Last year at this time the general market sentiment could appropriately be characterised by one word – uncertainty. It was widely acknowledged that the market would slow; the only questions were at what rate and for how long. Armchair economists came out of the woodworks with predictions ranging from long-term gloom and doom, to a v-shaped downturn with recovery by the end of 2009. As the debate on the timing of a recovery continues, it seems that little emphasis is being placed on understanding the extent to which the market has actually been impacted. Where are the statistics? Tourism data is readily available (long stay visitors down approximately 12 percent for the year), however Barbados continues to lack the necessary quantitative data to understand exactly to what extent the slowdown has impacted the various segments of the real estate market. In the US and the UK comprehensive statistics are available monthly, whether on absorption rates, price growth and a number of other indices. Having said that, the Land Tax Department has been very responsive and helpful with requests for general information. The record of change of ownership forms recorded for 2009 reflects a significant reduction in overall transaction volume in the general market. The chart below (Figure 1.) illustrates the number of forms recorded each year dating back to 2004. If there were any doubts the market has changed, these numbers will put them to rest. Market volume is down approximately 20 percent over the peak of 2006.
While we attempt to capture data across a broader spectrum, we typically focus on the beachfront apartment segment in The Red Book. This segment is an excellent index for overall activity in the foreign market. Gathering data this year was exceptionally challenging, given the reality that some developers and agents were reticent to confirm low sales numbers and in some cases ‘no’ sales numbers. It should also be said that the numbers are not always 100 percent correct either, even in the case where the sales are genuinely reported. For example, those units inevitably set aside by the developer at launch for future release (creates the appearance of sales momentum), verbal reservations that never make their way to contract and reported sales that simply never took place. Reporting on the actual achieved sales prices versus the list prices is another issue altogether.
Against that background, the reported numbers for beachfront sales in 2009 are significantly down from the 2008 period. Sales of south coast apartments were reported at nineteen units, which is a 62 percent reduction from 2008 sales. West coast apartments were reported at fifteen units, which is a 50 percent decrease over the reported volume in 2008. Overall trading volume for 2009 is down 58 percent over 2008. To get a relative sense of absorption rates in this segment, we also looked back to 2007. The chart below (Figure 2.) illustrates the sales of beachfront apartments for the recent three years.
Total reported sales for 2009 are down 72 percent from the 2007 transaction volume, which was likely the peak of the market. Some developments reported zero sales for the year and others reported modest numbers. It should however be noted that of the achieved sales in 2009, a number of them transacted at discounts off list pricing (30 – 40 percent in some cases). A few developers were faced with the reality of having built at premium costs (land acquisition and construction) and now offering completed units for sale in considerably softer pricing conditions than originally anticipated. However if you were looking for a fire sale at a quality beachfront development in 2009, chances are you did not find it. A few units transacted at big discounts, but by and large these were exceptional cases involving undercapitalised developers.
Looking forward to 2010, the Barbados brand remains sound and the value proposition is perhaps even clearer now as less-proven destinations continue to struggle. There is no doubt that we have fared better then most of our Caribbean neighbours. However conventional wisdom says that a return of consumer confidence to the market will be slow and steady. In the UK, the higher price brackets of London and southern England are leading the recovery and we expect the same will happen here. Look for beachfront to lead and in particular the luxury product on the west coast. Strong marketing and public relations for new products in the form of Beachlands, SaintPeter’s Bay and Port Ferdinand should renew purchasers’ interest. The Four Seasons story has received a fair amount of negative coverage, so hopefully the silver lining will soon present itself. Development finance remains scarce, however offshore mortgages at attractive rates are easily had for qualified purchasers. Levelling off in supply will therefore continue and we are likely to see a return to a more measured pace of development in the coming years (Figure 3 below illustrates supply and pricing as at quarter four 2009). Outlook on tourism arrivals for 2010 is a mixed bag with the UK’s much maligned band system of Air Passenger Duty expected to be a damper.There is no evidence however of any direct correlation between long-stay traffic and foreign market sales per se.
A number of global property indices are reporting positive price growth in the third quarter of 2009 excepting markets that are grossly in oversupply (which is not the case in Barbados). Conducting similar analysis at this point in time is complicated by the highly seasonal nature of the beachfront market; we will have to wait until the end of the second quarter in 2010. The early indications point to some element of confidence returning to the beachfront this season. While we expect this will be reflected in a notable improvement in sales this season, we do not expect a return to a normalised rate of absorption just yet.