Barbados property market remains weak, despite strong tourism
February 15, 2018
- In the famous West Coast, which caters primarily to super-wealthy foreigners, beachfront condo prices rose by 5% in 2016 from a year earlier, based on Terra Caribbean's Beachfront Condo Price Index (BCPI), which the company launched in January 2015. However, this figure may be misleading given extremely low sales volume during the year. One sale was for a flagship unit in a well-established development, commanding a premium price.
- In the South Coast, which caters to the mid-market, the BCPI dropped 7% in 2016 from a year earlier - the lowest level since 2007.
The median price of beachfront condos on the West Coast was US$848 per square foot (sq. ft.) in end-2016, up from US$805 per sq. ft. in 2015, US$ 728 per sq. ft. in 2014 and US$ 546 per sq. ft. in 2013.
The median price of South Coast's beachfront condos was US$409 per sq. ft. in 2016, down from US$441 per sq. ft. in 2015, US$426 per sq. ft. in 2014 and US$435 per sq. ft. in 2013.
Why are sales so weak?
In 2016, there were about 2,500 local property transactions in Barbados, far below the peak levels of 4,250 transactions seen in 2007, according to Terra Caribbean. Sales volumes of beachfront condos on the West Coast fell by 70% in 2016 from a year earlier, the lowest level since 2007.
This is surprising given strong tourism. In 2016, tourist arrivals rose by 6.7% y-o-y to a record 631,513 visitors, according to the Barbados Statistical Service.
"The problem is that most of the inventory was built at 2008 prices and those buyers are simply not there," said Hayden Hutton, the Chief Operating Officer of Terra Caribbean.
Population growth and wealth creation are two of the main drivers of property prices and transactions in Barbados, according to Terra Caribbean's Chief Executive Andrew Mallalieu.
"So without population growth, which we accept we do not have, and without wealth creation, which we have not had significantly in the last decade, what we are seeing is a stagnation in the local prices of real estate," said Mallalieu.
The overall outlook remains negative and residential property prices are expected to fall substantially in the medium term. "Investor comments reflected a view that the market is overpriced and that substantial adjustment or repricing was required," said Hutton.
Generally there are no restrictions on foreign ownership in Barbados except for one formality: nonresidents must obtain permission from Barbados' Central Bank if they want to buy property. This is pro forma, but failing to do so will void your purchase.
Barbados yields are moderate at 2.9% to 5.5%
Property prices have remained weak in Barbados. Gross rental yields in Barbados - the return on the cost of buying a property - are not unattractive, at 5.5% for 2-3 bedroom houses in St James. Larger properties yield less.
The Caribbean as a region levies extremely high taxes on buying and selling properties. If you have money in a visible thing (property), they will get you! By the standards of the region however, buying and selling costs in Barbados are not so very high, and mostly borne by the seller. (See also regional comparson of Barnados' buying and selling costs)
Rental income tax is high in Barbados
Rental Income: Rental income is taxed at a special flat rate of 15%.
Rental income earned by nonresidents is subject to 25% withholding tax, which is credited against the taxpayer’s final income tax liability.
Capital Gains: There are no capital gains taxes in Barbados.
Inheritance: Inheritance is not taxed in Barbados but transfers of property in Barbados are subject to property transfer tax.
Residents: Residents are taxed on their worldwide income at progressive rates, from 0% to 33.50%.
transaction costs are now moderate
With transfer taxes reduced from 7.5% to 2.5% in 2008, roundtrip transaction costs in Barbados are now moderate. Total costs for property sale and purchase range from 11% to 13.85%. The seller pays for a significant portion of the cost including the transfer tax, real estate agent's commission (5%, plus 15% VAT) and stamp duty (1%).
Buyer and seller pay for their own lawyer (legal fees are at 1% - 2%, plus 15% VAT).
The law is neutral in Barbados
Rent: Rent and rent increases can be freely negotiated.
Tenant Eviction: The landlord cannot evict a tenant without a court order under any circumstances, even when the tenant has not paid the rent for six months. It takes an average of 92 days to evict a tenant.
Economy improving, but fiscal deficit highImproving public finances remains a challenge, according to the International Monetary Fund (IMF). The economy expanded by 2% in 2016, after meagre growth of 0.9% in 2015 and no growth in 2013-14. Then during the first nine months of 2017, the economy posted 1.4% growth.
During the fiscal year 2016/17, the country’s fiscal deficit stood at 5.5% of GDP, down from 6.8% of GDP in the previous year. Despite this, the government’s overall debt remains high, at about 144% of GDP, largely due to an increase in public institution grants, according to Acting Central Bank Governor Cleviston Haynes.
Low foreign reserves remain a serious problem. During the first nine months of 2017, international reserves plummeted to just 8.6 weeks of imports (amounting to about US$275 million), below the international benchmark of 12 weeks. This puts more pressure on the stability of the Barbados dollar.
During the first seven months of 2017, total imports amounted to BBD1.8 billion (US$900 million) while exports totaled BBD541.1 million (US$270.6 million), resulting in a trade deficit of BBD1.25 billion (US$625 million), up from last year.
Unemployment was 11.4% in the second quarter of 2017, up from 10.1% a year earlier, according to the Barbados Statistical Service.
In July 2017, inflation accelerated to 3.4%, from -0.6% in the same period last year, according to the central bank.
Tourism at a record high
In 2016, tourist arrivals rose 6.7% y-o-y to a historic high of 631,513 visitors, according to the Barbados Statistical Service. Stop-over arrivals from the USA were up by 14.1%, the highest y-o-y growth among the country’s visitor markets. Tourism from the Caribbean Community and Common Market (CARICOM) (excluding Trinidad & Tobago) rose by 13.3%, followed by growth in the Canadian market (5.8%), and the UK (2.1%).
Then during the first seven months of 2017, stay-over arrivals increased further by 5.9% to 399,659 people compared to the same period last year.
In addition, tourists are on average spending more money. Total expenditure was US$984.3 billion in 2016, up from US$901.3 billion in 2015.
Tourism is expected to remain strong in the coming years, with the coming of several international hotel brands.
- The 220-suite Sandals Royal Barbados will open in December 2017;
- The 450-room Sam Lord’s Castle Barbados, the first Wyndham-branded resort on the island, will open in 2019;
- Hyatt and Beaches properties are also expected to open on the island in the coming years;
Tourism accounts for around 12% of the country’s GDP every year and more than 12% of the country’s total employment.