Bermuda: Price History

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Last Updated: Feb 20, 2009

Condominium prices
soar, house prices stable

Prices for condominiums in Bermuda continue to climb, after a strong performance over the past years, while prices for single family homes have been flat.

In the year to end-2008, the average price for condominiums rose 4% to US$830,000. In contrast, the average price of single family homes was stable at US$950,000, based on figures from Coldwell Banker Bermuda Realty.

"Right now there is a high inventory of condos being placed on the market. People are seeing the benefits of condo ownership," said Susan Thompson, manager of Coldwell Banker Bermuda Realty.

"Bermudians are now embracing the concept of condo living," she added.

Bermuda, a classic favorite among the wealthy overseas buyers, has experienced impressive house price increases in the past years. The average residential property price rose 40% from US$976,000 in 2003 to around US$1.6 million in 2007.

Bermuda has enjoyed uninterrupted economic growth in the past decade fuelled by its robust financial sector. From 1997 to 2007, average GDP growth was 7.3% per year. It is one of the wealthiest jurisdictions in the world with GDP per capita of US$91,477 in 2007.

Bermuda has managed to become a leading offshore business centre, driven by its favourable tax laws. It is the 2nd largest captive insurance domicile after the U.S., and the 3rd largest reinsurance centre after London and New York. Finance and international businesses now constitute the largest sector of its domestic economy.

Strong demand for luxury housing

In the upper-end market, the value of property sales was US$63 million in 2008, up 21% from a year earlier. The market share of non-Bermudians buying high-end properties rose to 50% in 2008, as compared to an average of 25% to 40% share since the early 2000s.

By early-2009, there were three sales of luxury houses in the island. Two were bought by non-Bermudian buyers. This shows that foreigners are still looking at Bermuda as a domicile of choice for luxury housing.

There were 12 free-standing homes available to overseas buyers by early-2009 with an average list price of around US$11 million, according to Coldwell Banker Bermuda Realty.

The total number of dwellings completed was 269 units in 2007, a 12% drop from 304 units a year earlier. Housing completions peaked in 2006, when a total of 331 units were added in the market, according to the Bermuda Department of Planning. In 2007, there were a total of 30,100 residential dwelling units in Bermuda.

Strictly for the super-rich

Residential properties in this unspoiled island are very expensive, almost prohibitive. Foreigners can only purchase residential properties currently owned by non-Bermudians.

A foreign buyer needs to obtain a license from the Ministry of Labour, Home Affairs and Public Security, which costs 25% of the purchase price of a house, or 18% for a condominium.

Non-Bermudians can only purchase houses with ARV of US$153,000 or higher (the Annual Rental Value is the number used in the calculation of attendant land tax). Private houses in this category are very limited, and prices start at around US$3.5 million.

Condominiums bought by foreigners must have at least an ARV of US$32,400, and be within areas approved for foreign ownership. Prices of condominium units open for purchase by non-residents usually start at US$850,000.

Non-Bermudians are also prohibited from acquiring undeveloped property, except those Non-Bermudians who are spouses or children of Bermuda nationals.

Generally, a non-Bermudian are not allowed to own more than one residential property at any one time. A non-Bermudian will be permitted to purchase a second property only on condition that the original property is sold within a year.

The restrictions are even stricter on ‘buy to let’ property. Properties in Bermuda cannot be rented out or subdivided unless specific permission is granted by the Ministry. Such permission is not a formality. It is possible that a foreigner with some history of residence who temporarily departs would be allowed to agree a long let, but probably only for a year. But after that, he would likely be required to put his property into the short-term ‘holiday’ market, which the government wishes to encourage.

Fractional developments on the rise

Because full ownership is so expensive, fractional developments have become a popular way of acquiring properties for foreigners. These developments, considered tourism properties, are not affected by the same restrictions governing private houses and condos. Prices of fractional ownership shares vary from US$200,000 to US$500,000.

“Right now there’s an incredibly limited supply of very expensive, full-ownership real estate in Bermuda,” said Buddy Rego, president of Rego Sotheby’s International Realty.

“And these island homes cost on average $1,000 per square foot. So a 3,000 square foot home sells for around $3 million. As a result, luxury residence club homes, which sell at a fraction of the cost, are becoming increasingly popular. They are being bought by people who want to enjoy Bermuda resort living, but don’t want the multi-million dollar price tag.” he added.

Interest rates and the mortgage market

Mortgage interest rates are typically tied to the Bermuda base rate, which often followed key rates set by the US Fed. This is because the Bermuda dollar (BMD) is pegged to the US dollar at BMD1 = USD1. Currently, mortgage rates vary from 5.75% to 7.25%, excluding other fees.

The Loan to Value Ratio (LVR) is typically 80% of the appraised value of the property with terms range from 5 to 30 years. Local banks used two criteria in accessing mortgage applications,

Gross Debt Service Ratio (GDSR) - Housing expenses should not exceed 32% of household monthly income.
Total Debt Service Ratio (TDSR) - Housing expenses plus long-term debt in Bermuda should be less than 40% of monthly income.

Rental market slowing

The high-end rental market is slowing in Bermuda, as the demand coming from foreign holiday makers declines. By end-2008, rents were estimated to have fallen by 10% to 30% from a year earlier.

"The market at around four-and-a-half thousand dollars per month does to a large degree rely on expatriates," said Buddy Rego, president of Rego Sotheby's International Realty. "And there are signs that expatriates are leaving."

"Rental returns have dropped to levels we haven't seen, really, since the early 1990s. That is a significant drop. And lower potential income from rents has taken the wind out of the sales of property in general," said Cris Valdes-Dapena, managing director of The Property Group Ltd.

Average rents in the island increased by around 40% from 2000 to 2007. At the high-end market, an executive home that used to have a monthly rent of US$4,000 in 2004, rented for between US$8,000 to US$20,000 per month in 2008.

Despite this, rental yields are generally low in Bermuda. During the past decades rent increases have lagged property price rises, partly due to the rent control applied to the lower end of the rental market. Houses have yields of 4.3% on average, with three-bedroom houses generating the highest yields at around 5.05%, according to the Global Property Guide.

Housing market remains steady

Despite the global financial meltdown, Bermuda’s housing market remains stable. However, house prices are expected to fall slightly in 2009 until the excess supply of houses and condominiums will be absorbed in the market.

Consumer and business confidence remains intact. Banks continue to lend to responsible homebuyers, while households still believe that real properties offer the best long-term investments.

"Making predictions for 2009 at this juncture would be entirely unrealistic given the current evolving state of the global economic markets,” said Brian Madeiros, president of Coldwell Banker Bermuda Realty. “However we are optimistic that Bermuda will remain an island of choice for international buyers."

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