Barbados property market remains weak, despite strong tourism
February 15, 2018
Barbados´ housing market remains weak, despite improving economic conditions and record tourist arrivals. Residential property prices in Barbados, especially in the high-end market, are still about 29% below the peak levels seen before the global crisis. Transactions are at historic lows.
- 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.
Property market very dependent on foreign buyers
Barbados attracts a lot of foreign homebuyers. Properties in St. James and in St. Peter are popular with British buyers, while properties in south coast´s Christ Church parish attract Americans and Canadians, according to Cherita O´Dell of Million Dollar Homes.
"We live on foreign exchange and one of our biggest foreign exchange earners is selling properties to foreigners," said Lee Gooding of Seaside Realty Inc. "Overall it´s very significant. I would say 40% of our customers are from overseas," he added.
In 2012, a new residency permit was introduced, offering indefinite residency to investors who purchase a property worth at least US$2 million and have a net worth in excess of US$5 million.
Mortgage borrowing down, despite falling interest rates
In August 2017, the average mortgage interest rate stood at 5.71%, down from 5.96% in the same period last year and the lowest mortgage rate ever recorded by the central bank.
Non-residents can get mortgages with loan-to-value (LTV) ratios ranging from 50% to 70% (minimum loan of US$250,000) of the value of the real property, with maximum terms of up to 25 years, according to Terra Luxury:
- 60% - 70% LTV for US dollar mortgages up to US$2.5 million; and
- 50% LTV for mortgages more than US$2.5 million.
Only a few mortgage lenders offer mortgages denominated in US dollars, including the Royal Bank of Canada and First Caribbean International Bank.
In order to qualify for a local-currency mortgage, borrowers must have been continuously resident for three years, according to Central Bank of Barbados rules. Foreign borrowers who do not qualify can only obtain foreign currency mortgages. Mortgage interest rates in Barbados range from 5.5% to 8.5%. Foreign buyers often end up obtaining financing externally, because mortgage interest rates in Barbados are often higher than in European and North American countries. Over the past few years, US dollar loans have been attractive, especially for UK and European nationals. Their interest rate is linked to three-month US LIBOR plus the lender´s mark-up.
Since 1975, the Barbados dollar has been pegged to the US dollar at BBD2 = US$1.
Rental market boom
Barbados has a thriving rental market, due to the large number of tourists. Renting is more attractive for most people than getting a loan to buy, due to high mortgage interest rates.
Long-term rental properties are difficult to find in Barbados during the winter periods from November to April, and rents are much higher than usual.
Rents vary enormously between properties and location-apartments vs. houses vs. villas, furnished vs. unfurnished, inland vs. beachfront, West Coast vs. South Coast vs. East Coast. Rents for beachfront properties are higher than inland properties.
The least expensive long-rentals can be found on the East Coast, while prices are increasing in the South Coast. The most expensive properties are generally on the West Coast.
On the South Coast, an unfurnished three-bedroom house can be rented starting at US$ 1,350 per month. Rents for furnished three-bedroom houses range from US$ 1,500 to US$ 2,500 per month, while four-bedroom houses can be rented from US$ 3,000 to US$ 5,000.
Three-bedroom houses located in the West Coast can be rented from US$ 1,500 to US$ 5,000 per month. Five-bedroom houses have monthly rents ranging from around US$ 4,000 to US$ 9,000.
Luxury villa rentals range from US$2,500 to US$100,000 per week.
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.
"I confidently expect that at the end of the year 2017, it will be reported to me that we have had 650,000 visitors visit Barbados," said Prime Minister Freundel Stuart.
Barbados is also on track to see record arrivals of cruise passengers this year, according to Richard Sealy, the Minister of Tourism and International Transport. "It has been a record year for cruise ship arrivals to Barbados," said Sealy.
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.
Economy improving, but fiscal deficit high
Improving 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.
The famous West Coast
The West Coast, also called Platinum Coast, extends from the outskirts of Bridgetown (the country´s capital) in the south to Harrisons in the parish of St. Lucy in the north.
Many homes belonging to famous celebrities and super-wealthy foreigners can be found here, as can one of the most exclusive resorts in Caribbean, Sandy Lane hotel and residences, a member of The Leading Hotels of the World (LHW). It is home to one of the most expensive golf courses ever built, designed by Tom Fazio - The Green Monkey. Five-bedroom luxury villas here can fetch prices ranging from US$10 million to US$25 million.
Royal Westmoreland, in the parish of St James on the west coast of Barbados, is the only completed gated community in Barbados. It has colonial-style homes and cottages among its 225 properties, a golf course and a beach club. The prices of apartments and villas in Royal Westmoreland range from US$395,000 to over US$4 million. In addition, fractional units, offering part ownership, are also available, starting at US$50,000. Currently, three-bedroom Forest Hills villas are offered in the market for US$900,000 to US$1.1 million.
The Waterside, located on the pristine shores of Paynes Bay Beach, is an exclusive development that features 26 one and two-bedroom condominiums and 1 five-bedroom penthouse suite. Prices range from US$675,000 to US$2.8 million. The Beach View, a condominium complex that is also located on the Paynes Bay Beach, offers 36 two- and three-bedroom condo units with prices ranging from US$499,000 and US$749,000.
