Bahamas property market heats up
Lalaine C. Delmendo | May 17, 2018
After several years of housing slump, the Bahamas´ property market is now showing signs of improvement. Sales are rising and property prices have already stabilized. Residential construction is also recovering.
Bahamas´ property prices saw an average correction of 20% from peak after the 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).
"Since then, it´s been up and down, but it´s slowly getting better and better," said John Christie of H.G. Christie Ltd.
Sales volumes surged 40% in 2017, according to George Damianos of Damianos Sotheby´s International Realty. Christie´s put the sales growth at about 90%.
The luxury market has bounced back strongly. In Old Fort Bay, an exclusive waterfront community in New Providence, sales and prices of luxury homes have risen 10% to 15%, according to Richard Sawyer of Damianos Sotheby´s International Realty. Prices of luxury properties in Old Fort Bay start at US$2 million.
Ocean front units in the Royal Ocean Club, situated on Grand Bahama, are now priced at about US$150,000. In the Bahamas Rum Cay, one and two-bedroom beach cottages start at US$125,000.
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.
In the Elbow Cay, an eight-mile-long cay in the Abaco Islands, houses are priced from US$300,000 at the lower-end of the market, while beachfront properties are valued from US$1 million to US$8 million.
In the other Family Islands, prices range from US$395,000 to US$595,000 for condominium units while house prices range from US$439,000 to US$4.5 million. Oceanfront properties are priced from US$1.8 million.
Most foreign homebuyers come from the United States, Canada, France, Britain, and Italy.
2018 looks even better. "So far it looks to be shaping up to be a very good year," noted Christie. "Properties sold from last year are going to be closing, and there´s continued strong interest from people in the Bahamas."
"I am extremely optimistic and encouraged by what is going on, and we´ll definitely have a good year in real estate in 2018," said Damianos.
The Bahamas enjoyed GDP growth of 3% p.a. from 1997 to 2007. Growth halted in 2008 (-2.3% GDP) and 2009 (-4.2% GDP), due to the global financial crisis. The economy had an annual average growth of just 1.3% from 2010 to 2013 and declines of 0.5% in 2014, 1.7% in 2015, and 0.25% in 2016.
Finally, the economy grew by 1.3% in 2017, supported by the completion of Baha Mar project, new foreign direct investment, and post-hurricane construction activity, according to the International Monetary Fund (IMF).
The economy is expected to grow by 2.5% this year and by another 2.2% in 2019.
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.
The long-delayed Baha Mar project
The $4.2 billion 1,000-acre megaresort Baha Mar finally opened in April 2017, after many hitches covering more than a decade.
The story stretches back to the 1990s when Bahamian Prime Minister Perry Christie convinced U.S. investor Phil Ruffin to buy a large swathe of Cable Beach in Nassau, and then to sell to a development group led by commodity billionaire Sarkis Izmirlian. In 2008 the company dissolved in a credit meltdown, but construction nevertheless began in 2011 with China Construction America as builder. A buyer emerged in 2016 in the shape of Hong Kong´s Chow Tai Fook Enterprises, the private vehicle of late multi-billionaire Cheng Yu-tung´s family, a company involved in Macau with suspected underworld connections. In March 2017 Bahamian politicians were still arguing that the announced sale to Chow Tai Fook Enterprises was illegitimate, and have pledged to sell the resort "to a qualified and respectable purchaser who believes in Bahamians."
The resort encompasses multiple properties, including a 1,000-room casino hotel, a 300-room SLS Lux, a 200-room Rosewood and a 700-room Grand Hyatt. It also features a Jack Nicklaus-designed golf course and a 30,000-square-foot spa. The project has been billed as an economic driver since its inception and is expected to improve the country´s GDP by 12%. But projections of economic growth have so far gone unfulfilled, as the resort has missed multiple opening dates.
Prices of one-bedroom residences in this multi-billion dollar development range from US$1.5 million to US$3 million, while three-bedroom beachfront residences can cost as much as US$8 million.
Yields are good
Property rental yields in Bahamas are moderate to good, based on Global Property Guide research.
