May 21, 2018
It´s a rich man´s world. Reinvigorated by the Americas Cup and a stronger economy, Bermuda´s high-end residential market picked up in 2017.
The July 2017 general elections may have also triggered increased activity. "With any election, there´s uncertainty beforehand and afterwards and people hold off on making decisions," said Rego Sotheby´s International Realty partner Penny MacIntyre. "Now people are making decisions." In the tiny market for the mega-rich - 8 homes sold per year in 2017 and 2016 - the average stand-alone homes sales price dealt with by Rego SIR rose an amazing 102% to BM$ 8.7 million (US$ 8.7 million) in October 2017, compared to last year, according MacIntyre.
Currently Bermuda´s real estate market is "at the upper end of average" in terms of sales, says Sinclair Realty Bermuda ´s managing broker John Sinclair. Houses worth less than BM$ 6 million (US$ 6 million) and more than BM$ 10 million (US$ 10 million) have had strong interest from buyers, according to Sinclair.
However most of us do not live in this universe, but in a more average world. "Average" in Bermuda is still pretty expensive. Average residential prices in Bermuda rose 40% between 2003 and 2007, from US$976,000 to around US$1.6 million. The rise halted after the global financial meltdown in 2007 and single-family homes, priced at around US$1.6 million in 2007, fell by 17% to US$1.3 million in 2009. The residential property market has been sluggish since then.
In 2016, realtors saw stabilization in the housing market. However, international sales were adversely affected by the U.S. presidential election and by Brexit, while domestic consumer confidence was hit by socio-political unrest in Bermuda, according to Penny MacIntyre of Rego Sotheby´s International Realty.
"There was a lot of uncertainty, and a lack of confidence in Bermuda´s reinsurance industry," said Marshall Diel & Myers senior associate Darren Donnithorne. "But we´re very busy at the moment...There are a lot local transactions and non-Bermudian purchases as well," said Donnithorne.
When it comes to condominium units, those units within the BM$ 2 million (US$ 2 million) to BM$ 3.5 million (US$ 3.5 million) range ― units that are considered the luxury market entry point - are becoming in demand as well.
However the average price of condominiums sold in 2017 fell by 4.6% to about BM$ 650,000 (US$ 650,000) from a year earlier. "Supply continues to increase and sellers will be confronted with longer than average days on market if the property is not correctly priced," said Coldwell Banker Bermuda Realty. "Price, perceived value and downsizing, continue to be the major contributing factors from a demand perspective".
The number of high-end condo sales during the first three quarters of 2017 was only 18, a significant decline from around 55 condo sales in 2016, according to MacIntyre.
Bermudians made up about 80% of condo buyers while the remaining 20% consisted of foreign homebuyers from the U.S., South Africa, and Switzerland, among others.
Foreign and expat buyers get a break
In April 2016, the government introduced new threshold requirements covering sales of properties by Bermudians to non-Bermudians and Permanent Residence Certificate holders (PRCs).
For property sales to non-Bermudians and international homebuyers:
- The minimum house annual rental value (ARV) was lowered to $126,000 from $153,000.
- The ARV threshold for condominiums was reduced to $25,800 from $32,400.
For property sales to PRCs:
- PRCs can purchase any property (no minimum ARV) except for vacant land or property developed for a government assisted scheme.
Foreign spouses of Bermudian nationals are also no longer required to get a license to acquire their first home, but need a license for additional properties.
When acquiring a residential property, a foreign buyer must obtain a license from the Ministry of Labour, Home Affairs and Public Security. The alien license fee for non-Bermudians is 8% of the purchase price of a house, or 6% for a condominium. The alien license fee for PRC homebuyers is 4% of the purchase price of a house or a condominium. For fractional units, the fee is 10% on first-time sale and 18% on the second.
Non-Bermudians may not acquire undeveloped property, unless they are spouses or children of Bermuda nationals.
Generally, a non-Bermudian cannot own more than one residential property. A non-Bermudian will be permitted to purchase a second property only on condition that the original property is sold within a year.
Most international buyers pay in cash, according to local real estate agents.
Mortgage market interest rates higher than in the U.S and Europe
Variable mortgage rates in Bermuda range from 5 years up to 30 years.
