Monday, January 01, 2007Buying Property in the Caribbean

Edward ChildsBuying Property in the Caribbean with a Focus on the British Virgin Islands (BVI)

The idea of purchasing property abroad can be daunting; TV reality shows about buying property overseas abound with tales of woe and misfortune, pointing out the many pitfalls that can snag the unwary investor. But does it have to be a bad experience? Should investors avoid investing in areas which may be totally foreign in terms of language, currency or custom? In this article, I will address some of the issues an investor may wish to consider before purchasing a property in the Caribbean and British Virgin Islands in particular.

The Reasons for Buying

One of the first questions a purchaser needs to ask is what they wish to achieve when buying a property overseas. A purchaser looking for a second home, where holiday rentals may be required to subsidize the annual running costs, will likely purchase a very different house from a purchaser seeking to move abroad permanently. Some houses may suit the rental market but may not be practical as a permanent home, particularly where young families are involved. When making first enquiries, setting out some practical criteria for the type of house you are seeking can save both yourself and any agent that may be involved considerable time.

General Considerations

Some of the considerations investors should investigate prior to purchasing property are discussed below:

Access: This is perhaps the most important factor determining where investors end up. From the UK, there are direct flights to many of the Caribbean islands including Barbados, Antigua, St Lucia, Trinidad and Tobago, St Kitts, Grenada, St Lucia, the Bahamas, Jamaica and Grand Cayman. Other islands, such as St Martin, Curacao, Aruba and Puerto Rico have direct flights from other European countries. Many of the smaller islands, such as the British Virgin Islands, rely on regional flights which require an island hop on smaller airplanes. At the same time, the relative remoteness of some of the smaller islands has protected them from mass tourism and whereas they were once considered outposts of the Caribbean, they are now favoured by purchasers seeking a quieter life.

Health: In many of the smaller islands in the Caribbean, health services are under-funded and facilities may not meet UK standards. However the more developed islands, such as Barbados, the Bahamas, Grand Cayman and Puerto Rico, will generally have perfectly adequate facilities. In smaller islands a good health insurance policy, including air ambulance coverage, will probably be sufficient protection for most. If concerned about this issue, investigating local air ambulance provisions will give peace of mind with major hospitals frequently only a matter of hours away.

Language Culture and Crime: Each island in the Caribbean has a distinctive culture which will set it aside from all others. However, investors will probably distinguish between the various mother tongues that divide the islands in the region. English, Spanish, Dutch and French islands all offer something different and will appeal in different ways to investors. British investors may prefer the English speaking islands while others may prefer the flair of the French, Dutch or Spanish islands.

The islands enjoy a West Indian culture influenced by the historical ties to European countries. The mix of influences has created a fascinating culture where Patois, Creole and Papiamento are all languages which are influenced by a mix of European languages and African roots. No one island has a dominant culture and the choice from one island to another can only be based on personal preference.

The incidence of crime remains an important factor in the investment equation. Although the Caribbean is not crime free, the worst is usually limited to the larger, more heavily populated islands. Jamaica has had its share of bad publicity, even though thousands of visitors have a crime free experience. Most of the smaller islands still enjoy very low levels of crime and visitors’ impressions of the helpfulness and friendliness of the islanders far outweigh any concerns about this issue.

The BVI are among the English speaking islands and remain a British Overseas Territory with direct links to the UK with a Governor appointed by the Foreign Office. The high standard of living enjoyed for many years by the BVI combined with the virtually non-existent unemployment rate, have left the BVI relatively “crime free” on a regional basis.

Weather: Yes, the Caribbean weather is all its cracked up to be. For tourists, the year is divided into two seasons, high (mid December through mid April) and low (mid April through mid December) with the weather generally pleasant throughout. The summer months can be humid and the hurricane season, which runs from June to November, can provide hot, sultry weather interspersed with more vigorous weather patterns. Hurricane preparedness of homes, including installation of hurricane shutters and stand by generator, can be an essential part of Caribbean living.

Factors Influencing InvestmentWhile there will be many factors that will influence an individual’s purchasing preferences, the following are some of the major factors that will determine investment choices in the Caribbean.

Political Stability: No one wants to invest in a politically unstable environment and, thankfully, the majority of the Caribbean is politically stable. Haiti and Cuba are perhaps the countries least likely to attract foreign investment while at the other end of the spectrum, the islands which have retained links to a mother country (the British, French, and Dutch islands as well as the US Virgin Islands and Puerto Rico) have all enjoyed above average growth in the region. The independent islands have struggled a little more with their economies, although real estate investment in most of these islands is currently strong although the Bahamas and Barbados, with established social structures and strong links to the UK, have also experienced above average growth. The BVI’s are politically stable with a strong economy based on an expanding off-shore financial sector.

Standard of Living: This varies greatly throughout the Caribbean with some islands having very low standards and others very high (higher even than the UK). The local standard of living will determine costs including construction and labour costs which will make building in some islands considerably more expensive than others. Country data will help indicate the state of the economy in each island and the CIA Fact Book and the Caribbean/Latin America Profile (see resources below) will provide a useful overview on each island. The standard of living in the BVI is high which makes building and general living costs higher than found in some of the islands. However, this is balanced by the general lack of poverty experienced around the islands.

Currency and Exchange Rates: There are many different currencies throughout the Caribbean although most of these, such as the Eastern Caribbean Dollar or the Barbados Dollar, have fixed exchange rates to the US Dollar. Only the British Virgin Islands (BVI) and the Turks and Caicos Islands (TCI), the US and Spanish Virgin Islands and Puerto Rico enjoy the benefits of a US Dollar economy where exchange controls do not exist. Some currencies have exchange controls (generally requiring consent to exchange local currency for US Dollars with large transactions) and investors should be aware of these controls when buying in each island.

