Strong demand and improving economy
Lalaine C. Delmendo | February 04, 2022
In St. John, the heartland of luxury residential properties, average home sales prices surged 44.5% y-o-y in 2021, to US$1,757,411, according to Cruz Bay Realty, Inc. – following y-o-y increases of 4% in 2020, 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 increased slightly by 0.5% y-o-y to US$718,583 in 2021, an improvement from the previous year's 6% fall.
In St. Croix, the largest of the U.S. Virgin Islands, the average home sales price rose strongly by 30.3% y-o-y to US$618,943 in 2021, following annual increases of 17.8% in 2020 and 22.5% in 2019, according to figures from Re/Max Team San Martin. Condo prices in St. Croix were up 8.6% y-o-y to US$279,013 last year.
In St. Thomas, where the USVI's capital Charlotte Amalie is located, the average home sales price rose by 24.5% y-o-y in 2021 to US$861,503, an acceleration from annual increases of 12.2% in 2020 and 15.8% in 2019.
Demand is surging. In St. John, the number of homes sold soared more than 129% y-o-y to 117 units in 2021, following a 13.3% increase in 2020, according to Cruz Bay Realty, Inc. In terms of value, total home sales in St. John more than tripled in 2021 to US$ 205.62 million. Likewise, the number of condominium units sold more than doubled to 24 units with a total value of US$ 17.25 million.
In St. Croix, home sales rose by more than 31% to 219 units in 2021 from a year earlier, in contrast to a 15.2% decline in 2020, according to Re/Max Team San Martin. Condo sales in St. Croix also doubled to 162 units y-o-y in 2021.
In St. Thomas, home sales increased 30.7% y-o-y to 132 units, in contrast to a 12.2% fall in 2020.
As a result, residential construction is rising again. During 2021, the value of private residential construction permits in the US Virgin Islands rose by 26.6% y-o-y to US$ 206.2 million, in contrast to a 6.1% fall in 2020, according to the USVI Bureau of Economic Research.
Tourism is rising. In 2021, the total number of visitor arrivals in the territory rose by 22.4% y-o-y to 1,047,816 people, in sharp contrast to an almost 59% decline in 2020, though it remained far below the annual average of almost 2.5 million visitors from 2003 to 2019. Visitors are expected to increase in coming months after the government dropped pre-arrival testing for vaccinated domestic travelers in March 2022, making it easier for tourists to visit.
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 gradually improvingTourism is the US Virgin Islands’ main industry, usually generating more than 2 million visitors every year, accounting for 80% of GDP. In 2021, the total number of visitor arrivals in the territory rose by 22.4% y-o-y to 1,047,816 people, in sharp contrast to an almost 59% decline in 2020 - far below, of course, the annual average of almost 2.5 million visitors from 2003 to 2019.
However, U.S. Virgin Islands airport checkpoints received 14% more passengers in February 2022 as compared to its pre-pandemic level in February 2019, according to Transportation Security Administration.
Visitors are expected to increase further now that pre-arrival testing for vaccinated domestic travelers has been dropped, making it easier for tourists to visit.
Construction of large-scale resorts is also gaining momentum. Marriott is expected to unveil a brand-new property - the Noni Beach Resort – this year. The property includes 94 guest rooms, a beachfront infinity pool and a bar. Later this summer, Marriott’s Frenchman’s Reef Beach Resort & Spa is also expected to reopen following a US$250 million reconstruction.
The U.S. Virgin Islands has received the “Innovative Destination of the Year” and the “Yachting Destination of the Year” awards during the Caribbean Travel Awards 2022 by Caribbean Journal, a leading digital travel news publication.
GDP figures for 2021 are still unavailable. But it is expected that, like most nations around the world, the tourism-reliant economy of the U.S. Virgin Islands improved last year due to improving global conditions. In 2020, USVI’s economy contracted by 2.2%, following growth of 2.8% in 2019 and 1.5% in 2018, mainly due to pandemic-related restrictions, according to the U.S. Bureau of Economic Analysis.
But even before the Covid-19 pandemic, 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. The economy has been sluggish since, posting miniscule growth of 0.3% in 2015 and 0.9% in 2016 and a slight contraction of 0.6% in 2017.
In January 2022, unemployment inched down to 8.2%. In St. Thomas/St. John, the jobless rate dropped to 6.9% in January 2022, from 9.7% a year ago. However in St. Croix, the jobless rate actually rose to 9.7%, from 8.2%.