The Bahamas property market is now improving
Last Updated: December 16, 2014
Property prices are stabilizing.
Residential construction activity is rising again.
Foreign demand is coming back, as investor confidence rise.
“The Caribbean luxury property market - and in particular the Bahamian market - was undeniably affected by the economic downturn. However, now that prices have bottomed out, we are seeing a marked upsurge in interest, with clients taking advantage of being able to pick up five star properties at reduced prices, in anticipation of prices increasing once more in the months and years ahead,” said Philip Button of Brookes & Co., a London-based investment company.
House prices are estimated by local agents to have dropped by 30% to 40% from 2007 to 2010, mainly due to the adverse impact of the global financial and economic meltdown, according to Savills Prime Residential Retreats 2014 report (there are no official house price figures).
The property market started to recover in 2012, thanks to improved tourism and a better economic outlook. Residential property prices rose by about 10% to 15% from 2012 to 2013 in the islands’ more established high-end residential developments such as Old Fort Bay and Lyford Cay.
Currently, ocean front units in the Royal Ocean Club, situated on Grand Bahama, are priced at US$156,070. In the Bahamas Rum Cay, the price of one and two-bedroom beach cottages start at US$128,095.
In the Lyford Cay, a private gated community on the New Providence, a six-bedroom colonial-style home, Cuckoo’s Nest, is priced at US$6.5 million.
Investor confidence is growing stronger. The Americans, who make up the largest homebuyers in The Bahamas, are coming back into the market. There is also a noticeable increase in the number of wealthy investors from Canada, France and Britain who are interested into buying a residential property in the islands.
The Europeans currently make up 20% of homebuyers in the islands, twice as many as there were five years ago, according to Christopher Anand of Tavistock Group.
Residential construction activity is now rising again. In the third quarter of 2014, the value of residential construction permits issued surged by 43.6% from a year earlier, to BSD108.75 million (US$108.75 million), according to the Department of Statistics of The Bahamas, though the number of residential permits issued was almost unchanged, at 808 properties. Almost 90% of the residential construction permits issued in Q3 2014 were located in New Providence, 9% in Grand Bahama and the remaining 1% in other Family Islands.
The Bahamas enjoyed GDP growth of 3% p.a. from 1997 to 2007. Growth halted in 2008 (-2.3% GDP) and 2009 (-4.9% GDP), due to the global financial crisis. Growth was since recovered, with 1.5% growth in 2010, 1.1% in 2011, 1% in 2012, and 0.7% in 2013.
The economy is expected to expand by 1.2% this year, according to the International Monetary Fund (IMF).
Prices firm in the Bahamas, yields good in Nassau
The Bahamas has traditionally had quite high yields. But as such a high proportion property rentals is seasonal, it is hard to get good figures.
Among the different types of properties that we survey, inland condominiums on Nassau have the highest average yields at around 8%, with yields of around 7% for Nassau condominiums along the water. Yields in Abaco and Grand Bahama waterfront are moderate, ranging from 3.57% to 4.45%. Last year we found a similar yield gap for Nassau houses, so it seems that this real factor, not a statistical blip.
Bahamas impose little tax
Rental Income: There are no income taxes but stamp duties are imposed when leasing Bahamian real property.
Capital Gains: There are no taxes on capital gains in the Bahamas.
Real Property: Property taxes should not be a major concern. The maximum tax rate is 1% for properties worth more than US$100,000.
Inheritance: Inheritance is not taxed in the islands.
Residents: Income of residents is not subject to tax.
Buying costs can be very high in Bahamas
Round-trip transaction costs, i.e., the cost of buying and selling property, range from 9.10% to 25.50%. The huge range is partly due to the progressive nature of Stamp Duty, which ranges from to 4% to 10%.
The high transaction costs are also due to the (very high) agent's commission, usually paid by the seller.
Commission for real estate agents in the Bahamas are set by The Bahamas Real Estate Association. The real estate agent’s fee is 6% for developed properties and 10% for undeveloped properties or vacant land.
Bahamas' law is pro-landlord
Rent: Rents can be freely agreed both for long-term fixed term tenancies, and for holiday lets.
In theory some property falls under the Rent Control Act, but it only applies to buildings with a total value of less than B$25,000, so in practice it is inoperative.
Tenant Eviction: The landlord must give the tenant proper notice of rent due and possible eviction for defaulting on rent. If the tenant fails to pay the rent on time, the landlord can summon the local police and repossess the property.
Even though a court order is not necessary for tenant eviction, most landlords bring defaulting tenants to court and sue for uncollected rent.
Tourism: the life-blood of Bahamas economyThe Bahamas (pop. 352,000) is composed of 700 islands and islets. The capital, Nassau, is located on the largest island, New Providence. Grand Bahama is one of the larger islands and is home to Freeport City, an important free trade zone and commercial center.
All other islands in this beautiful archipelago are referred to as Out Islands or Family Islands.
The tourism industry is the main economic source in Bahamas. It accounts for around 60% of the country’s GDP and is employing almost 50% of the total labour force. An average of 4.7 million tourists arrived in the country from 2000 to 2011, comprising of Americans and Europeans. Financial services, Bahamas’ second-largest industry, accounts for 20% of GDP.
The rise of tourist arrivals in as well as increased foreign investments paved the way for a construction boom in the private sector after 2006, which led the country to a strong GDP growth. However, due to the adverse effect of the global recession on foreign investment inflows, a significant drop in construction activity has since been observed, especially in 2009.
However, the tourism sector bounced back quickly by end-2009 and continued to grow since then. In June 2014, visitor arrivals rose by 5.2% to 1.6 million, in sharp contrast with the 0.7% contraction recorded in the corresponding period in the previous year.
- In the dominant sea segment, visitor arrivals rose by 5.4% y-o-y to 1,176,706 people in June 2014, more than double the growth seen in a year earlier
- In the air segment, visitor arrivals increased 4.7% y-o-y to 379,667 people, a turnaround from the 8.7% annual contraction in the previous year.
Hotel occupancy levels were up in October 2014. In New Providence, for an instance, hotel occupancy rate improved by 8.9 percentage points to 52.9% in October 2014, according to the Bahamas Hotel Association and the Ministry of Tourism. Over the same period, the average daily room rate rose by 4.1% to US$167.58 per night.
The economy is expected to expand by just 1.2% this year, after real GDP growth rates of 0.67% in 2013, 1% in 2012 and 1.1% in 2011, due to modest gains in the high value-added stopover segment of the tourism sector and stable contributions to construction output.
The government’s overall deficit for the first two months of the fiscal year 2014/15 doubled to BSD87.4 million (US$87.4 million).
Inflation remains low. The Bahamas is projected to post an inflation rate of 1.4% this year, after 0.35% in 2013, 2% in 2012, 3.2% in 2011, according to the IMF.
However, with the expected implementation of the Value-Added Tax (VAT) in January 2015, the inflation is expected to rise, though this should be partially offset by lower global oil prices.
The Bahamian dollar, used since 1966, is pegged to the US dollar at BSD1 = USD1. Both currencies are used in the islands.
The Bahamas has a stable political environment. A member of the Commonwealth, the Bahamas has strong relations with the US.