Trinidad and Tobago’s house prices falling, amidst struggling economy
Lalaine C. Delmendo | May 15, 2018
Trinidad and Tobago´s residential market remains weak, with the economy struggling because of dependence on oil and gas reserves, particularly in Trinidad. A mortgage crisis may be looming. The median house price fell by 5.9% to TT$1.2 million (US$176,402) during the year to Q3 2017, according to the Central Bank of Trinidad and Tobago. Quarter-on-quarter, house prices fell 14.3% in Q3 2017.
The country recovered more slowly from the global financial crisis as compared to some neighbors, with property prices falling 20% from 2007 to 2009. That was because foreign homebuyers, who mostly come from Britain, Germany, the United States and Canada, were blocked by a requirement introduced in 2007 that foreign investors obtain a license for land purchases in Tobago.
Things have now got worse. After a short-lived recovery in 2015, the housing market started to decline again in 2016 due to the decline in oil prices. The economy contracted by 6% in 2016 and by another 2.6% in 2017, according to the International Monetary Fund (IMF).
House prices in the islands range from around TT$1 million (US$147,500) to TT$8 million (US$1.2 million) - though of course there are super-luxurious and also low-end houses that fall outside this range.
In Trinidad, the price of one-bedroom apartments typically ranges from TT$900,000 (US$132,800) to TT$1.5 million (US$221,300). In the desirable neighborhoods of West Trinidad, modern homes are priced from about TT$3.7 million (US$550,000). Residential lots in Trinidad sell for around TT$40 (US$6) to TT$55 (US$8) per square foot (sq. ft.).
At The Crossings, located on the outskirts of the bustling town of Arima in Trinidad, three bedroom houses are currently being offered from around TT$1.8 million (US$265,500) to TT$2.2 million (US$324,500). On the other hand, residential land in The Crossings sells for less than TT$120 (US$18) per sq. ft.
In Tobago, the price of small condominiums starts at around TT$2.4 million (US$354,000) while single-family homes start at about TT$3.4 million (US$500,000).
The housing market is expected to remain weak this year, as the economy continues to struggle, according to local real estate experts.
In Trinidad, foreign real estate buyers can buy up to one acre of property for residential use without a license. In Tobago, by contrast, no license has been issued to foreign buyers since a requirement for licenses was introduced in October 2007.
Buyers are required to pay 5% to 10% stamp duty, plus legal fees.
Housing boom and bust
A massive housing boom was enjoyed by Trinidad and Tobago from 1991 to 2006, with house prices surging by more than 400%. Foreign investment poured in. Much new private housing was built in Port of Spain, in the northwest region, and in the area around Point Lisas Industrial Estate, the centre of Trinidad and Tobago´s petrochemical industry.
The global recession hit demand sharply. Projects were uncompleted or halted. Foreign investment fell, and unemployment rose - reaching almost 6% in 2010. Financial and investor confidence also tumbled when CL Financial, Trinidad and Tobago´s largest privately-held conglomerate (and one of the largest in the Caribbean), collapsed, and had to be rescued by the government.
Then the government introduced a new property tax - a 3% tax rate on residential property and a 5% tax rate on commercial property, based on 90% of annual rentable value. This aroused a lot of anger. After the victory of new PM Kamla Persad-Bissessar, elected in May 2010, the reform was suspended by the new People´s Partnership-led coalition government. The previous Lands and Buildings Taxes Act rates and values were reintroduced.
Property prices fell by about 20% from 2007 to 2009 due to the global crisis. The housing market started to recover by end-2014 and house prices even increased in 2015. However, house prices started to fall again in 2016, mainly due to the adverse impact of the oil price crash. Demand declined sharply, as unemployment increases and expatriates left the country.
Mortgage interest rates unchanged
The average mortgage interest rate is now 7.5%, unchanged since November 2012. The basic prime lending rate of commercial banks has held steady at 9%. The central bank´s repo rate has been 4.75% since Q3 2015.
