Despite a contraction in GDP for 2009, Bermuda property prices have remained relatively stable. While sales of luxury homes are down substantially and rental yields have decreased, demand for residential homes priced under $1 million remains strong. See the following article from Global Property Guide for more on this.
Sales of luxury homes in Bermuda were strongly down in the first two quarters of 2010, but cottages with price tags under $1 million are still in high demand.
Bermuda´s real estate market has remained active, despite the global financial crisis, though house prices have declined slightly.
- The average price of a single-family home was 6% down in 2009, falling from $1,415,003 in 2008 to $1,327,900 in 2009, according to government records obtained by Coldwell Banker Bermuda Realty.
- Condominium and townhouse prices were almost unchanged, with an average price of $821,853 in 2009, and $803,271 in 2008.
“We are seeing reduced prices in certain segments of the market such as older condominium developments,” says Susan Thompson, agent manager at Coldwell. The most highly sought-after properties are cottages under $1 million, in central parishes.
The average residential price in Bermuda rose 40% between 2003 and 2007, from US$976,000, to around US$1.6 million in 2007.
Bermuda is one of the world´s leading offshore centers, and had a GDP per capita of $92,818 in 2008. Its strong financial and international business sectors fueled economic growth over the past decade, and these remain the biggest contributors to GDP, with real estate and rentals the third largest sector accounting for 14.4% of GDP in 2009.
But Bermuda´s economy contracted by 2.5% in 2009, after growing a mere 0.7% in 2008. The recession impacted leading sectors, such as tourism and construction.
Rents decline, yields are moderate
Bermuda´s high-end rental market has slowed since 2008. By end of 2008, rents were estimated to have fallen by 10% to 30% from a year earlier. In 2009, the average rental price per unit was down again by 15%, based on transactions involving Coldwell Banker (the government of Bermuda has no record of rental transactions).
“This could be the result of two factors: one, lower rental prices, or two, fewer high-end properties for rent or renting,” says Thompson. “There was a 32% reduction in the number of properties renting for $9,000 and above from 2008 to 2009.
“But interestingly, those [higher priced units] that rented, did so at approximately 14% higher than those in the same category in 2008; but DOM [days on market] increased by 25%.”
Average rents increased by around 40% from 2000 to 2007. An executive home that used to have a monthly rent of US$4,000 in 2004, rented for between US$8,000 to US$20,000 per month in 2008.
Rental yields in Bermuda are moderate. Yields for houses range between 4.2% and 5.7%, and condominiums range between 4.6% and 6.8%, according to Global Property Guide research.
Discouraging luxury property sales
Luxury property sales in 2009 were down by a staggering 61% from 2008, at $28 million total sales value. Sales of standalone luxury homes with annual rental value (ARV) exceeding $153,000 continued weak in the first two quarters of 2010, based on transactions involving Coldwell Banker Bermuda Realty.
“What is worth noting however, was the emergence of demand during the first six months of the year which has rather pleasingly resulted in the execution of several recent sales and purchase agreements,” says Coldwell president Brian E. Madeiros.
“These pending contracts will ultimately culminate in approximately $30 million worth of sales which should ideally close in 2010. Fifty percent of these impending sales will require alien licenses, hence result in closing delays.”
Interest rates and the mortgage market
Mortgage rates in Bermuda now vary from 5.75% to 7.25%, excluding other fees. In August 2010, HSBC Bermuda, known in the island as “The Bank”, announced a five-year fixed rate of 6.95% for new mortgage customers.
The Loan to Value Ratio (LVR) is typically 80% (up to 95% at HSBC Bermuda) of the appraised value of the property with terms range from 5 to 30 years.
Bermuda does not have a Central Bank. Adjustable-rate mortgages (ARM) are tied to the Bermuda base rate, which usually follows US Fed key rates, as the Bermuda dollar (BMD) is pegged to the US dollar at BMD1 = USD1.
Bermuda makes way for new developments
The Reefs Hotel & Club in Southampton parish has just unveiled 19 private beachfront residences, known as The Reefs Club. It offers two- and three-bedroom units available for purchase on a fractional ownership basis.
An $80 million dollar redevelopment will transform the 9 Beaches resort in Sandys parish into a first-class, mixed use resort. It is scheduled to re-open in May 2011 and will include a maximum of 150 units (up from 86 units), including permanent accommodation units.
The Grand Atlantic residential development, which is the product of a partnership between the government and Atlantic Development, recently broke ground in the parish of Warwick. It will consist of 125 homes – 95 two-bedroom units (1,100 sq. f.) and 30 three-bedroom units (1,400 sq. f.). Prices range from $500,000 to $625,000. Units will be sold to first-time home buyers.
Restrictions on foreign and expatriate home ownership
The government imposes certain restrictions on foreign purchases.
Non-Bermudians are only allowed to purchase residential properties currently owned by non-Bermudians.
- A house must have a minimum annual rental value (ARV) of $153,000, or an average selling price of about $2.8 million.
- For condominiums, the minimum ARV is $32,400. The ARV is used not only to determine which properties qualify for sale to foreigners, but also as a basis for land taxation.
When acquiring a residential property, a foreign buyer must obtain a license from the Ministry of Labor, Home Affairs and Public Security. The alien license fee is 25% of the purchase price of a house, or 18% for a condominium. For fractional units, the fee is 10% on first-time sale and 18% on the second.
Non-Bermudians may not acquire undeveloped property, unless they are spouses or children of Bermuda nationals.
Generally, a non-Bermudian cannot own more than one residential property. A non-Bermudian will be permitted to purchase a second property only on condition that the original property is sold within a year.
This article has been republished from Global Property Guide. You can also view this article at Global Property Guide, an international real estate analysis site.