The BVI’s housing market recovery persists
Last Updated: April 16, 2013
In early 2011, the price of luxury homes remained static. It gained momentum during the second half of the year due to asking price re-assessment done by vendors that caught the attention of property buyers, according to Knight Frank’s Caribbean Desk Head Christian De Meillac.
“The small size of the BVI property market, along with the continued demand and the limited supply, has helped support prices,” De Meillac added.
European buyers dominate the BVI’s luxury market, accounting for 60% of luxury sales, according to De Meillac.
Properties in the main islands of Tortola and Virgin Gorda are popular with foreign buyers, particularly the western tip of Tortola, near Smugglers Cove and Long Bay Beach. Homes with private moorings attract yachting enthusiasts. Demand for waterfront properties is also high.
Potential investors are not only looking for houses, but for land to develop—and the BVI is still largely undeveloped. In BVI, land can be bought starting at around US$ 100,000, versus around US$ 500,000 for developed properties.
Although the housing market is strong, the decline in tourism has been a problem since 2008. Premier and Minister of Tourism Premier Dr. D. Orlando Smith has proposed new port facilities to accommodate larger ships.
Rental incomes in British Virgin Islands – very poor rental yields
Rental yields are poor in the British Virgin Islands, with annual returns of only 2.85% - but then most people don’t buy here to rent. Three-bedroom houses in the British Virgin Islands sell for about US$1.3 million, but only earn average monthly rental incomes of around US$3,000.
House prices have fallen a little. Four-bedroom houses cost about US$2 million, a bit cheaper than last year’s price of US$2.5 million.
Rental incomes from apartments remain at just above last year’s levels. Last year, apartments in Virgin Goda and Tortola rented for an average of US$1,800 per month. This year, rents have risen slightly to an average of US$1,900 per month.
British Virgin Islands levies property taxes only
There are no income, capital gains and inheritance taxes in the British Virgin Islands. The condition is the same for residents and nonresidents.
Hotel Accommodation Tax: Gross rents received from guests staying for short periods of time in the islands (less than six months) are subject to 7% hotel accommodation tax.
Long-term rentals and leases to British Virgin Islands residents are not liable for this tax.
Property Tax: Land tax is based on the acreage of theproperty; it is generally imposed at US$50 per acre. Building tax is imposed at a flat rate of 1.5% of the property’s annual rental value.
Buying costs are high in the British Virgin Islands
Roundtrip transaction costs range from 11% to 22% of the property value. For non-belongers, the stamp duty of 12% of the property's value accounts for the greater part of the costs. Legal fees are imposed on the property value, 2% for the first US$100,000 and 1% on the remaining amount. Real estate agent's commission is negotiable, typically from 6% to 8%.
British Virgin Islands tenancy laws
Tenancies in the British Virgin Islands are usually short-term tenancies. It takes an average of 58 days to evict a tenant.
The BVI economy'sFirst settled by the Dutch in 1648, the BVI (pop. 22,000) were annexed in 1672 by the English. The climate is subtropical and humid, but temperatures are moderated by the trade winds. The coral islands are relatively flat; while the volcanic islands are steep and hilly.
The British Virgin Islands has one of the most prosperous economies in the Caribbean. After a slump in 2002 (-3.3%) and 2003 (-12%), the BVI bounced back with average annual GDP growth of 5.1% from 2004 to 2007, and then 3.2% from 2008 to 2011, according to the UN Statistics Division. Growth in 2012 is believed to have been 4%. In October 2012, Premier Dr. D. Orlando Smith declared that the government’s projection of 3.96% was within reach, an expectation higher from the previous year’s growth of 2.4%.
BVI’s economy is supported by its “twin pillars” consisting of financial services that accounts for about 60% of GDP, and tourism that accounts for almost the rest of revenues.
Since the global financial crisis, BVI’s tourism sector has been in a slump. The tourism sector showed signs of recovery in 2010, as stop-over visitors spiked by almost 7% y-o-y. However, total visitors still fell 0.9% that year mainly due to the continuous decline in cruise passengers. In 2011, total visitors were still down by 1.1%.
As of November 2012, the BVI had 302,647 stop-over visitors, a 0.3% decline from the same period of the previous year. The decline in cruise passengers has worsened in 2012, falling by 19.4% to 390,579 from 484,715 in 2011.
During his budget address in December 2012, Premier Smith, who is also the Minister for Tourism, admitted that the tourism industry is facing problems due to some factors beyond the government’s control, and said that “overall, arrival figures decreased following the economic crisis and as of 2011 had not recovered to pre-crisis levels.” Premier Smith also pointed out that BVI will continue to experience a decline in cruise ship arrivals, unless the government builds new port facilities.
According to Smith, BVI Tourist Board’s (BVITB) ideas include: rebuilding relationships with key industry players, focusing on the destination strengths, expanding the calendar of annual events, and developing the wedding and honeymoon market. Advertising campaigns will also be expanded in North America.
The financial services sector also suffered in 2009, and has only partly recovered. Premier Smith expects slow growth in the financial services sector in 2013, due to slower global economic growth, as well as increased competition from other jurisdictions.