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 around 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$2,500 to US$ 6,500 per month. In Abaco and Grand Bahama, rents for waterfront condominiums are US$ 1,200 to US$ 3,500 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. Luxury vacation rents are not covered by this act.
Residential construction is rising
During the first three quarters of 2017, residential construction permits increased 5.8% to 713 compared to the same period last year, according to the Department of Statistics of The Bahamas. Likewise, their value rose by 7.7% to BSD248.7 million (US$248.7 million).
Great for the Bahamas, because it´s been a terrible decade. With the global recession in 2009 construction was 26% down, thn 22% down in 2010, then 7% down in 2012 and 27% down in 2013. In 2015 it was down another 11% and in 2016 also 11%. From 2007 to 2016, residential starts fell by an average of 12.7% every year while completions dropped by an annual 11.7%.
However residential construction activity is now rising again.
81% of the residential construction permits issued during the first three quarters of 2017 were in New Providence, 19% in Grand Bahama. There were no permits issued in other Family Islands.
During the third quarter of 2017:
- Residential starts rose by 42.6% y-o-y to 77 properties, and the value of residential starts more than doubled to BSD28.29 million (US$28.29 million) over the same period.
- Residential completions fell by 17.9% y-o-y to 119 properties while the value of residential completions rose by 31.3% to BSD46.45 million (US$46.45 million) over the same period.
Declining mortgage interest rates
The average residential mortgage interest rate was 5.54% in December 2017, down from 6.34% in December 2016 and 6.37% in December 2015, according to the CBOB. Mortgage rates were around 8% between 2007 and 2010, and 7.4% in 2011 to 2014.
However the mortgage has been shrinking. In 2017, the size of the mortgage market was equivalent to 31.6% of GDP, down from 33.2% in 2016, 34.3% in 2015, 35.7% in 2014, 36.4% in 2013, 36.7% in 2012, and 38.6% in 2011.
Local banks lend largely to Bahamian households, in local currency (BSD1 = USD1). Real estate purchases by wealthy foreign buyers are mostly in cash. Domestic currency mortgages make up 98% of all outstanding mortgage loans.
In February 2018, outstanding mortgages declined by 2.6% to BSD2.9 billion (US$2.9 billion) from the same period last year, according to the CBOB.
The introduction of VAT has increased red tape
A value added tax (VAT) of 7.5% was implemented in January 2015 on all conveyances of real property valued at more than US$100,000. Conveyances include the sale, lease, assignment or other transfer of real property from one owner to another.
VAT is payable on conveyances of:
- Vacant land;
- Dwellings for first time owner-occupiers, whether or not valued over US$100,000;
- Commercial buildings;
- Tenements or any other structures attached to a land;
- Timeshares; and
- Any buildings constructed for sale by contractors who are also the owners.
Stamp duty is now payable at a flat rate of 2.5%. First time homeowners are now exempt from stamp duty, and exempt from VAT on transactions under $500,000.
A sample computation is as follow:
|Property Value||Tax Payable Pre-Vat||Tax Payable Post-Vat|
|$70,000||8% stamp duty||2.5% (2.5% stamp duty + 0% VAT)|
|$120,000||10% stamp duty||10% (2.5% stamp duty + 7.5% VAT)|
|$500,000 (first time homeowner)||0%||0% (0% stamp duty + 7.0% VAT)|
Many real estate agents complain that VAT not only increases costs, but also worsens red tape and bureaucracy - which adversely impacts deals involving foreign investors and the country´s overall "ease of doing business" - because the law requires the sales price to be approved and stamped by both the Department of Inland Revenue and Public Treasury, instead of just the Public Treasury. This adds about four to six weeks to the approval process, according to some real estate agents.
"VAT has introduced another layer of bureaucracy," said Frederik Gottlieb, a lawyer and former politician. "To get a document stamped you have to get it stamped by the Department of Inland Revenue for VAT or marked ´exempt´, and then go to the Treasury."
"I´ve had instances where the VAT Department had no problem stamping the document based on the conveyancing price, but then the Treasury required an appraisal. All this makes it difficult to complete transactions."
In addition, the Central Bank of the Bahamas has recently decided to enforce a provision in the Stamp Tax Act of 2016 that allows it to levy a 1.5% fee on remittances heading out of the Bahamas.
