Outlook for The Bahamas property market bleak, as tourism grinds to a halt
Lalaine C. Delmendo | August 11, 2020
Price movements were mixed last year. In New Providence, the average price of single-family homes fell by 9.5% y-o-y in 2019 while condominium prices increased 7.2%.
- In the high-end communities of Old Fort Bay and Ocean Club Estates, residential property prices rose by an average of 16% y-o-y in 2019.
- In Cable Beach and Sandyport, average sales prices rose by 19.8% and 5.8%, respectively.
- In Lyford Cay and Port New Providence, prices fell by about 6% to 15% last year.
Bahamas' property prices saw an average correction of 20% from peak after the global financial crisis, with some areas seeing declines of as such as 60%, according to Bahamas Realty. Local agents say house prices dropped by 30% to 40% from 2007 to 2010 (there are no official house price figures). The housing market has slowly stabilized since. In fact before Hurricane Dorian struck the small Caribbean nation, overall prices have been stable in the past three years, with almost balanced supply and demand, said George Damianos of Damianos Sotheby's International Realty. In 2019, the average price of single family homes in The Bahamas stood at about US$3.5 million.
Most foreign homebuyers in The Bahamas come from the United States, Canada, France, Britain, and Italy.
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$750,000 qualify for permanent residency. However, neither permanent nor annual residence gives a foreigner the right to work in the country.
Due to the economic fallout from the COVID-19 pandemic, the government forecasts that GDP will plunge by as much as 12% this year. In fact, Moody's figures are more pessimistic, projecting a GDP contraction this year of around 16% to 20%.
The economy had annual average growth of just 0.7% from 2010 to 2017. Economic growth improved to 1.6% in 2018 and to 1.8% in 2019, thanks to the opening of Baha Mar, increased foreign direct investment, and post-hurricane construction activity.
Prices firm in the Bahamas, yields good in Nassau
The Bahamas has traditionally had quite high yields. But as such a high proportion property rentals is seasonal, it is hard to get good figures.
Among the different types of properties that we survey, inland condominiums on Nassau have the highest average yields at around 8%, with yields of around 7% for Nassau condominiums along the water. Yields in Abaco and Grand Bahama waterfront are moderate, ranging from 3.57% to 4.45%. Last year we found a similar yield gap for Nassau houses, so it seems that this real factor, not a statistical blip.
Bahamas impose little tax
Rental Income: There are no income taxes but stamp duties are imposed when leasing Bahamian real property.
Capital Gains: There are no taxes on capital gains in the Bahamas.
Real Property: Property taxes should not be a major concern. The maximum tax rate is 1% for properties worth more than US$500,000.
Inheritance: Inheritance is not taxed in the islands.
Residents: Income of residents is not subject to tax.
Buying costs can be very high in Bahamas
Round-trip transaction costs, i.e., the cost of buying and selling property, range from 9.10% to 25.50%. The huge range is partly due to the progressive nature of Stamp Duty, which ranges from to 2% to 10%.
The high transaction costs are also due to the (very high) agent's commission, usually paid by the seller.
Commission for real estate agents in the Bahamas are set by The Bahamas Real Estate Association. The real estate agent’s fee is 6% for developed properties and 10% for undeveloped properties or vacant land.
Bahamas' law is pro-landlord
Rent: Rents can be freely agreed both for long-term fixed term tenancies, and for holiday lets.
In theory some property falls under the Rent Control Act, but it only applies to buildings with a total value of less than B$25,000, so in practice it is inoperative.
Tenant Eviction: The landlord must give the tenant proper notice of rent due and possible eviction for defaulting on rent. If the tenant fails to pay the rent on time, the landlord can summon the local police and repossess the property.
Even though a court order is not necessary for tenant eviction, most landlords bring defaulting tenants to court and sue for uncollected rent.
Unemployment rising againUnemployment is expected to rise to 15.2% this year, the highest level in 7 years as Baha Mar and other resorts and businesses cut jobs amidst the pandemic.
That’s because due to the economic fallout from the COVID-19 pandemic, the government forecasts that the economy will plunge by as much as 12% this year. Moody’s figures are far worse, projecting a GDP contraction for The Bahamas of around 16% to 20% this year.
In June 2020, Moody’s downgraded The Bahamas’ credit rating by two notches from Baa3 to Ba2 with a negative outlook, effectively putting the nation into “junk status”. This is in line with Standard & Poor’s earlier move to downgrade the nation’s sovereign credit rating from BB+ to BB, also with a negative outlook due to the uncertainty related to the duration of the coronavirus outbreak.
“The negative outlook reflects Moody's expectation that given the severity of the coronavirus shock, the government's credit profile will continue to be exposed to downside risks related to the recovery of the tourism sector,” said Moody’s.
The government’s deficit is expected to increase sharply this year to US$1.3 billion, which is equivalent to 11.6% of GDP. The national debt is projected to rise to 85% of GDP this year from less than 66% of GDP in 2019.
Inflation slowed to 1.3% in 2019, from 2.3% in 2018 and 1.5% in 2017. However consumer prices are projected increase again by 2.4% this year, according to the IMF.