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Prospects in property investment

Prospects in property investment

Bahamas real estate offers long-term potential, stable rental income, as sale prices stay flat

The Bahamas Investor Magazine
December 8, 2010
December 8, 2010
Tosheena Robinson-Blair

The real estate market in The Bahamas has matured into a hospitable investment climate, one that’s a favoured destination for international buyers seeking a secure investment environment with stable returns, according to a leading industry website.

The Bahamas snagged first place in Global Property Guide’s (GPG) long-term real estate investment ranking of 13 Caribbean countries. The Cayman Islands, British Virgin Islands, Guadeloupe and Jamaica rounded out the top five. Attributes which made The Bahamas most attractive for property investment were its stable economy and government, pro-landlord rental market, minimal property taxation and moderate rental yields. Consequently, The Bahamas received an overall rating of four out of five stars.

What to look for
For foreign investors with acquisition plans, the types of property that make good long-term investments are income producing ones and good vacant land in populated areas, according to Peter Dupuch, a Bahamasair pilot turned realtor.

In the early 1990s while still a pilot, Dupuch realized he could be more successful on the ground investing in real estate than in the air. “I remember when I was a commercial pilot and you’d hear tourists gasping in amazement at the color of the water below them,” he recalls. “Something that I took for granted and saw every day and hardly noticed, took their breath away. Plus, our stable democratic government with our mature and peaceful election system, makes The Bahamas a place most would give anything in which to reside.”

Dupuch, the founder of ERA Dupuch Real Estate, believes land investors are of two minds. “Some have found great wealth and cash flow investing in income producing properties, but others like buying raw land and waiting for it to appreciate. This usually takes patience to see dividends over a long period of time.”

Stable investment
Generally speaking, would-be buyers are sure to find good returns from an investment in vacant land, particularly in Nassau, says John Christie, managing director of the country’s oldest real estate firm, H G Christie.

“Over the years, land in New Providence has appreciated around 10 per cent a year,” says Christie. That rule of thumb generally tends to hold true for some popular Family Islands, while private islands, since the 1990s, appreciated around 100 per cent a year, according to the realtor. “In 1993, you could have bought a 10-acre island for $80,000, then in 2007 see an offer on it for $2.1 million,” he says.

For Colin Lightbourn, managing director of Coldwell Banker Lightbourn Realty, ultimately it depends on the goals of the investor.

“For example, vacant waterfront land on the Family Islands has good appreciation over the long term, but does not create a cash flow,” explains Lightbourn. “A commercial building in Nassau does not have the appreciation, but provides an income to service debt. Both are good long-term investments, but it depends on the profile of the investor.”

Andrea Brownrigg, a veteran real estate broker, believes that lower priced rental properties yield the highest rate of return. “The major carrying costs–condo fees and real property tax–are lower on one-bedroom units than upscale larger ones, yet the least expensive rental rate is more often 10-12 per cent per annum of the property value,”?says Brownrigg, who began selling real estate on Paradise Island 26 years ago when there was just one bridge connecting the island to Nassau, and only two condominium properties along the harbour front.

It is said that Brownrigg, who founded Paradise Sales & Rentals, which is now part of Bahamas Realty, has been involved in either marketing, selling, renting or managing every property on Paradise Island. In fact, she and her husband, Robin Brownrigg, have invested in 11 income producing apartments on the island, which has some of The Bahamas’ priciest real estate. The couple made Paradise Island their home in 1987.

“Perhaps our actions speak louder than words as regards [to] our view of the investment potential in real estate,” she says. One approach to a sound investment, Brownrigg suggests, is selecting the ideal location (preferably waterfront), then ensuring the property is tastefully appointed to attract a high-calibre, long-term tenant. A more desirable locale can be expected to appreciate more in value over the long term.

Value for money
Key elements of value in real estate investments are demand, utility, scarcity and transferability. Generally, demand and scarcity are said to be the most important. Lightbourn suggests the best opportunities for investment and appreciation can be found on populated smaller islands where properties and communities are well maintained. He points to places such as Paradise Island, Harbour Island, the Abaco Cays and some areas of New Providence.  “Within each of these communities there are specific property types such as vacant land, commercial buildings and multi-family residential,” says Lightbourn.

Likewise, islands such as Abaco, Eleuthera, Long Island, Cat Island and San Salvador offer great opportunities for affordable investment. Experts say there are also great opportunities to be had for second home buyers. Buyers today are hunting for deals and there’s been a noticeable shift in their way of thinking.

“Some used to say that putting ‘reduced price’ or ‘marked down’ may have dissuaded somebody from purchasing a property, because the seller looked desperate,” says Dupuch. “In this market, the opposite is true.  Buyers are looking for reduced prices.”

The real estate market will eventually rally, and when it does Lightbourn believes it may be a decade or more before these current “depressed” values on real estate are seen again.

Experts admit that there are risks associated in investing in real estate in The Bahamas, as is the case anywhere in the world. No one can predict which way property prices are going to go. “If you don’t want the risk then leave your money in the bank at three per cent,” cautions Dupuch. “It will always be there, but you won’t make much on it, because there’s no risk.”

Return on investment
The return on investment depends on how much you pay for the property, says Lightbourn. He suggests that a prospective investor use a cap rate to determine their offer price. “If we are talking about a commercial or multi-family rental property, you will need to know what the rents in that location are to arrive at the offering price,” Lightbourn advises.

The costs associated with investing in Bahamian real estate are high, so it is not common to see investors buy a property with the hopes of selling in the short term for a profit. The rate of return on an investment varies dramatically by area, type of property and the state of the market when an investor buys and again when they sell. “Most foreign buyers are happy with a seven-10 per cent annual return on a property that they might even have a chance to use on occasion,” says Brownrigg.

Those who want a holiday home, rental property, or a solid investment property continue to eye The Bahamas’ high-grade developments, condos and gated homes located in well established communities. Numerous factors such as location, airlift, infrastructure, language, currency, tax benefits and friendly people, make investing in The Bahamas a favourable choice for those looking overseas for real estate.

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