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Let’s use St Lucia as an example. It is an established and increasingly popular holiday destination that is also one of the most accessible – three major airlines from the UK provide a direct service to St. Lucia (8 hours), and a direct service is available from the following US airports – New York (5 hours), Miami (3 hours), Charlotte (4 hours), Philadelphia (5 hours) and Atlanta (4.5 hours).
St Lucia has a stable economic and political environment with a high probability of price appreciation over the next ten years. St Lucia has many of the same advantages as Barbados but property prices are currently 60% lower.
The World Bank has recently placed St Lucia in the top 30 countries in the world to invest, making St Lucia the only Caricom country to make the top 30, ahead of Barbados and Antigua.
The general crime rate in St Lucia is one of the lowest in the Caribbean, making it a safe haven for tourists and for living. What’s more the island benefits from a stable government and economy, and there are very favourable tax concessions for property buyers from overseas: No Rental Income Tax, No Capital Gains Tax, No Inheritance Tax, No Repatriation Tax.
The island is still unspoilt and undeveloped, although several new developments have recently been started. The government sees expansion of tourism as a key objective and the growing popularity of the island for holidays mean that there is excellent rental potential for properties.
The real estate sector in St Lucia is booming. St Lucia is still one of the most reasonably priced islands in the Caribbean for property acquisition with prices 60% lower than on Barbados. Property prices have increased by around 40% per annum for the last 2 years, and are projected to continue to rise for the next 5 years.
This all points to a fast maturing property market in St. Lucia with increasing prices, making an early commitment to a home a sound investment in lifestyle and real estate.
Rental Comparison
The table below shows typical room rates for 5 Star accommodation in St Lucia with prices quoted in sterling:
Accommodation Current Price per night** Hotel Studio £130 1 Bed Apartment £180 2 Bed Apartment £250
- Based on a studio apartment priced at £95,000 with a 10% Rental Guarantee you would receive £9,500 per year for the first 2 years
- Thereafter, a 50:50 split of the net room rate shared with the hotel.
- Lets’s assume a conservative room rate of £130 per studio per night
If we also assume a conservative occupancy rate of 65%* the rent receivable would be as follows:
£130 x 365 x 65% = £30,800
£30,800 split 50:50 with the hotel provides a gross income for the investor of:
£15,400 per annum
If you were to do the same calculation for a 1 bedroom and a 2 bedroom apartment the figures would be as follows:
Rent per annum Gross Yield per annum*** Hotel Studio purchased at £95,000 £15,400 16.21% 1 bed apartment purchase price £125,000 £21,300 17.04% 2 bed apartment purchase price £150,000 £29,650 19.77%
With gross yields from buy to let investments in the UK averaging around 5% per annum the conservative figures above really do make interesting reading!
* The average occupancy rate for similar developments in St Lucia is believed to be 80 to 85%.
** Figures quoted at current room rates, which we fully expect to increase over the development period.
*** Note: the gross yield figures do not allow for the rolled up interest on the stage payments and deposit (if chosen).
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Merrill Lynch has recently published the World Wealth Report 2008
Looking To The Caribbean As A Whole
It reports on the wealth of the world, and in particular how the various property markets are doing.
In summary:
a) There is more money available globally than before
b) There are more millionaires than before
c) This wealth is being created from emerging markets – and the Caribbean is named as a HOTSPOT!
d) The ultra wealthy look to invest in places with global communications, sports facilities and a green policy – all of which we have!
Therefore there is still wealth to be invested, and there is still wealth spending money on tourism!!
Interesting quotes from the report:
Source: Robert McCann Vice Chairman and President Global Wealth Management Merrill Lynch & Co. Inc.
Merrill Lynch Global Wealth Report 2008
“The US economic slowdown weighed heavily on key mature regions. However strong performances in emerging markets boost high net worth individuals gains around the globe….world growth was strong in 2007 and drove sold increases in both HNWI populations and overall wealth”
“Growth in global HNWI wealth of 9.4 from the previous year”
“Emerging markets (showed) the greatest…gains”
“50% more cash available in Russia”
“still strong…emerging markets are likely to sustain high levels of growth”
“globally direct commercial real estate investments rose 8.4%”
“as signs of financial market recover appear, we project that high net work individuals will likely return to their pursuit of high returns, particularly in emerging frontier markets – such as the Caribbean”
“despite rising cost and financial market turmoil, high net worth individuals did not give up expensive purchases” IE Luxury purchases including property and travel.