Port Ferdinand Marina and Luxury Residences, in Six Mens, St. Peter, is a two-phased development completed in 2015 consisting of 82 luxury residences and 120 berths. It offers two-to four-bedroom houses with private berths costing from US$ 2.25 million to US$ 4.25 million.
In the Apes Hill Club, a 470 acre-luxury development with a world-class 18-hole golf course and enjoys views of both the West and East Coasts, lots can be purchased starting at U$ 350,000. Prices of villas range from US$ 795,000 to US$ 3.2 million.
In Port St. Charles, prices of one-bedroom unit start around US$635,000. In Saint Peter´s Bay, which is located near Port St. Charles, is comprised of 57 private beachfront homes, including 6 penthouse suites and 3 deluxe penthouse suites. Its three-bedroom homes can be bought starting at US$ 2.3 million.
A relatively new lifestyle community in St. Peter, Vuemont, is one of the developments that target families looking for affordable homes. It has 77 residences that costs starting from US$ 275,000 for two-bedroom apartments, and starting from US$ 362,500 for three-bedroom villas.
In the Mullins Bay, a complex located near the Mullins Beach, St. Peter that features 26 elegantly furnished townhouses and villas, prices range from US$1.1 million to US$1.5 million.
In St. James, four-bedroom villas are priced from US$2.5 million to US$3 million. Villas On The Beach, a luxury beachfront development located in Holetown, St. James, consists of 18 one, two and three-bedroom apartments and four-bedroom penthouses. A three-bedroom apartment is priced at US$1.75 million. In the Merlin Bay, located in the exclusive area of The Garden, St. James, three-bedroom Mediterranean-styled villas are priced from US$1,095,000 to US$1,590,000.
There were a total of 470 beachfront condo units in the West Coast in 2016, according to Terra Caribbean. Of which, 158 units are still available in the market.
Developments on the South Coast
The South Coast, which begins at Carlisle Bay in Bridgetown and heads towards East Point on the Atlantic east coast, is less busy and has a more local feel. It caters mostly to the mid-market and has seen tremendous growth, with numerous developments already completed and delivered.
According to Cherita O´Dell, Million Dollar Homes and Barbados Real Estate 246 broker, luxury beachfront condominiums in the south coast range from US$3.75 million to US$ 5 million. Meanwhile, condominiums across from the beach cost from US$ 450,000 to US$ 650,000.
The Crane Resort and Residences, built in 1887, is one of the oldest resorts in Barbados. Its residential component has expanded over the years, and new villa-style residences have been completed in 2009. Full ownership homes in the Crane are sold starting at around US$ 617,000, according to Terra Caribbean.
The Ocean One, a six-storey apartment complex located within the popular South Coast area of Maxwell, currently offers three-bedroom units from US$685,000 to US$700,000 and penthouses for US$2.2 million.
The Palisades development in Enterprise, which consists of 16 townhouses and one cliff-top house, enjoys extensive ocean views of the South Coast. Prices of residences start at US$ 750,000.
In the Mistle Cove complex, which consists of 14 contemporary residences on a secluded beach in Christ Church, a two-bedroom ground floor apartment is sold for US$625,000.
The Maxwell Beach Villas, a complex of cozy villas and apartments in Christ Church, currently offers two-bedroom apartments for US$ 620,000 to US$725,000.
In the Cotton Bay Close, a private community located within a quiet neighborhood near Oistins and several other amenities, prices of three-bedroom homes start at US$397,500.
The Terraces, a modern apartment complex located minutes away from the well-known Dover Beach in the heart of St. Lawrence Gap, Christ Church, consists of 16 two- and three-bedroom residences. Prices start at US$297,500.
There were about 549 beachfront condo units in the South Coast in 2016, according to Terra Caribbean. Of the total, 181 units are still available.
East Coast to remain "local"
The East Coast on the Atlantic side of Barbados is better known for its rugged beauty. Because of huge Atlantic waves crashing along the shorelines, swimming is not advisable. However, beaches on the east coast are popular for walking, surfing and beachcombing.
Much of the eastern coastline is protected land, part of a National Park. Hence, though foreign investment interest in the area has significantly increased in the past years, it is difficult to obtain building or planning permission.
Some popular East Coast beaches include the Bathsheba beach, Cattlewash beach, and Crane beach.
The Villa Nova Plantation in St. John, an approximately 15-acre property of tropical forest and gardens with a total of 28 rooms, is currently for sale at around US$10 million. The property has an industrial kitchen and restaurant, spa treatment cottages, large pool with bar and gazebo, two tennis courts, and conference facilities.
In Bathsheba, St. Joseph, a boutique hotel with magnificent ocean views Sea-U Guest House, which consists of 10 individual rooms, can be bought for US$ 1.35 million.
- Barbados property market rising in 2016 - September 21, 2016
- Barbados property prices continue to fall, but sales now improving - July 26, 2015