In the BVI, cradle of the rich, rising demand for high-end properties
August 01, 2017
Sales of residential properties over US$ 500,000 were up by 133% in the first half 2016, to US$ 16 million. Villas costing between US$ 1 million and US$ 3 million accounted for 52% of all properties listed for sale in 2016. Sales to non-belongers - i.e., foreign homebuyers - rose by 25%.
In other words - there's something of a buzz in the market.
The BVI's luxury market is dominated by non-belongers, and European buyers account for 60% of luxury sales, according to Knight Frank’s Caribbean Desk Head Christian De Meillac.
From 2003 to 2008 around 80% of all home sales went to non-belongers, as opposed to 20% to belongers. Then came the 2008-9 financial crash, and fewer non-belongers bought. More recently, from 2013 to 2015, the non-belongers' share settled at 58% of total sales. Now it looks likely to rise.
Properties in the main islands of Tortola and Virgin Gorda are popular with foreign buyers, particularly on 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.
- In Tortola, the largest and most populated of the British Virgin Islands, the average sales price of high-end residential properties worth more than US$ 1 million, was US$ 2.37 million from 2010 to 2016.
- In Virgin Gorda, the second most populous and third largest of the British Virgin Islands, the average sales price of high-end residential properties was US$ 3.71 million from 2010 to 2016.
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.
The BVI’s official currency is the US dollar, so foreign investors do not have to be concerned about exchange rate fluctuations. Moreover, as an overseas territory of the United Kingdom, BVI enjoys a stable political culture, strong financial sector, and a high standard of living. Crime is also relatively low. Despite these benefits, some foreign investors are discouraged from investing in the BVI because of restrictions on foreign homeownership through landholding licenses and other government policies.
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's booming tourismOne of the Caribbean’s most prosperous economies, the BVI's growth has slowed sharply in recent years. After a slump in 2002 (-3.3%) and 2003 (-12.6%), the BVI had average GDP growth of 5% from 2004 to 2007, and then 1.5% from 2008 to 2010, according to the UN Statistics Division.
After the economic crisis, the economy contracted by an annual average of -1.6% from 2011 to 2015.
Recently tourism sector recovered, encouraged by the opening of the Tortola Pier Park facilities, as well as by the government's berthing agreements with Disney and Norwegian Cruise Lines. The tourism recovery came after several dismal years in which total visitors to the BVI fell by 8.6% 2009, followed by -0.9% in 2010, -1.3% in 2011, -9.4% in 2012, and -1.5% in 2013, according to the Caribbean Tourism Organization.
In 2014 the total number of visitor arrivals increased 4.1% from a year earlier.
Tourism was even stronger in 2015, with visitors up 19.4%. In 2015 tourism increased by 5.5% y-o-y. In 2016, visitor arrivals rose by 21.9% y-o-y to 1.12 million people.
Now the British Virgin Islands is on a "positive growth trajectory", with GDP growth around 3.2% in 2016, said Premier and Finance Minister Dr. Orlando Smith in his 2017 Budget Address.
"This growth over the past two years or so has been largely due to growth in construction and transport driven mainly by public sector investment including the Tortola Pier Park project."
The Premier also talked of plans of an airport expansion, which would further advance the Territory's main industries of tourism and financial services in the future.
Financial services under stress
The BVI's financial services sector faces some challenges, with new restrictive banking practices and global regulatory changes. The BVI is the world’s 4th largest captive insurance domicile, and ranks 51st in the Global Financial Centers Index published in March 2017, down by fifteen notches from its previous ranking in September 2016. While new company incorporations increased from 100,000 in 1993 to more than 478,000 in 2015, according to the AMB Country Risk Report of 2016, new company incorporations fell in 2015.
BVI has low inflation. The average annual inflation rate was 1.05% in 2016, down from 1.8% to 2.5% from 2010 to 2015, according to the BVI's Central Statistics Office.