Barbados: West Coast's house prices up, South Coast down
Lalaine C. Delmendo | October 29, 2020
Barbados' housing market suffered a decade-long decline following the global financial crisis. Residential property prices in Barbados, especially in the high-end market, are still between 20% and 30% below their peak levels seen before the crisis.Barbados' housing market remains two-tiered, with the high-end West Coast market showing signs of improvement while the South Coast is experiencing falling demand and house prices.
In the famous West Coast, which caters primarily to super-wealthy foreigners, median beachfront condo prices rose by 0.3% in 2019, following declines of 13.8% in 2018, 10.9% in 2017 and 13.3% in 2016, according to Terra Caribbean's Beachfront Condo Price Index (BCPI), which the company launched in January 2015. There were however more sales – around 20% - above $5 million, so that average prices rose 70%.
The upward movement of prices in the West Coast can be mainly attributed to rising high-end demand. In 2019, sales transactions increased 4.5% from a year ago.
“As of the end of 2019, the BCPI for the south coast has declined by two points reflecting the 2.5% decrease in median price…(and) there have been fewer recorded sales transactions, down 21% from the previous year,” noted Terra Caribbean.
- On the West Coast the median price of beachfront condos was US$538 per square foot (sq. ft.) in 2019, slightly up from US$536 in 2018, but down from US$622 in 2017, US$698 in 2016, US$805 in 2015 and US$ 728 in 2014.
- On the South Coast the median price of beachfront condos was US$407 per sq. ft. in 2019, from US$417 in 2018, US$408 in 2017, US$409 in 2016, US$441 in 2015 and US$426 in 2014.
The nationwide land price index rose by 6.3% in 2019 from a year earlier, following a growth of 4.3% in 2018, according to Terra Caribbean.
Transactions remain far below the peak levels of 4,250 transactions seen in 2007.
In 2019, overall transaction volumes in Barbados fell by 4.9% to about 2,460 units, following growth of 7.9% in 2018 and declines of 0.1% in 2017, 3.8% in 2016 and 10% in 2015.
“Perhaps this is unsurprising given the economy is reported to have contracted by 0.1% over the same period,” said Hayden Hutton, COO of Terra Caribbean.
“Whereas there were various adjustments implemented in the 2019 budget, including a sweeping overhaul of the corporate and personal tax rates, the increase in Land Tax rates has likely not encouraged the market in the short term,” Hutton added.
Regional variations:
- In the West Coast, sales volumes of beachfront condos rose by 4.5% y-o-y to 23 transactions in 2019.
- In the South Coast, sales of beachfront condos dropped 21.1% y-o-y to 30 transactions last year.
Most foreign homebuyers in Barbados come from Canada, the US, the UK and continental Europe.
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.
Analysis
of Barbados Residential Property Market »
Barbados yields are anyone's guess
Property prices have remained weak in Barbados. Last year we found that 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 yielded less.
This year we were unable to find enough properties to give a reasonable estimate of yields.
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 12.50% to 28.50%.
Barbados' roundtrip
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.
Barbados’ already ailing economy suffers further due to pandemic
The government declared a public health emergency and the whole country was put under an overnight curfew during the later part of March 2020, in an effort to contain the coronavirus outbreak.“The impact of the virus on the domestic economy threatens to be severe,” said the Central Bank of Barbados in its Q1 2020 economic review. “The cancellation of global business and personal travel with the attendant effects on airlift and cruise visits to Barbados has already curtailed tourism activity and it is having negative spill-over effects on ancillary sectors.”
“The hotel and restaurant sectors have been hard-hit, as closures have resulted in the loss of jobs and earnings,” the central bank added. During the first quarter of 2020, economic activity declined by 3%.
As a result, GDP is expected to plunge this year by as much as 13%, according to the Central Bank of Barbados. In fact, the government will be forced to secure funding from international agencies.
In Q1 2020, total government revenues fell by 9.4% to BB$ 845.6 million (US$418.2 million) as compared to the same period last year. Unsurprisingly, the government recently lowered its primary surplus target to 1% of GDP for FY 2020-21, sharply down from a target of 6% before the pandemic.
After a serious over-indebtness crisis, the government was able to achieve a primary surplus of 6.1% of GDP for the FY2019/20, thanks to the country’s ongoing fiscal reforms and debt restructuring. Likewise, the government’s overall debt, while remains high, has declined in recent years. Likewise, gross public sector debt stood at 120% of GDP in FY2019-20, down from 126.3% in 2018, 148.4% in 2017 and 151.2% in 2016.
“The deterioration of the primary balance will cause a deviation away from the plan to reduce debt in the short term,” said the central bank. “Government, however, remains committed to achieving its 60 percent debt-GDP ratio by 2033 and a resumption of fiscal consolidation efforts is anticipated over the medium term as the economy rebounds from the shock.”
Unemployment is expected to rise to 13.4% due to coronavirus-related job losses. The overall jobless rate fell to 8.9% in the fourth quarter of 2019, from 9.5% in the previous quarter and 11.6% a year earlier, according to the Barbados Statistical Service.
In fact in March 2020, unemployment claims surged to 7,793 compared to an average of just 624 in January and February, based on central bank figures. And during the first four weeks of April, over 20,000 new claims were registered as the nationwide curfew took effect.