Baha Mar is currently among the biggest residential developments in the islands. Baha Mar is a 1,000-acre site in Nassau which includes 284 condominium units, more than 1,000 hotel rooms, three spas, retail and entertainment facilities, a casino and a Jack Nicklaus-designed golf course. Property prices range from US$1.1 million for one-bedroom residences to US$10 million for beachfront villas.

Honeycomb is another new property development in The Bahamas, being developed by Tavistock Group, the developer of the famous Albany in the southwest of New Providence. Honeycomb is a 34-unit scheme where each new home will have a private terrace and a pool. Property prices range from US$3 million to US$12.5 million. Honeycomb is expected to open in the first half of 2016.

“The newer developments that have come to market, or are about to, are helping bring more buyers back to the top end of this market,” said James Burdess of Savills.

Declining mortgage interest rates

Bahamas interest rates

The country’s central bank held its key rate unchanged at 4.50% in October 2014, having slashed it by 75 basis points in May 2011. In line with this, the residential mortgage interest rate in Bahamas fell to 6.96% in October 2014 from 7.36% a year earlier, according to the CBOB.  Mortgage rates were around 8% from 2007 to 2010.
The Bahamian residential mortgage market has expanded dramatically, growing from 20.7% of GDP in 2003, to 41.4% of GDP in 2011. However, due to the global crisis, it fell back to 37.8% of GDP in 2014.

Local banks lend largely to Bahamian households, in local currency (BSD1 = USD1).  Real estate purchases by wealthy foreign buyers are mostly paid in cash. Mortgage loans denominated in domestic currency made up more than 96% of all outstanding mortgage loans in October 2014.

Bahamas outstanding mortgage

A 2% increase in stamp duty took effect in July 2010, dampening sales. Two years later, the stamp duty for properties worth over $100,000 was reduced by 2% by the Stamp (Amendment) Bill of May 2012, in an attempt to revive the real estate sector.

Stamp duties are now as follows (this excludes first time home buyers who are exempted from paying stamp duty on homes lower the $500,000):

  • Properties between $0 and $20,000: - 4%
  • Properties between $20,000 and $50,000: - 6%
  • Properties between $50,000 and $100,000: - 8% 
  • Properties $100,001 upwards: - 10%

In October 2014, outstanding mortgages rose by 0.2% to BSD3.27 billion (US$3.27 billion) from the same period last year, according to the CBOB.

Rental market yields are good

Property rental yields in Bahamas are moderate to good, based on Global Property Guide research (based only on long-term rentals).

Nassau tends to have the highest average gross rental yields, with inland condominiums yielding around 8%, while waterfront condominiums yield an average of around 7%. Smaller waterfront condominiums have higher yields. Condos of around 120 sq. m. yield 8.16% p.a., while 300 sq. m. condominiums yield less, at 5.70% p.a.  Yields in Abaco and Grand Bahama waterfront are moderate, ranging from 3.57% to 4.45%.

Monthly rents for waterfront condominiums in Nassau range from US$2,000 to US$ 5,000 per month. In Abaco and Grand Bahama, rents for waterfront condominiums were at US$ 1,100 to US$ 1,500 per month.

The Rent Control Act applies only to dwellings with a total value of US$75,000 or below, stipulating that rents shall not exceed 15% (p.a.) of the assessed value of the property, and 20% for furnished residences. The luxury vacation rental industry is not covered by this act.

Tourism growing

The tourism sector continues to grow. In June 2014, visitor arrivals rose by 5.2% to 1.6 million, in sharp contrast with the 0.7% contraction recorded in the corresponding period in the previous year.

  • In the dominant sea segment, visitor arrivals rose by 5.4% y-o-y to 1,176,706 people in June 2014, more than double the growth seen in a year earlier
  • In the air segment, visitor arrivals increased 4.7% y-o-y to 379,667 people, a turnaround from the 8.7% annual contraction in the previous year.

Hotel occupancy levels were up in October 2014.  In New Providence, for an instance, hotel occupancy rate improved by 8.9 percentage points to 52.9% in October 2014, according to the Bahamas Hotel Association and the Ministry of Tourism. Over the same period, the average daily room rate rose by 4.1% to US$167.58 per night.

Bahamas visitors arrivals

Tourism accounts for around 60% of Bahamas’ GDP, and 50% of employment.  Bahamas’ second-largest industry is financial services, which accounts for 20% of GDP.

Meagre economic growth in 2014

Bahamas gdp inflation

The economy is expected to expand by just 1.2% this year, after real GDP growth rates of 0.67% in 2013, 1% in 2012 and 1.1% in 2011, due to modest gains in the high value-added stopover segment of the tourism sector and stable contributions to construction output.

The government’s overall deficit for the first two months of the fiscal year 2014/15 doubled to BSD87.4 million (US$87.4 million).

Inflation remains low. The Bahamas is projected to post an inflation rate of 1.4% this year, after 0.35% in 2013, 2% in 2012, 3.2% in 2011, according to the IMF.

However, with the expected implementation of the Value-Added Tax (VAT) in January 2015, the inflation is expected to rise, though this should be partially offset by lower global oil prices.

Few restrictions on property ownership by foreigners

There are no restrictions on foreigners buying property, except that a permit from the Government is required 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.

Taxes

The Bahamas’ tax situation is very attractive to foreigners, many of whom choose to become residents. There are no taxes on income, sales, estates or inheritances. There is no capital gains tax on real estate.

The only direct tax is a real property tax. Real estate taxes are around 1% annually, according to Global Property Guide.






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