Barbados' two-tiered housing market
Lalaine C. Delmendo | August 16, 2019
In the famous West Coast, which caters primarily to super-wealthy foreigners, beachfront condo prices fell by 13.8% in 2018 from a year earlier, following y-o-y declines of 10.9% in 2017 and 13.3% in 2016, based on Terra Caribbean's Beachfront Condo Price Index (BCPI), which the company launched in January 2015.
“Our index indicates that achieved prices for west coast condos have been in decline since 2016 and with the continued oversupply, seeing price growth in this segment is unlikely,” said Terra Caribbean in its 2019 report. However, sales volumes are rising on the West Coast, as elsewhere.
On the other hand, in the South Coast, which caters to the mid-market, the BCPI rose by a modest 2.4% in 2018 from a year earlier, an improvement from y-o-y declines of 0.2% in 2017 and 7.3% in 2016.
“The addition of The Sands to the beachfront condominium pool on the south coast has accounted for several sales on this coast and the Crane Private Residences has also been enjoying measured success since the launch of Phase 3 of their planned development,” noted Terra Caribbean.
Barbados' housing market suffered a decade-long decline following the global financial crisis. Residential property prices in Barbados, especially in the high-end market, are still between 20% and 30% below their peak levels seen before the crisis.
The median price of beachfront condos on the West Coast was US$536 per square foot (sq. ft.) in 2018, down from US$622 in 2017, US$698 in 2016, US$805 in 2015 and US$ 728 in 2014.
The median price of South Coast's beachfront condos was US$417 per sq. ft. in 2018, up from US$408 in 2017 and US$409 in 2016 but still down from US$441 in 2015 and US$426 in 2014.
In 2018, overall transaction volumes in Barbados rose by almost 10% to about 2,600 units from a year earlier, amidst improved market sentiment, according to Hayden Hutton, COO of Terra Caribbean. This was the first increase in four years, after y-o-y sales declines of 0.1% in 2017, 3.8% in 2016 and 10% in 2015. However, it remains far below the peak levels of 4,250 transactions seen in 2007.
This is not surprising given booming tourism. In 2018, tourist arrivals rose by 2.7% y-o-y to a historic high of 681,197 visitors, according to the Barbados Tourism Marketing Inc. (BTMI). Then during the first five months of 2019, stay-over visitor arrivals increased further by 4.5% to 324,551 people compared to the same period last year.
“It would appear that after ten years of sluggish market conditions, and with a noted increase in trading volume and sentiment over 2018, we can say that the trajectory of the market appears to be changing,” said Hutton. “Perhaps 2019 is as good a time as any to get back into the market.”
Generally there are no restrictions on foreign ownership in Barbados except for one formality: nonresidents must obtain permission from Barbados' Central Bank if they want to buy property. This is pro forma, but failing to do so will void your purchase.
Barbados yields are anyone's guess
Property prices have remained weak in Barbados. Last year we found that gross rental yields in Barbados - the return on the cost of buying a property - are not unattractive, at 5.5% for 2-3 bedroom houses in St James. Larger properties yielded less.
This year we were unable to find enough properties to give a reasonable estimate of yields.
The Caribbean as a region levies extremely high taxes on buying and selling properties. If you have money in a visible thing (property), they will get you! By the standards of the region however, buying and selling costs in Barbados are not so very high, and mostly borne by the seller. (See also regional comparson of Barnados' buying and selling costs)
Rental income tax is high in Barbados
Rental Income: Rental income is taxed at a special flat rate of 15%.
Rental income earned by nonresidents is subject to 25% withholding tax, which is credited against the taxpayer’s final income tax liability.
Capital Gains: There are no capital gains taxes in Barbados.
Inheritance: Inheritance is not taxed in Barbados but transfers of property in Barbados are subject to property transfer tax.
Residents: Residents are taxed on their worldwide income at progressive rates, from 0% to 33.50%.
transaction costs are now moderate
With transfer taxes reduced from 7.5% to 2.5% in 2008, roundtrip transaction costs in Barbados are now moderate. Total costs for property sale and purchase range from 11% to 13.85%. The seller pays for a significant portion of the cost including the transfer tax, real estate agent's commission (5%, plus 15% VAT) and stamp duty (1%).
Buyer and seller pay for their own lawyer (legal fees are at 1% - 2%, plus 15% VAT).
The law is neutral in Barbados
Rent: Rent and rent increases can be freely negotiated.
Tenant Eviction: The landlord cannot evict a tenant without a court order under any circumstances, even when the tenant has not paid the rent for six months. It takes an average of 92 days to evict a tenant.
Economic growth remains sluggish, but public finances improvingThe economy of Barbados contracted by 0.5% in 2018, its second year of negative growth, according to the International Monetary Fund (IMF). Then during the first six months of 2019, economic activity declined further by about 0.2%.
“The impact of fiscal consolidation on demand together with weaker than desired investment offset the gains from a robust tourism performance,” said CBB Governor Cleviston Haynes.
In 2019, the economy is expected to post a minuscule 0.25% growth, at best, according to the central bank. Yet all the news is not bad. After a serious over-indebtness crisis, the government is on track to achieve a primary surplus of 3.3% of GDP for the FY2018/19, thanks to the country’s ongoing fiscal reforms and debt restructuring. Likewise, the government’s overall debt, while remains high, is now noticeably declining. Gross debt stood at 124.5% of GDP in 2018, down from 157% of GDP in 2017 and the lowest level since 2012.
Rising unemployment is a serious problem. The overall jobless rate increased to 11.6% in the fourth quarter of 2018, from 10.7% in the previous quarter and 8.2% a year earlier, according to the Barbados Statistical Service.
In the first half of 2019, government revenues increased 7.9% to reach BB$725.6 million (US$359.5 million) as compared to the same period last year. During the fiscal year 2019/20, the government expects total revenues of BB$3.1 billion (US$1.54 billion).
Foreign reserves are also improving. By end-2018, gross international reserves more than doubled to BB$1 billion (US$500 million), from BB$473.4 million (US$234.5 million) a year ago. Then during the first half of 2019, the islands’ reserves increased further to BB$1.2 billion (US$600 million), equivalent to 15.3 weeks of import – higher than the international benchmark of 12 weeks.
Given the favourable results of debt restructuring and increasing international reserves, Moody’s upgraded its credit rating for Barbados to Caa1 in July 2019 from Caa3, with a stable outlook. Earlier, Standard & Poor’s also raised the islands’ long-term domestic credit rating to B- in November 2018 from selective default (SD) in June 2018 following the government’s decision to default on its Eurobonds.