Investing in Property in Barbados: The Value Proposition

 

20 February 2012

Port St. Charles

Port St. Charles

If there is a single defining paradigm shift borne out of the 2008 recession it is that investors today go through a much more rigorous process than they did in the middle of the decade. In the boom years investors always assumed that the tide would continue to rise and residential property in particular was one asset class that was considered to be stable and always increasing in value. When the recession hit, property, particularly vacation homes, were the first luxury to be jettisoned.

In the three years since, buyers have become much more wary of excessive values, carrying costs, rental opportunities, and have become acutely aware of the shift from seller market to buyers market. Savills market snapshot for 2009 shows the peak in worldwide property prices in Q3 and Q4 2007, followed by a decline of 15 – 20% by Q1 2009. This was also accompanied by a volume decline. The same survey noted that 70% of respondents bought vacation homes between 2003 and 2008 but only 2% bought in 2009.

In Barbados prices dropped around 20% in 2008/9 and have stabilized at those levels. The following chart shows achieved sales prices of west coast condominiums over the last four years and demonstrates that the volatility has gone.

Average West Coast Condo Pricing

Vendors have woken up to the fact that lower volumes mean that they cannot hold on for that one special buyer. Nearly all of our luxury listings have been marked down over the last twelve months. This does not mean the market is depressed, it is just an indication that vendors have become educated on recent deals and are narrowing the expectation gap between themselves and buyers – see chart below

List Price Changes

Barbados has also fared much better than its neighbours. In St. Lucia and Grenada luxury second home sales have been very rare and some agencies have had to close their doors. Tobago is similar. Most of those territories still have alien landholding license requirements, which are cumbersome and time consuming, and they also levy a buyer’s tax of up to 10%.

The Barbados Value Proposition

As an Englishman who loves to travel, I often muse about what it would take to create the perfect place in which to live. My criteria include a temperate climate, low crime, efficient but “less is more” government, a lack of civil disobedience, great sports and leisure facilities and friendly people. In my dream world my “new country” is devoid of negative attitudes and influences and most importantly has an enabling environment for innovation and entrepreneurship. Maybe I should create a “Hanton Index” and travel the world filling out score cards. After 30 years living here I am confident that Barbados comes closest. And I am not alone. The United Nations Human Development Index places Barbados in the highest category of “very high human development”; the only Caribbean country to achieve this status and one of the smallest countries on the list. A recent survey in the Daily Telegraph placed Barbados in the Top Ten places in the world to live. The survey did not rank the 10 in any order but it did include places like Switzerland and Monaco; and once again Barbados was the only Caribbean country to place.

The desirability of the lifestyle in Barbados is not in doubt and the thousands of people who own vacation homes here are the country’s greatest advocates. I have already mentioned that prices have stabilized, at levels which are at reasonable margins over development costs, and I believe are internationally competitive. The other attributes Barbados has which bear on value are:

  • No entry taxes and very low exit taxes for real estate transactions
  • Predominantly freehold ownership
  • Internationally competitive annual property taxes
  • Wealthy visitor demographic which supports the resale market
  • Excellent services and service providers
  • Friendly and efficient workforce
  • Great airlift from many major gateways allowing facilitating global business
  • Sophisticated resort community offerings at renowned resorts such as Royal Westmoreland, Apes Hill and Port St. Charles
  • Stable government
  • Great value in its currency particularly when measured against the Pound, Canadian dollar and Euro

A recent development is the crafting of new residency legislation that will permit visitors with homes in Barbados to reside here without regular re-stamping of entry permits. This is not as aggressive as some of the economic citizenship programmes which pertain in places like St Kitts, but neither should it be. I think Barbados is striking the right balance. For the cost conscious buyer, the latest trend to Barbados is the “condo hotel”. Barbados’ two newest hotels, Beach View and Ocean 2, are both condo hotels which operate organized rental pools where all buyers share in the same risk and reward. These properties offer full services and are marketed as traditional hotels. Owners can still use their units, without cost, for part of the year, but crucially the owners have no carrying costs as the rentals fund not only those costs but also provide sinking funds for all furniture replacement and other capital costs. I can’t report on the results of Ocean 2 since it is only a couple of months old but owners at Beach View enjoy 3 months usage per year and have received enviable returns since it opened in 2009.

The Crane Residential Resort is perhaps the island’s most successful condo hotel and also combines a wide range of buying opportunities including full ownership, time-share and fractional ownership. The Barbados government recently exempted timeshare sales from VAT, which will make the industry even more competitive.

In conclusion, Barbados has been a far more robust property investment haven than most other countries because its fundamentals are better. Property is good value and has tended to hold value better than most investment alternatives; and with lessons learned in the recession, vendors, regulators and developers are getting wiser and more creative, resulting in even better opportunities. But of course the most compelling reason is that the Barbados lifestyle tops the “Hanton Index!”

About the Author

Terry Hanton, FCA, MRICS

Terry Hanton, FCA, MRICS

Terry Hanton is a Chartered Accountant who specialises in consultancy services to the real estate and hospitality sectors. He is also a member and accredited valuer of the Barbados Estate Agents & Valuers Association (BEAVA), and previously held the position of Vice-President of this Organisation. Terry has over 10 years of experience in conducting valuations for residential and commercial properties. From 1984 to 1996, he was the Finance Director of St. James Beach Hotels Plc., a Barbados based hotel group which was listed on the London and Barbados exchanges. In addition to his role at Property Consultancy Services Inc., he is the Director of Sales of Altman Real Estate, which has allowed him to maintain an intimate knowledge of the real estate market. From 1998 to 2008 he was Project Director of the Sugar Hill Development which is a resort community located in Barbados, owned by David Lloyd and a syndicate of investors. The project is a tennis community consisting of 100 homes on 52 acres. The investors are nonexecutive, and Mr. Hanton was responsible for executing the project in its entirety. He is also a past Director of Needhams Point Holdings Ltd. as well as of several property development companies. He has conducted feasibility studies, market research projects and business valuations and has also provided project management, and property investment advice and financial and accounting services to a broad range of clients.