Bermuda's housing market improving
April 20, 2016
Bermuda’s home market is now thriving, amidst increasing demand from both Bermudians and foreign homebuyers.
During 2015, the average price of single-family homes rose by 9.1% to BM$1.2 million (US$1.2 million) from BM$1.1 million (US$1.1 million), according to Coldwell Banker Bermuda Realty.
The total number of property sales in Bermuda surged 43.5%.
“[F]or the first time in a long time, three years consecutively, we have seen more activity and stronger pricing,” said Rego Sotheby’s president, Buddy Rego.
- In the luxury market, house prices start at BM$3.5 million (US$3.5 million). The average price of high-end residential properties rose by 9% to BM$6.2 million (US$6.2 million) from a year earlier, according to the Rego Sotheby’s International Realty.
- In contrast, the average price for condominium units sold was BM$850,000 (US$850,000), down by 13% from a year ago, according to Rego Sotheby’s International Realty.
Property sales improving but still far below peak levels
Though Bermuda’s property market has bounced back, it will take several years before it can match pre-recession boom years. The total number of houses with an average price of BM$1.2 million (US$1.2 million) sold in 2015 was almost the same as in 2014. Around 70% of all homes sold across the island were properties priced less than BM$1.5 million (US$1.5 million).
In 2015, nationwide property sales were estimated to be 300 properties, up from 209 properties in the worst year of 2012 - but still far below the 714 property sales in 2009.
The average residential price in Bermuda rose 40% between 2003 and 2007, from US$976,000, to around US$1.6 million. The rise then halted in the aftermath of the global financial meltdown in 2007. Single-family homes, which were priced at around US$1.6 million in 2007, fell by 16.9% to US$1.3 million in 2009. The residential property market has been sluggish since then.
Aside from strong demand from Bermudians, there is an increasing interest from international homebuyers and Permanent Resident’s Certificate (PRC) holders this year. “International buyers largely recognize there are current buying opportunities that make Bermuda real estate valuable in the long term,” said said Penny Maclntyre of Rego Sotheby’s International Realty.
“What 2016 will hold remains to be seen, but people are probably cautiously optimistic. With the America’s Cup and if interest rates stay low and consumer confidence stays high, or at least on the same plane it is now, we hope again for modest increases,” said Rego.
Cash purchases continue to increase. About 37% of the total property transactions in 2015 were cash purchases, up from just 11% in 2012 and 2% in 2010. Bermudians and people living on the island made most of the cash purchases in 2015.
Land sales for residential development are also rising. In the first half of 2015, 6 lots had been sold, compared to the 8 lots sold for the entire 2014. There were about 20 land sales per year from 2012 to 2013.
Bermuda has one of the highest GDP per capita incomes in the world, at around BM$91,479 (US$91,479) in 2014, according to the Department of Statistics. Financial services and tourism are the biggest contributors to GDP. Real estate and renting account for 16.5% of GDP.
Bermuda´s economy has been shrinking since 2009, when GDP contracted by 5.3%, due to the global crisis. GDP dipped by 2.1% in 2010, 3.3% in 2011, 4.8% in 2012, and 2.5% in 2013. The economy continued to contract in 2014, albeit at a slower rate of 0.4%.
There are still no official figures for 2015, but things seem to be improving. “While we cannot confirm that the Island is out of recession, we can support the positive indications of a healthier economy,” said Coldwell Banker manager Susan Thompson.
In 2015, total visitor arrivals in Bermuda increased slightly by 1.8% y-o-y to 590,570 people, according to the Bermuda Tourism Authority. Regular visitors declined by 2% to 219,814 people in 2015 from a year ago while cruise ship visitors increased 4.2% over the same period.
In 2015, unemployment stood at 7%, down from 9% in 2014, according to the Department of Statistics. There were 2,348 unemployed people in Bermuda in 2015, down from 3,210 people in the previous year.
Inflation remains low. In the last quarter of 2015, the overall inflation rate was 1.2%, down from 1.5% in the previous quarter and 2.2% in the same period last year.
Rental demand is now increasing, but rental yields continue to fall
Rental transactions were up by 17% y-o-y in the first half of 2015, according to Coldwell Banker.
Demand for rental properties was particularly strong in Hamilton. There is an increased rental activity in the west, the focus of the America’s Cup, to be held in 2017.
“There is still a need for stand-alone, three-plus bedroom family home inventory,” said Coldwell Banker.
In 2015, the average monthly rent for a one-bedroom apartments in Bermuda was BM$2,000 (US$2,000) while it was BM$3,100 (US$3,100) for two-bedroom apartments.
Monthly Rental Rates, BM$ (BM$1 = US$1)
|Source: Coldwell Banker Bermuda Realty|
However, gross rental yields continue to fall, i.e., the percentage return on the purchase price of a rental property. The average rental yield of condominiums was around 5.46% in 2014, slightly lower than the previous year’s 6.25%, according to a Global Property Guide research. The same downward trend is observable for houses in Bermuda, with average rental yields falling slightly to 4.37%, from 4.87% the previous year.
Surprisingly, two-bedroom condos have the highest rental yields at around 6.41% in 2014, while one-bedroom condos earn the lowest rental return at 3.91%.
Thriving luxury property market
In 2015, the average price of high-end residential properties rose by 9% to BM$6.2 million (US$6.2 million) from a year earlier, according to the Rego Sotheby’s International Realty. There were 12 luxury residential properties sold in 2015, up from 6 in 2014.
“We’re pleased with how the luxury sector has shown more signs of life. We have people coming to Bermuda, looking around and evaluating the benefits,” said Penny Maclntyre of Rego Sotheby’s International Realty.
“Our agents are currently negotiating new sales transactions and making preparations for imminent closings on six luxury homes,” said Coldwell Banker Bermuda Realty. “This is a superb start to 2016 for luxury home sales.”
Residential construction sector mixed
In the first three quarters of 2015, dwelling completions dropped 45% to just 38 units, according to figures from the Department of Statistics.
In contrast, the total value of residential construction projects in Bermuda rose by 19.3% to US$108.3 million in the first three quarters of 2015, compared to the same period last year, according to the Department of Statistics.
In 2014, the value of residential construction projects was US$122.5 million, up from US$85.1 million in 2013 and US$106.8 million in 2012, but sharply down from US$302.8 million in 2012.
The total housing stock in Bermuda was estimated at about 31,000 units in 2014, according to the Department of Statistics.
Mortgage market and interest rates
Variable mortgage rates in Bermuda can be obtained, with terms ranging from 5 up to a maximum of 30 years. Interest rates on long-term loans currently range from 5.99% to 6.5% , excluding other fees.
Based on figures from HSBC Bank Bermuda:
- Variable mortgage rates range from 5.99% to 6.5%
- Fixed mortgages rates range from 6.1% 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%.
Policy changes to foreign and expatriate home ownership rules
In June 2012, the government introduced new threshold requirements covering sales of properties by Bermudians to non-Bermudians and Permanent Resident Certificate holders (PRCs):
- The minimum house annual rental value (ARV) was raised from $153,000 to $177,000. The ARV threshold for condominiums remains $32,400.
- PRCs can purchase homes with an ARV of $63,600.
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 is 25% of the purchase price of a house, or 18% for 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.