US Virgin Islands: house prices continue to rise, albeit at a slower pace
Lalaine C. Delmendo | February 18, 2020
In St. John, the heartland of luxury residential properties, average home sales prices rose by 4% y-o-y in 2020, to approximately US$1,216,419 according to Cruz Bay Realty, Inc - a sharp slowdown from y-o-y rises of 11.5% in 2019 and 17.7% in 2018. In 2017, house prices fell 14.4% due to the devastation brought by the Hurricanes Maria and Irma to properties in the area during the year.
Condo prices in St. John fell by 6% y-o-y to US$715,227 in 2020, in stark contrast to an annual rise of 26.8% in 2019.
In St. Croix, the largest of the U.S. Virgin Islands, the average home sales price continued to rise strongly by 17% y-o-y to US$ 474,853 in 2020, according to Re/Max Team San Martin. This is still a slowdown from the previous year's 23% rise.
In St. Thomas, where the USVI's capital Charlotte Amalie is located, the average home sales price rose by 6.5% y-o-y in the first eight months of 2020 to US$ 709,626, again a sharp slowdown from rising 27% in 2019, according to Re/Max Team San Martin.
In St. John, the number of homes sold rose by 13.3% y-o-y in 2020, following a 25% decline in the prior year, according to Cruz Bay Realty, Inc. In terms of value, total home sales in St. John increased 17.8% y-o-y in 2020 to US$62.04 million. The number of condominium units sold rose by 10% during 2020.
In St. Croix, on the other hand, home sales fell by 14.9% y-o-y in 2020 and condo sales dropped 44%. In St. Thomas, home and condo sales also fell in the first eight months of 2020 by 35% and 32%, respectively,
Residential construction is now falling. During the first seven months of 2020, the total value of private residential construction permits in the US Virgin Islands plunged 32.9% y-o-y to US$75 million, according to the USVI Bureau of Economic Research.
In March 2020, the U.S. Virgin Islands closed its borders to international travellers to prevent the spread of the new coronavirus. As a result, total visitor arrivals dropped to just 803,450 people during the first eleven months of 2020 – less than half of the arrivals seen in the prior year. About 55% were cruise passengers while the remaining 45% were air arrivals.
USVI began welcoming international travelers again in September 2020.
There are no restrictions on foreign property ownership. Owning a property in the US Virgin Islands is "fee simple".
Prices have fallen significantly over 4 years - now for the rebound?
St. John remains the US Virgin Islands’ most expensive island, even though square metre prices of houses have fallen. Four years ago (in 2011), house prices ranged from around US$5,300 to US$8,400 per square metre. Now, the price range is around US$4,500 to US$5,700 per square metre. That’s a significant fall - though we seem to be about to see a turnaround.
The same downward trend is observable in St. Croix. In 2011, the average square metre price of houses in St. Croix was around US$3,400. Now, it’s around US$1,800.
House prices in St. Thomas have been more stable; but they too have fallen in price from an average price per square metre of a 120 sq. m. condo of US$3,200 in 2011, to US$2,950 now.
Unfortunately, data on long-term rentals is too scarce to allow us to estimate rental yields.
Property transaction costs are reasonable in US Virgin Islands, by the admittedly expensive standards of the Caribbean.
US Virgin Islands taxes are low
Rental Income: Rental income considered “not effectively connected income” is taxed at a flat rate of 10% on the gross amount, withheld by the tenant. Nonresident foreigners electing to consider their rental income as “effectively connected income” are taxed on their net income at progressive rates.
Property: Property taxes are imposed at 1.25% of the property’s assessed value. The assessed value of the property is generally 60% property’s fair market value.
Capital Gains: Capital gains received by taxpayers within the 10% and 15% tax brackets are taxed at a flat rate of 10% as of 01 January 2011. For all other taxpayers, capital gains are taxed at a flat rate of 20%.
Inheritance: Foreigners and non-permanent residents of the United States are not subject to inheritance taxes in the US Virgin Islands.
Residents: US citizens and US permanent residents living in the islands are taxed on their worldwide income.