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Quotes and Information on the Caribbean
Liam Bailey, Head of Residential Research Knight Frank
“global property prices rose by 11% during 2007″
“highest price growth achieved by prime residential properties was in Antigua (40%)”
“the strongest growth was being demonstrated in the emerging economies…with a second streak of strong growth in second home hot spots in…the Caribbean”
Financial Times, 21 April 2007
‘Demand from buyers has been strong… and property prices rose 40 per cent last year as a result.’
Ft.com, June 1st 2007
“What we are seeing in the Caribbean is a lot of new development going on and it appeals beyond the US: it appeals to the Europeans who are attracted to the Caribbean.”
Ft.com, June 1st 2007
“People are spending from $4m to $10m on the houses in the region. Certainly prices in the Caribbean are higher than in the past. It’s not difficult to spend $15-$20m or even $40m for really top of the line estates”
Ft.com, June 1st 2007
Mr Ryan recounts how the project began, 10 years ago. “In 1997, Ritz-Carlton invited me to do a project here. They are a management company, and saw that the market was underserved. They saw potential here. They tried to get the project done on their own and, when it did not happen, they decided to reach out to a developer. ‘If you make it happen, we will give you a brand and manage it,’ they told me.”
Ft.com, June 1st 2007
“The average appreciation is 12 per cent a year for the past 17 years. Bear in mind that this return is not taxed by the local authorities.”
www.Propertyweek.com, 4th April 2008
In 2007 the small overseas property fund outperformed the UK real estate by around 50%.
Peter De Savory, quoted on www.Propertyweek.com, 4th April 2008
“You can buy first class new land for $700 to $1,200/sq ft. In Barbados it’s around $2,500.”
“It’s not as if all the rich people have died,’ he says with a wry grin. ‘Leisure is quite a protected sector. There will always be people who need a holiday in the sun, and not everyone in the world wants Dubai or the south of France.
‘Provided you are creating value in the mind of the customer then the price is not the issue. It’s not whether it is expensive or cheap. We’re not providing people with essentials we are providing them with an indulgence. ‘Value is intangible. It’s about an aroma of attractiveness. There is no logic to it…
Figures from World Tourism Organisation, “Tourism highlights 2007”
Globally, international arrivals have grown by 400 Million people since 1990, a growth rate of 94%, averaging 3.6% per year since 2000. Within the Caribbean, international arrivals have increased by 8 million people in the same period, an increase of 41.2%, with an average of 2.2% since 2000.
Ft.com, October 3rd 2004 and March 28th 2003
The tourism industry brings the Caribbean’s struggling economies about $20bn (£13bn) a year, and accounts for 30 per cent of gross domestic product and provides one of every four jobs.
The $20bn tourism industry is the ‘economic mainstay’ for many of the Caribbean’s island states. For example, ‘the gross domestic product for the Bahamas was $5.3bn last year. Seventy per cent of that was generated from tourism-related business.’
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Quotes and Information Specific to St Vincent & The Grenadines
Tourism
www.svgtourism.com
Caribbean tourism organisation, “St. Vincent and The Grenadines 2006”
In 2006 the breakdown of international visitors to St. Vincent and The Grenadines breaks down as follows:
US 28,598 (29.4%)
UK 14,837 (15.2%)
T&T 11,002 (11.3%)
Canada 6,542 (6.7%)
Other Caribbean 27,217 (27.9%)
Other Europe 7,214 (7.3%)
Rest of World 2,112 (2.2%)
The number of UK visitors to St. Vincent and The Grenadines in 2006 was 14,837, 15.2% of the total number of visitors to the island (94,432). The total number of arrivals has increased by 25.5% since 2002 at an average rate of 5.93% per year during this period.
In 2006 Total Expenditure by tourists was $95.6 million.
The Tourism Budget was $3.474 million.
In 2007 total visitors increased by 16.5%. The UK (21.4%), Canada (8%) and USA (2.7%) all saw significant growth.
Economic Growth
Eastern Caribbean Central Bank
Between 2003 and 2007, the economy in St. Lucia has grown on average at 6.03%
Tax Incentives
National Investment Promotions Inc
In line with the governments aim to encourage growth in Tourism concessionary rates of tax are payable on property.