Property purchases in the Caribbean are generally conducted in US Dollars. With the current exchange rate favouring the Pound and the Euro, the cost of property in the Caribbean is under priced to the European investor.

Requirements for Acquiring Property: The requirements for foreign nationals acquiring property will vary from island to island. Some islands, such as Barbados, Cayman Islands and the TCI, allow investors to freely acquire property without restriction. Other Caribbean islands however require purchasers to obtain consent from the local Government in the form of an Alien Landholding Licence. Generally, the licence application is a straight forward document, requiring police records, personal and financial references, although the processing time will vary from island to island. Where lengthy delays in processing exist, the investment value of property may be affected compared to the islands which do not have these requirements. The BVI has a standard landholding licence procedure, with applications taking between three to nine months to process.

Development Commitments: Following years of speculative investment by foreign nationals, some islands now require purchasers to commit to an agreed level of investment when acquiring land for development. While varying between islands, the purchaser will generally be required to commit a specified amount of funds within an agreed timeframe. In the BVI, the minimum development commitment for undeveloped land is currently US$250,000. There is no development commitment for developed property.

Mortgages: Mortgage requirements will vary between islands depending on the currency. Mortgages are available in most countries, although some islands, such as Barbados, require that overseas investors bring 100% of the funds into the country. Interest rates can be comparatively high where mortgages are taken in islands with independent currencies. The BVI benefits from mortgages with interest rates which are close to those found in North America while other islands can have higher interest rates.

Title: Generally, title in the Caribbean is freehold although leasehold properties can also be acquired. Care should be taken when investigating title and professional advice sought where necessary. A Land Registry system has been adopted in many islands while others, including Barbados, Grenada and St Kitts & Nevis rely on the older Book & Folio system which is far more difficult to research. Title guarantee is now being offered in selected islands through companies such as Stewart Title (see Resources below). The BVI enjoys a sophisticated land registry system where researching title is relatively straight forward and inexpensive.

Closing Costs: These differ from island to island and can have an impact on the ability of an investor to realize a profit on resale. Stamp duty and transfer taxes are generally charged on sales, although the amount of tax will vary from island to island. Some islands tax the purchaser, some the vendor and occasionally both. When the total closing costs in and out (ie when both buying and selling) exceed 20%, there is frequently resistance to acquiring property which can impact values and the ability to sell. Some islands, such as Dominica and St Kitts & Nevis, have “Economic Citizenship” programmes whereby overseas investors who meet the criteria of the programmes can acquire property with a tax reduction and also obtain an “economic passport” (non-voting) to boot. In the BVI, a purchaser will currently pay a stamp duty of 12% of the purchase price after an allowance of 5% of the purchase price has been deducted for furnishings.

Tax Considerations: Many of the Caribbean islands have considerable tax advantages for investors with no estate taxes, capital gains taxes and, in certain circumstances, no personal or corporate taxation. Off-shore companies can be used to acquire property which can give further benefits to the beneficial owner. Islands such as the BVI, Anguilla and Nevis have off-shore financial sectors which offer such companies which are generally referred to as “IBCs” (International Business Companies or in the British Virgin Islands, BVI Business Company). Prior to embarking on the acquisition of property in the Caribbean, investors should first seek professional advice on tax matters, particularly when moving permanently abroad.

Researching the Market

As with any acquisition, ground work will pay dividends. With the advent of the World Wide Web, access to information has never been easier.

Resources: Most islands have a wealth of information available normally from the local tourist board, chamber of commerce or Government investment agency.

Real Estate Agents: Locating a competent and responsive real estate agent can be a frustrating experience. If uncertain about whom to choose, a local bank will usually only recommend the more reliable agents.

Lawyers: A good lawyer will be necessary to advise on local laws relating to the acquisition of property, the preparation of a sale contract and transfer of clear title.

Engineers: A competent structural engineer will advise on the structural condition of a property prior to purchase. In a location that is prone to hurricanes, this survey could well be essential.

Buying in the Current Market

Most islands in the Caribbean have experienced significant growth in their real estate markets over the past six years based on a shift in investment patterns, which followed the collapse of stock markets and the strengthening of European currency exchange rates against the US Dollar. New trends which are emerging include resort residential communities (featuring a branded core hotel with residential units and, a major amenity such as a marina or a golf course) “fractional ownership”, “vacation club ownership” and “luxury residence clubs”.

The British Overseas Territories in the Caribbean (Cayman Islands, TCI, BVI and Anguilla – Montserrat remains in the shadow of the volcano) have all experienced significant growth with Anguilla in particular attracting significant investment at the top of the market. Of the independent islands, the Bahamas and Barbados have both experienced strong growth where established infrastructure and social structure have appealed to the European market, particularly in Barbados where values on the west coast continue to rise. The BVI has attracted some significant resort sector developments which will shortly be available for marketing.

The outlook for the Caribbean residential sector is good. The resort residential sector is leading the way in the Caribbean in terms of quality of construction, branded management and rental programme opportunities with many purchasers opting for a turn-key product, which includes finished residential unit and furniture packages, rather than taking on the construction of their own home in an off-shore environment.

Visiting the islands is an essential part of the decision making process. Local airlines such as LIAT offer cheap tickets for island hopping itineraries that will take you through the region. The bustle of some islands against the solitude found on others can only be experienced first hand.

Whether buying a villa or developing your dream home, the Caribbean can offer a wonderful living experience enhanced by a region that is politically stable and currently enjoying a resurgence in values. While returns on investment and increases in value can be important considerations, in the Caribbean being happy with your new island home is paramount.

Oyster Publications Inc, PO box 3369, Road Town Tortola, British Virgin Islands, VG1110