Buying costs are moderate in the US Virgin Islands
Roundtrip transaction costs range from 10% to 14.6% of property value. The transfer tax ranges from 2% to 3.5% depending upon property value. The real estate agent's fee, at around 6%, accounts for the greater part of the costs. Legal fees are at 1% to 2%.
US Virgin Islands law is pro-tenant
Rent Control: Rents in the US Virgin Islands are frozen at their 1947 level be the Rent Control Act.
For existing housing accommodations prior to July 1947, the maximum rent ceiling is the rent imposed on July 1947. For properties built afterward, the maximum rent allowed is the initial rent charged for the property.
Tenant Security: For reasons other than rent default, the landlord must give the tenant a month’s notice of termination and must apply for a court approval prior to evicting the tenant. If the landlord is given the right to repossess the property, the tenant can delay the eviction for up to six months to give him ample time to look for alternative housing.
Tourism is plungingTourism is the US Virgin Islands’ main industry, generating 2 million visitors every year, and accounting for 80% of GDP. In 2019, the total number of visitor arrivals in the territory breached 2 million people, up by 7.9% from a year earlier, according to USVI Bureau of Economic Research. This is a sharp improvement from y-o-y declines of 1.7% in 2018 and 24.1% in 2017, mainly due to the adverse impact of hurricanes Irma and Maria that hit the island in September 2017.
However due to the COVID-19 pandemic and the subsequent lockdown and travel restrictions imposed worldwide, tourism plunged last year. During the year to November 2020, total visitor arrivals were just 803,450 people – less than half of the arrivals seen in the previous year. About 55% were cruise passengers while the remaining 45% were air arrivals.
Despite the challenges, USVI continues to see more flights. Delta Air Lines has recently launched its newest non-stop flight between Minneapolis-St Paul and St. Thomas. In the fall, JetBlue Airways also launched a new route from New York to St. Thomas while United Airlines launched a new route form Newark to St. Thomas in September 2020.
In an effort to boost tourism, USVI Tourism Commissioner Joseph Boschulte is now actively promoting the Territory as a viable location for sports and other related events. “Teams won’t have to worry about passports as they are not needed for U.S. citizens, and we have top-rated facilities as well as U.S. standards and coaches to provide oversight,” said Boschulte.
In addition, Boschulte highlighted the potential of marine tourism to the territory’s overall economic recovery. “We forecast 2020 numbers to be positive due to the large number of visiting vessels, as well as our expanded reach into the charter yacht, regatta and game fishing sectors.”
The U.S. Virgin Islands has received the “Destination of the Year” award during the Caribbean Travel Awards 2021 by Caribbean Journal, a leading digital travel news publication. Also, The Ritz-Carlton St. Thomas was named “Caribbean Hotel of the Year”.
GDP figures for 2019 and 2020 are still unavailable. But it is expected that, like most nations around the world, the tourism-reliant economy of the U.S. Virgin Islands contracted sharply last year due to the pandemic. In 2018, USVI’s economy grew by 1.5%, after contracting by 0.6% in 2017 and posting miniscule growth of 0.9% in 2016 and 0.3% in 2015, according to the U.S. Bureau of Economic Analysis. The growth was mainly driven by post-disaster recovery activities.
The past decade has not been kind to the USVI. USVI’s GDP dipped 6.6% in 2009. After a short-lived recovery in 2010 (GDP up 0.9%), GDP plunged again by 8.2% in 2011, and then fell by a huge 15% in 2012, by 5.8% in 2013, and by 1% in 2014, mainly because of the closure of the HOVENSA refinery in 2012, which caused the layoff of around 1,200 employees.
In October 2020, the overall unemployment rate in the U.S. Virgin Islands increased to 9.4%, sharply up from 5.7% in the previous year, as many hospitality workers have been laid off or furloughed, according to the USVI Bureau of Economic Research. In St. Thomas/St. John, the jobless rate surged to 10.5% in October 2020, from 6.1% a year ago. Likewise in St. Croix, the jobless rate rose to 8.1%, from 5.3%.