For tourism related development where the occupancy tax is applicable and the annual rental value exceeds $20,000 the tax charged is 1.5% rather than the usual 5%.
Investment Promotions Inc
Hotels with more than 35 rooms are granted 15years income tax exemption from date of opening of the resort.
An approved construction order grants concessions for construction materials for excise duties and consumption tax
Resorts accommodating more than 100 people are exempt from import duties on food and beverages.
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Quotes and Information Specific to Barbados
Tourism
Figures from Caribbean tourism organisation, “Barbados 2006”
In 2006 the breakdown of international visitors to Barbados breaks down as follows:
2006 visitors UK 211,523 (37.6%)
US 130,767 (23.2%)
Other Caribbean 82,989 (14.8%)
Canada 49,198 (8.7%)
T&T 34,480 (6.1%)
Other Europe 29,400 (5.2%)
Rest of World 24,201 (4.3%)
The number of UK visitors to Barbados in 2006 was 211,523, 37.6% of the total number of visitors to the island (562,558). The total number of arrivals has increased by 13% since 2002 at an average rate of 3.13% per year during this period.
In 2006 the total Expenditure by tourists was $ 763.2 Million. This averaged out to $127.48 per day for each tourist in Barbados.
Economic Growth
St. Lucian Budget Address for Financial year 2008/2009
Economic growth for Barbados in 2007 was 4.3%.
Ft.com, January 23 2004
When considering the welcoming nature of the locals to settling tourists it is worth considering the Bajan Governments policies. Described as “far-sighted,” All its beaches are available for use by the whole population as they are national property. This encourages integration between visitors and Bajans.
Tax Incentives
Barbados Tourism Investment Inc, “Legislation and Incentives”
One of the main tax incentives offered by the Bajan government is the Tourism Development Act. This was designed to offer incentives to expand the tourism and hospitality sector by offering incentives and corporation, Import Duty and other tax concessions.
These incentives also include provision for “investors in tourism projects to benefit from write off of capital expenditure and 150% of interest. There is also exemption from import duty, value added tax and environmental levy in respect of furniture, fixtures and equipment as well as building materials, supplies and equity financing.”
Concessions under this act include:
Duty-free importation (including waivers of Value Added Tax (VAT) and Environmental Levy) of building materials and equipment during construction and rehabilitation;
Duty-free importation (including waivers of Value Added Tax (VAT) and Environmental Levy) of supplies for refurbishment of hotels, restaurants, villas and sports and recreation facilities for tourism purposes;
Extended tax holidays/write-off of capital expenditure and accelerated write-off of interest;
Training of empoyees;
Marketing
PriceWaterHouseCoopers, Tax, Facts and Figures: Barbados 2006
Barbados also offers other tax concessions. Land tax is calculated and payable on only 50% of the improved value of the property for hotel developments.
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Quotes and Information Specific to the Dominican Republic
Dominican Republic: Tourism and Economy Statistics and Government Incentives
Tourism
Figures from Caribbean tourism organisation, “Dominican Republic 2006”
In 2006 the breakdown of international visitors to the Dominican Republic breaks down as follows:
USA 1,092,317 (27.5%)
Other Europe 812,511 (20.5%)
Canada 509,323 (12.8%)
UK 242,559 (6.1%)
Germany 226,737 (5.7%)
Italy 144,115 (3.6%)
Other 937,493 (23.6%)
The number of UK visitors to the Dominican Republic in 2006 was 242,559, 6.1% of the total number of visitors to the island (3,965,055). The total number of arrivals has increased by 43% since 2002 at an average rate of 9.62% per year during this period. The Dominican Republic had the largest number of visitors of any Caribbean Island, making up 2.9% of the all visitors to the Americas region.
In 2006 the total expenditure by visitors was $3180.4 Million.
World Tourism Organisation, “Tourism highlights 2007”
The Dominican Republic had the 2nd largest increase in visitors throughout the whole Caribbean in 2007: 7%
Economic Growth
Caribbean update, May 2008
In 2007 Foreign Direct Investment (FDI) increased in the Dominican Republic by 16.3% to US$723.3 million. FDI for Real Estate increased by 120% and in tourism by 58.1%.