From a high of 17.5% in January 2000, the average mortgage interest rate dropped to 9.13% in February 2005, fuelling the country´s massive housing boom. However, benchmark interest rates were then raised, which caused the mortgage rates to follow, reaching 13% in October 2008. Interest rates were reduced several times after 2009, and both the basic prime rate and the average mortgage rate fell to 7.5% in November 2012, according to the Central Bank of Trinidad and Tobago.
A mortgage market crisis looms
Mortgage loans outstanding have surged by an annual average of 39.4% from 2004 to 2017. From just roughly about 0.8% of GDP in 2003, the size of the mortgage market expanded to 13.8% of GDP in 2017. This is now a source of problems.
Mortgage loans outstanding rose by 7.9% in January 2018 from the same period last year, to TT$20.12 billion (US$2.96 billion), according to the Central Bank of Trinidad and Tobago.
But an increasing number of homeowners are struggling with their monthly payments. In January 2018, total past due real estate loans climbed by 16% y-o-y to TT$1.96 billion (US$288 million), according to the Central Bank of Trinidad and Tobago. Non-performing real estate bank loans are up 45.4% from a year earlier, and stand about 12 times higher than in the pre-crisis year of 2008.
The expat rental market
Trinidad and Tobago´s upscale neighbourhoods, mostly in the West region, became popular with expats during the housing boom, and commanded high rentals. However, the economic downturn caused an outflow of these foreign renters. As a result, rents for a large number of properties fell substantially.
For the expatriate and upper-income markets, there is a wide range of residential rents - from TT$9,500 (US$1,400) to TT$95,000 (US$14,000) per month.
For the local market, more particularly the middle income market, residential rents for apartments and properties in gated communities typically range from TT$3,000 (US$443) to TT$20,000 (US$2,950).
Some of the most attractive locations to rent or buy in Trinidad are:
- Westmoorings - upscale Port of Spain suburb, with high-rise apartment complexes
- Goodwood Park - exclusive neighbourhood near Port of Spain, with large private houses
- Bayside Towers - new luxurious apartment complex
- The Greens, Maraval Valley - modern, luxurious gated community
The economy continues to struggle
Trinidad and Tobago is one of the Caribbean´s richer nations. Unlike many of its Caribbean neighbours, which rely on tourism, Trinidad depends heavily on oil and gas production. The energy sector accounts for more than 40% of GDP and 85% of merchandise exports. Its sister island Tobago, which has a wealth of secluded beaches and rainforests, benefits from the larger island´s prosperity.
The country enjoyed strong economic growth from 1996 to 2007, with an average GDP growth of 8% annually. However wealth does not bring immunity from recession. In 2009 Trinidad and Tobago´s GDP contracted by 4.4%, followed by a 3.4% growth in 2008. There was recovery in 2010 with 3.3% GDP growth. However, the economy contracted again by 0.3% in 2011 and remained sluggish since, with GDP growth rates of 1.3% in 2012, 1% in 2013, -0.3% in 2014 and 1.5% in 2015. This was partly attributed to the crash in oil prices from 2014 to 2016.
In 2017, the economy contracted by 2.6%, after falling by 6% in 2016, according to the IMF. The economy is expected to expand by a meager 0.25% this year and by 0.2% in 2019, based on IMF estimates.
In 2017, the country´s overall inflation rate stood at 1.9%, down from 3.1% in the previous year and the lowest level in 52 years, according to the Central Bank of Trinidad and Tobago. In February 2018, headline inflation was 0.9% and core inflation was even lower at 0.5%.
The construction industry is getting a boost from the government´s development plan "Vision 2020", which consists mainly of construction projects. In the 2018 budget, the government has allocated more than TT$1 billion (US$147.5 million) for the construction of affordable housing.
In the past several years, the government has prioritized economic diversification, focusing its efforts not just in the energy sector, but also in the non-energy sector and services sector.
While many local residents in Trinidad and Tobago are prosperous, 17% of the population lives below the poverty line. Crime involving drugs, guns, and gangs remains a challenge, particularly in Trinidad, with murders and kidnappings topping the list.
- Trinidad and Tobago's property prices are now rising modestly - May 22, 2016
- Trinidad and Tobago's property market continues to recover - June 25, 2015