BVI: luxury house prices rising but demand still weak
June 06, 2016
The property market in the British Virgin Islands is mixed, after several lacklustre years. House prices are now rising. While demand from both belongers and non-belongers remains down, tour facilities have been greatly expanded - and if history is a guide, more visitors will mean more buyers.
In 2015, residential property prices rose by around 10% to 12% from a year earlier, to a median sales price of about US$780,000, based on estimates from the figures released by the Land Registry.
- In Tortola, the largest and most populated of the British Virgin Islands, the average sales price of high-end residential properties was US$2.27 million in 2015.
- In Virgin Gorda, the second most populous and third largest of the British Virgin Islands, the average sales price of high-end residential properties was US$4.16 million in 2015.
However, demand for high-end properties remains weak. In fact, sales of residential properties priced over US$500,000 dropped by 38% in 2015 from a year ago, according to the Land Registry. The sales volume for properties priced over US$500,000 also dropped 29% in 2015, to US$23 million.
In 2015, sales to non-belongers - i.e., foreign homebuyers - dropped 18%.
European buyers dominate the BVI’s luxury market, accounting for 60% of luxury sales, according to Knight Frank’s Caribbean Desk Head Christian De Meillac.
Properties in the main islands of Tortola and Virgin Gorda are popular with foreign buyers, particularly on the western tip of Tortola near Smugglers Cove and Long Bay Beach. Homes with private moorings attract yachting enthusiasts. Demand for waterfront properties is also high.
Potential investors are not only looking for houses, but for land to develop—and the BVI is still largely undeveloped. In BVI, land can be bought starting at around US$100,000, versus around US$500,000 for developed properties.
The BVI’s official currency is the US dollar, so foreign investors do not have to be concerned about exchange rate fluctuations. Moreover, as an overseas territory of the United Kingdom, BVI enjoys a stable political culture, strong financial sector, and a high standard of living. Crime is also relatively low. Despite these benefits, some foreign investors are discouraged from investing in the BVI because of restrictions on foreign homeownership through landholding licenses and other government policies.
BVI’s main islands: Tortola and Virgin Gorda
Tortola is the BVI’s largest and the most populated island, known for pristine white sand beaches, aquamarine waters and yacht charters.
The Tortola Pier Park, the BVI's newest development, has an enhanced cruise pier dock and land development which can now berth two large ships side by side, and handle an estimated minimum of 425,000 passenger arrivals per year. The four-acre development cost US$ 75 million, US$ 25 million of which was used for the pier and excursion dock; US$ 25 million for land-side development; and US$ 25 million for community investment. It also houses more than 54 retail stores.
The long-awaited Brandy Wine Bay Beach development project received final approval from the Planning Authority on November 2015. The project will provide an alternative beach site for 500,000+ annual cruise passengers visiting BVI.
Virgin Gorda, in contrast to the crowded and overdeveloped Tortola, is secluded and peaceful, making it the choice of the wealthy.
Virgin Gorda's high-end resorts include the new and exclusive Oil Nut Bay, as well as the newly-opened yacht club and marina Yacht Club Costa Smeralda. The Oil Nut Bay offers beachfront and hillside homes, and 27 estate lots ranging from 1.5 to 10 acres.
Three-bedroom houses in Virgin Gorda start from around US$600,000 and go up to US$4 million. A five-bedroom show villa costs around US$ 8.5 million. or buyers can buy a plot by the marina for around US$ 1.9 million. Beach villa plots can be bought starting at around US$ 4.9 million, 10-acre top of hill plots for around US$ 15 million.
The economy’s “twin pillars”
The British Virgin Islands is one of the Caribbean’s most prosperous economies. After a slump in 2002 (-3.3%) and 2003 (-12.6%), the BVI bounced back with average annual GDP growth of 5% from 2004 to 2007, and then 1.5% from 2008 to 2010, according to the UN Statistics Division. The economy contracted by an annual average of 1.7% from 2011 to 2014. The economy expanded by 2.4% last year and further growth is expected in the next two years, driven by strong economic growth in the United States.
BVI has stable and low inflation, ranging from 1.8% to 2.5% from 2010 to 2015.
BVI’s economy is supported by the “twin pillars” of financial services (which account for 60% of GDP), and tourism.
BVI’s tourism sector has been depressed since the financial crisis. In 2009, total visitors to the BVI fell by 8.6%, according to the Caribbean Tourism Organization. Total visitor arrivals were down 0.9% in 2010, 1.3% in 2011, 9.4% in 2012, and 1.5% in 2013. The tourism sector started to bounce back in 2014 when the total number of visitor arrivals increased 4.1% from a year earlier. Then in 2015, visitor arrivals increased 19.4% y-o-y to 922,372 people, according to official statistics released by the Government of Virgin Islands. The BVI had about 393,000 stop-over visitors in 2015, up by 1.8% from a year ago. The increase in cruise passengers was even bigger in 2015, rising by 36.6% to 516,436 from just 378,083 in 2014.
Total visitor expenditures increased 5.5% y-o-y to US$484.3 million in 2015, according to government figures. About 90% of that came from stay-over visitors.
The BVI's financial services sector suffered a dip in 2009, but has since largely recovered. New company incorporations increased from 100,000 in 1993 to more than 480,000 in 2013, according to the AMB Country Risk Report of 2015.
As of March 2015, there were 143 captive insurers and 36 domestic insurers on the BVI, making it the world’s 4th largest captive insurance domicile. In Q1 2015, there were over 478,000 companies registered in the BVI International Financial Center. Among the 86 leading international financial centres, the BVI ranked 46th in the Global Financial Centers Index published in March 2016, down by three notches from the previous year.;
Rents and Yields
BVI’s residential rental market has been static in the past several years. The majority of rental houses and villas are located in Tortola.
In Tortola, rents for three-bedroom villas currently range from US$3,000 to US$5,000 per month, based on property listings of Coldwell Banker BVI. For four- to five-bedroom luxury villas, rents typically range from around US$4,000 to US$7,000 per month.
The average rent for a one-bedroom apartment in BVI is around US$ 1,100 per month. A two-bedroom apartment has an average rent of around US$ 1,700.
According to Global Property Guide research, gross rental returns for houses are poor, a mere 2.85% on average.
Overseas property buyers are required to obtain a Non-Belonger Land Holding License (NBLHL) to purchase property in the BVI, administered by the Ministry of Natural Resources and Labour. License approval usually takes around 3-9 months, and about a year to complete the process from application to closing. The license also extends to undeveloped properties.
Since belongers or British Virgin Islanders have the first choice of any property for sale in BVI, the Ministry requires that the property the foreigner wishes to purchase must first be advertised locally for four consecutive weeks in a local newspaper.
Property transactions of non-belongers are subject to a 12% stamp duty. Belongers, on the other hand, have a lower stamp duty of 4%.
If a foreigner wants to buy undeveloped land, he is required to build a single-family home worth not less than US$250,000, within two to three years. If he fails to do so, the government can impose a fine up to 40% of the sales price.
Undeveloped land cannot be resold until the development commitment has been fulfilled, or a penalty is paid to the government.
- BVI: luxury house prices rising but demand still weak - June 06, 2016
- The BVI's housing market recovery persists - April 16, 2013