Tourism Development Law – Guzman Ariza Law Attorneys
This is a good example of Dominican incentives to increase pace and process of development in the tourist industry.
Qualifiers for the incentives include: Hotel facilities, resorts and/or hotel complexes; Construction and/or operation of tourist infrastructures, such as aquariums, restaurants, golf courses, sports facilities, and any other that may qualify as a tourist activity.
The Incentives for Businesses domiciled in the country include one hundred percent (100%) exemption from paying the taxes listed below:
1. Income tax
2. National and municipal taxes levied on the use and issuance of construction permits, including land purchase documents.
3. Import duties and other taxes, such as tariffs, fees, late charges, including the Tax on Transfer of Industrial Goods and Services (ITBIS) that are applicable to the equipments, materials and furnishings needed for initially equipping and putting into operation the tourist resort concerned.
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Quotes and Information Specific to St Lucia
Tourism
Caribbean tourism organisation, “St. Lucia 2006”
In 2006 the breakdown of international visitors to St. Lucia breaks down as follows:
USA 117,450 (39.8%)
UK 73,312 (24.2%)
Canada 17,491 (5.8%)
Caribbean 78,464 (25.9%)
Other Europe 9,648 (3.2%)
Rest of World 3,450 (1.2%)
The number of UK visitors to St. Lucia in 2006 was 73,312, 24.2% of the total number of visitors to the island (302,510). The total number of arrivals has increased by 19.4% since 2002 at an average rate of 4.68% per year during this period
In 2007 the total expenditure by visitors was $808.3 Million
The tourism budget was $6.918 Million.
In 2007 Visitors from UK rose 8% and Cruise ship arrivals rose 69.7%.
St. Lucian Government, “Tourism by numbers” Budget Address 2008-9
The St. Lucian Government has allocated an extra 148% funding to the tourism industry from 2004 – 2008, with an average increase of 27.7% per year. The allocation for the tourism sector in 2008 – 2009 was $53.6 Million.
Occupancy rates increased on small properties 10.7% and an average of 6% over 2 years to 70.3%. The whole island had an occupancy rate of 67.8% up at an average of 4.5% over 2 years. In 2007 the Hotel occupancy was 69.7%.
In 2007 the number of UK stay-overs increased by 8%.
Economic Growth
Eastern Caribbean Central Bank, Annual Economic and Financial Review 2007
Economic Growth in the St. Lucia has been on average 3.45% between 2003 and 2007.
Budget Address 2008-9
In 2007 the real estate sector grew by 7.6%.
St Lucia the new tourist destination
Ft.com, 10 May 2008
“…now there’s another Caribbean location for those wanting a home combining sun and the simple life in the shabby-chic style of the old Barbados. Welcome to St Lucia.”
Financial Times, 21 April 2007
“In an effort to protect its natural heritage from overdevelopment, the Caribbean island’s government now has an environmental section in its ministry of planning and nearly 30 laws setting out restrictions on new construction. But Dolby, whose company, DCG Properties, is building the £400m Le Paradis next to the sleepy village of Praslin on St Lucia’s east coast, says he welcomes the safeguards.”
“Spoil a place like this,” he says, sweeping his arm across a 550-acre vista, “and you spoil your greatest asset.”
“St Lucia is as progressive in its property schemes as it is in environmental protection, with a growing number of resorts where developers, hoteliers and owners share both risk and profit.”
Ft.com, 10 May 2008
“Recent changes to limit development include a compulsory environmental impact survey to measure the effect of a scheme on land, local people and wildlife. There is also a ban on building new homes within 100 metres of the coast.”
The local authorities are acutely aware of the high density building on some of the other Caribbean islands,” says Charlotte Wilson of Savills, the London-based estate agency that sells property on the island. “They’re working with conservationists and introducing restrictions to ensure St Lucia doesn’t go the same way.”
Here are some news links for information about the Caribbean region. It makes some interesting reading as it is clear even with the “credit crunch” the region is booming.
Global credit markets may be depressed but the investment banking community continues to show strong interest in doing business in the Caribbean.
There is strong interest in the Caribbean from the investment community that is looking at the future and the vacation market continues to be healthy.
St Lucia & St Vincent offer excellent overseas investment prospects to escape the UK property crash
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