A positive outlook for the Bahamas' property market

Bahamas residential property beachfront

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 according to a prominent realtor residential prices fell by an average of 35% in 2008. Condominium and apartment units range from US$300,000 to US$1 million, depending on the location.

In New Providence, second homes and vacation residences priced between US$750,000 and US$1 million sell easier than those priced US$1.5 million and above, due to the limited number of desirable areas.

Bahamas gdp growth graph

In the Family Islands (i.e. Abaco, Exuma, and Eleuthera), there is a larger demand for second homes and condominiums priced between $500,000 and $1 million than for those over US$1 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%.

Tourism and construction

Bahamas tourist arrivals graph

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.

Bahamas residential completions starts graph

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 harbour 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.

Bahamas residential permits issued graph

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 programme 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.

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

Bahamas residential mortgage rate graph

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

Bahamas rent index annual change graph

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 and Paradise Island, rents for apartments typically range from US$2,000 to US$3,500 per month while houses rent from around US$4,000 to US$6,500 per month. In Great Exuma, houses can be rented for about US$2,800 to US$3,000 per month.

The Rent Control Act of 1975 applies to dwellings with a total value of US$25,000, and rents shall not exceed 15% (p.a.) of the assessed value of the property, and 20% for furnished residences. The act was amended in 2006, and covers properties not exceeding US$75,000. The luxury vacation rental industry is not covered by this 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.

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.