"There are so many things that are creating uncertainty and anxiety for these investors," said Gottlieb.
Government plans to double investment threshold
Recently, the government unveiled a plan to try to attract "cream of the crop" ultra-high net worth individuals by raising to US$1 million the permanent residency threshold, from the current US$500,000.
Foreign Affairs Minister Fred Mitchell describes the current US$500,000 investment threshold for permanent residency consideration as "absolutely too low". "The cost of a work permit is $12,500 for someone who is a managing director of a bank for one year, and then you´re giving permanent residency to someone because he could pay $500,000 for a house. Something is wrong with that."
However, the consensus among real estate brokers is that eliminating buyers purchasing between the $500,000 and $1 million price points, and disregarding developers who have invested in developing properties targeting clients in the $500,000 to $1 million price range, could produce wider ripple effects in the economy.
George Damianos, Sotheby International Realty´s president has warned that Bahamas must compete against Caribbean rivals offering products the Bahamas does not, such as economic citizenships, implying that the proposed "doubling" of the permanent residency threshold would reduce the nation´s competitiveness.
Some developers do not dismiss the plan altogether but suggest that the government provide a lead time before implementing the change. Jason Kinsale, the developer behind ONE Cable Beach and the Balmoral, emphasizes that it is vital for the Government to introduce the plan in gradual steps, maybe prompting a one-time property-buying surge.
Economy improving, but tourism is weak
The economy was estimated to have expanded by 1.3% last year, after declines of 0.25% in 2016, 1.7% in 2015, and 0.5% in 2014, according to the IMF. The growth was mainly driven by the completion of Baha Mar, new foreign direct investment, and post-hurricane construction activity.
Baha Mar resort and residential development has created about 4,000 jobs, helping to reduce the overall unemployment rate to 10.1% in November 2017 from 11.6% a year earlier. Valued at US$3.5 billion, Baha Mar is the largest and priciest resort development in the Caribbean. It includes about 300 condominium units, more than 1,000 hotel rooms, three spas, retail and entertainment facilities, a casino and a Jack Nicklaus-designed golf course.
The economy is expected to grow by 2.5% this year and by another 2.2% in 2019, according to the IMF.
The government´s overall deficit is expected to decline to 2.7% of GDP during the fiscal year 2018, substantially down from last year´s 5.8% deficit.
Due to sustained large fiscal deficits, national debt increased to about 57% of GDP in FY2017, up from 51% of GDP in 2015 and from less than 20% of GDP prior to 2008.
Inflation is now rising. The Bahamas posted an inflation rate of 2.4% in 2017, up from 0.8% in 2016, 1.9% in 2015, 1.2% in 2014, 0.4% in 2013, and 1.9% in 2012. Consumer prices are projected increase by 2.2% this year and by another 2.6% in 2018, according to the IMF.
However, tourism is weak. In 2017, total visitor arrivals in the Bahamas fell by 2.1% y-o-y to 6.14 million, after growing by 2.5% in the previous year, based on figures from the Ministry of Tourism.
- Visitor arrivals by sea fell by 1.5% to 4,800,226 people in 2017 from the previous year
- Arrivals by air fell 4% y-o-y to 1,335,933 people in 2017
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.
The Bahamas boasts the highest concentration of celebrity-owned private islands anywhere in the world. Its more than 700 islands and cays have attracted well-known celebrities such as Johnny Depp, who filmed Pirates of the Caribbean in Exumas and purchased Little Hall´s Pond Cay in 2004 for a reported $3.6 million; magician David Copperfield who bought up to 11 islands for $50 million; music stars Faith Hill and Tim McGraw, who purchased 17-acre Goat Cay in 2006; director, actor and screenwriter Tyler Perry, who bought 20-acre White Bay Cay in 2009 for $6.4 million and business magnate Prince Aga Khan IV, who spent up to $100 million for 349-acre Bell Island, also in 2009.
The Bahamas has no income, inheritance, capital gains or corporate taxes.