Based on figures from HSBC Bank Bermuda:
- Variable mortgage rates range from 5.99% to 6.5%
- Fixed mortgages rates range from 5.74% to 6.25% (with fixed rate period of 5 years)
The Loan to Value Ratio (LVR) is typically 80% (up to 95% at HSBC Bermuda) of the appraised value of the property.
Bermuda does not have a Central Bank. Adjustable-rate mortgages (ARM) are tied to the Bermuda base rate, which usually follows US Fed key rates, as the Bermuda dollar (BMD) is pegged to the US dollar at BMD1 = USD1. Currently, the base rate of HSBC Bank Bermuda is 3.5%.
Economy is picking up; debt still a problem
Bermuda ranks as one of the world´s highest GDP per capita incomes, standing at about BM$ 99,317 (US$ 99,317) in 2016, according to the Department of Statistics. Financial services and tourism are the biggest contributors to GDP. Real estate and renting activities account for 17.5% of the country´s GDP in 2016.
While there are still no official figures for 2017, the economy seems to have been picking up, expanding by 0.7% in Q1 2017, 3.1% in Q2 2017, and 2.4% in Q3 2017, according to the Department of Statistics.
"Many of the major economic indicators such as employment, employment income, air visitors, new construction projects and retail sales increased in 2017 indicating a strengthening in the Bermuda economy," according to the ministry´s report.
Since the global financial crisis in 2009, Bermuda´s economy has been in the doldrums. After declining by 5.9% in 2009, the country´s GDP continued to contract in the succeeding years by around 2.5% in 2010, 4.4% in 2011, 4% in 2012, 2% in 2013, and 0.3% in 2014. The economy was thought to have bottomed out of recession after registering a meagre growth of 0.6% in 2015. However, Bermuda´s GDP contracted again in 2016 by around 0.1%.
In 2017, total visitor arrivals in Bermuda went up by 7% y-o-y to 687,625 people, according to the Bermuda Tourism Authority. The number of regular visitors surged by 10.3% y-o-y to 269,576 people in 2017, while cruise ship visitors rose by 5.1% to 418,049 people over the same period.
Aside from a weak economy, Bermuda has also been struggling with its escalating debt problem. The country´s gross debt outstanding was estimated to have reached around BM$ 2.57 billion (US$ 2.57 billion) by end of March 2018, according to the Ministry of Finance. In Bermuda´s 2018-19 budget, the estimated debt service costs are projected to be around BM$ 188.2 million (US$ 188.2 million), up by 1% from the previous budget allocation.
While the KPMG believes that the Bermudian government is still committed in prioritizing debt reduction, the firm noted that this should be combined with measures that could diversify the economy. "Nonetheless, with a debt-to-GDP ratio hovering between 40%-45%, the Government is in a difficult situation and will be squeezed further if forecasted revenues / costs for 2018/19 prove to be overly optimistic," according to KPMG.
The country´s annual inflation rate is still low, which stood at 1.6% in January 2018. It was a decline from 1.9% in the previous month, and from 1.9% in January 2017.
More construction activity
During the first three quarters of 2017, dwelling completions rose by 22% y-o-y to 50 new dwelling units, which "halts the downward trend that occurred in this segment of the construction industry over the past several years", according to the Department of Statistics.
IOver the first three quarters of 2017, residential construction significantly rose to US$ 537.5 million, from US$ 81 million during the same period the previous year, according to the Department of Statistics. Local real estate agents believe that the rise in residential construction was primarily buoyed by the America´s Cup. In 2016, the value of construction projects was around US$ 96.3 million, down from US$ 161.8 million in 2015 and US$ 122.5 million in 2014.
Morgan´s Point, located on the west end of the island and a former American Naval base, is now being reinvented to appeal to foreign investors. Caroline Bay, a luxury five-star hotel resort that includes a branded hotel, luxury residences and a mega-yacht marina, is now being developed. The development, which was started last year, is expected to open in 2018.
There are also new hotels and residential condominium developments scheduled to be constructed in Ariel Sands resort in Devonshire, and in the East End located in the historic town of St. George´s, according to Karin Sinclair of Sinclair Realty.
The total housing stock in Bermuda was estimated at about 31,000 units in 2014, according to the Department of Statistics.