Aside from its cities - the capital, Nassau, located on New Providence Island, and Freeport, which is on Grand Bahama - some of the most sought-after properties in the Caribbean are on the ´Out Islands´ including Abaco, Andros, Acklins and Crooked Island, Bimins, Berry Islands, Cat Island, Eleuthera, the Exumas, Inaguas, Mayaguana, and San Salvador.
The country is accessible from New York within 2.5 hours and from Florida within 45 minutes. The Bahamas´ economy is considered one of the most stable in the Caribbean thanks to its close ties and proximity to the US.
Some property hotspots are:
Abacos: Found in the Northern Bahamas region, the Abacos form a 120-mile chain of islands stretching over 650 square miles. The most popular of the islands are the Great Abaco Island and Little Abaco.
Property samples in Abacos:
- A 5-bedroom, 5-bathroom 3,675 sq.ft. single family home in Treasure Cay sells for $2.5 million
- A 125,322 sq.ft. single family home located in Man-O-War Cay with 2 private beach coves sells for $1.95 million.
- A 4-bedroom, 3-bathroom, 1,900 sq.ft. single family home in Elbow Cay sells for $990,000.
- A 3-bedroom, 2-bathroom 1,500 sq.ft. property off the coast of Green Turtle Cay sells for $749,000.
Andros: The largest island in the Bahamas, Andros is hailed as the world´s bone fishing capital and has the third largest fringing barrier reef in the world. It is the least developed among the group of islands in the Bahamas, making it the perfect escape for people who want to get away from the city bustle.
Property samples in Andros:
- 4-bedroom, 5-bedroom 4,000 sq.ft. single family home in Staniard Creek sells for $1.84 million
- 1,400 sq.ft. Kamalame Cay home with 2 bedrooms and 2.5 bathrooms sells for $990,000
- 2-bedroom, 2-bathroom 1,753 sq.ft. property in Congo Town sells for $450,000
Eleuthera: 50 miles east of Bahamas´ capital Nassau is Eleuthera, boasting a stunning reef system and 110 miles of pink and white sands.
Property samples in Eleuthera:
- 4-bedroom, 4-bathroom 76,230 sq.ft. single family home sells for $4.5 million
- A 2-bedroom, 2-bathroom 4,200 sq.ft. single family home sells for $4 million
Exumas: Exuma consists of over 360 islands, many of which are still untouched and are less explored than the prime destinations of Grand Bahama and Nassau.
Property samples in Exumas:
- A 7-bedroom, 9-bathroom 5,000 sq.ft. single family duplex off the shore of Tar Bay sells for $4.9 million
- A 4,800 sq.ft. single family home with 6 bedrooms and 1 bathroom sells for $3.3 million
Grand Bahama: The fourth largest island and considered the most known island in the Bahams, Grand Bahama is home to every conceivable amenity and property type. It has a commercial and tourism centre called Freeport located near the international airport. It is the second most populated city in the archipelago and is popular among vacationers and shoppers.
Property samples in Grand Bahama:
- A 3-bedroom, 2.5-bathroom single family home measuring 6,200 sq.ft. in Bahamia sells for $700,000
- A 7,000 sq.ft. property with 6 bedrooms and 7 bathrooms in Fortune Cay sells for $2.2 million
Nassau: Located on New Providence is the capital of the Bahamas, Nassau, a 21-mile long island which is linked to neighboring Paradise Island, home to the Atlantis resort, by a bridge. A full-service luxury development housing waterfront properties called Ocean Club Estates can be found at the easternmost tip of Paradise Island.
Located just at the western tip of New Providence is Lyford Cay, a gated community which has long been home to some of the world´s wealthiest individuals. It has a private international school and a mile-long beach that can only be enjoyed by a select few.
Just east of Lyford Cay lies Old Fort Bay, a modern private waterfront community with iconic Poinciana trees.
Property samples in Nassau:
- A 5-bedroom, 6-bathroom 2,522 sq.ft. single family home in Old Fort Bay sells for $2.75 million
- A 4-bedroom, 5-bathroom 5,694 sq.ft. single family home in Lyford Cay sells for $2.45 million
- Bahamas Gov’t’s proposed $1M residency bar likely to spook foreign buyers - April 08, 2017
- Bahamas property market: Baha Mar and after - March 22, 2016