Article
02 Dec 2009
Barbados
Andrew Mallalieu - Managing Director
Business Barbados 2010 Edition
The Property Market in Barbados - 2010 Business Barbados
There have been so many great clichés knocked around in the last year that I thought I would start by listing my favorites. I am sure that they should be attributed to the authors but I know not who they are.
“When the tide comes in all ships float.”
“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”
And my favorite:
“When the wind blows strong you see who is wearing knickers.”
We have certainly seen a few without knickers in the last year! But how has it all translated into the Barbados market and where do we go from here? While I do not believe it is over as yet (July 2009) I think that the worse is behind the large economies of the world. Unfortunately for Barbados the ripple or large wave is only now really reaching our shores. The worst for us is still ahead. Our foreign exchange reserves are coming under pressure with the steep decline in foreign direct investment. In addition Government revenues are falling from all sources (income tax, VAT, customs duties etc.)
We are fearing a great deal better than our neighbours St. Lucia, Grenada and Antigua. It is in these markets that the cliché “When the tide comes in all ships float” is best applied. These markets were punching above their weight when there was an abundance of money following a limited number of opportunities. The market is now about fundamentals and the tide has gone out, so it is only markets where the core demand is sustainable that the projects are not sinking – to keep with the metaphor so to speak. It is not that Grenada, St. Lucia and Antigua do not have beautiful beaches or tropical landscape but rather it is a matter of the established markets being able to sustain themselves in a poor environment while secondary or tertiary markets simply cannot.
The difficulties faced by the Four Seasons project at Paradise Beach present a significant risk for Barbados’ reputation as a safe haven in a storm. The final analysis of the causes of their issues will not be known for a few years but I am certain that in the end greed will be at the core of the issue. From a real estate perspective my concern continues to be the erosion of the confidence that investors need have in all aspects of a Barbados investment. The legal system, the social stability, the Government stability, the banking regulations, and all the other fundamental facilitators for investors are pillars upon which investor confidence stands, and it is important to understand how Barbados could be affected by the failure of one such high profile project.
The good news is that transactions are starting to flow again. Seller’s expectations adjust long after the reality has set in for purchasers. The last 9 months was dominated by a mismatch of expectations and the result was very few transactions. Lets be clear, it was not a result of a lack of product or even purchasers, but rather a complete disconnect between asking prices and willing purchasers. There was no doubt a period when no amount of price reduction (within reason) would have encouraged a purchaser to perform. The best decision for both purchaser and seller was certainly to make no decision. We did see a great deal of intelligence invested by vendors to make themselves believe that the market would not go through a correction. I have not met a property owner who did not want to see property values rise or stay firm. I have met a number of purchasers who on the day before they purchased argued for a declining market and the day after had become staunch optimists. It seems we all tell ourselves what we want to hear, and we argue with humble advisors like myself who simply try to present the market evidence.
Today we see that vendors have adjusted their asking prices and we see purchasers with renewed confidence making informed decisions. While activity is still not what it was at the peak, we are building back to what could be characterized as reasonable market activity. Of course these comments all refer to the foreign market. That is costal and themed properties that non-nationals purchase as investments or for vacation homes. The local market has feared differently. Through the first half of 2009 the effects on the local economy have been insulated and both land and finished homes have sold well. Demand continued to exceed supply especially in the upper middle class market. However, we suspect that the second half of the year will see a different picture emerging, with liquidity in the banking sector tightening and layoffs having the inevitable impact, we are already seeing a fall in demand for local property investment. We anticipate that this softening of demand will extend through to the end of 2010 when it is possible that the Barbados economy could right itself.
Whenever I am asked to write an article for Business Barbados I am conscious that my predictions will have a shelf life of one year or more. That is long enough to be both right and wrong given the pace of change. Luckily for me I seem to have gotten it mostly right and I hope I will be right again. I believe that investing in real estate continues to be the safest of any asset class. I believe that there continue to be great opportunities for property investors in Barbados and here is why:
(1) God made only 166 square miles of Barbados and then he stopped. We have a limited but depleting resource in a world that is growing in wealth and people.
(2) Within the Caribbean market the experience of owning a villa in Barbados is unparalleled. This takes into account the stability of the country, the sophistication of the infrastructure, the access to cultural and social events, the development of sports, the low crime rate, and many other factors that contribute to the experience of being in Barbados.
(3) We have been blessed with good Governance for a long time. Of course you can take political sides but in general we have taken a very conservative approach in our Governance and we have avoided the wild swings in prosperity that can so often punctuate small island states.
(4) Our banking system is dominated by Canadian banks who were the best prepared for the world financial crisis. We should thank the Canadian regulators who did a great job of avoiding what others failed to notice.
The obvious follow on from this is to identify those areas where I think that great investments can be found. My reasons should be obvious so I will not state them. Here is where I will be steering clients.
Beachfront is king. Price adjustments have occurred around the market and beachfront has not been immune. It will be the first to recover and will offer superior returns. This applies equally to the South and West Coasts. Sapphire Beach and Palm Beach on the South and Portico and St. Peters Bay on the West are worthy of a close look.
Communities that offer an enhanced living experience are next on my list. Royal Westmoreland and Sugar Hill offer a community in addition to the real estate itself. I continue to learn that while we as real estate agents sell property most of our customers buy the living experience. It is not good enough to have a nice house; it must be part of a great community. Apes Hill Club promises to be such a community and are now reaching the phase when the promise must be translated into reality.
In the commercial property arena the Warrens area is a magnet. The two new office buildings under construction in the area along with the other plans are likely to push land prices even higher in the area. There are few opportunities to participate in this market but it is likely that returns from this location will be superior. I also feel that the South Coast has an opportunity for transformation. There have been some significant commercial investments made in Hastings and Worthing and those areas have also offered superior returns.
I am getting mixed signals from the market from the traditional safe area of land development. Historically demand has outpaced supply for residential land lots and the pace of conversion from agriculture to residential has lagged the market demand. On the one hand the current Government has stated a very pro-agriculture preservation policy (which would limit supply) and on the other hand with the decline in the local economy the demand for land as an investment or for a housing solution is likely to be falling. I think uncertainty still dominates this area but if I had to bet I would risk that there is still a good return to be had from the development of raw land into residential housing lots.
Finally, lets look at what new projects are on the horizon where investors can look to move early. My predictions are:
Four Seasons will get back on track but the road will be very bumpy. I think that there are still more issues to be resolved that have not yet been aired. Ultimately it is a great project for Barbados and we all have a vested interest in its outcome.
Beachlands is scheduled to commence building construction in Easter 2010. The work that has been completed on the beach preservation and enhancement has paid significant dividends and that strip of beach is certainly amongst the best on the island. This project has already attracted some of the wealthiest of Barbados’ international clients. When you know Barbados, Beachlands will likely be at the top of your list of places to call home.
St. Peters Bay is scheduled for completion early in 2010. This winter the sales will start in earnest. The project represents the majority of new product that is available on the West Coast. All of the apartments will not sell in the first season but certainly industry experts will be watching the progress closely to see how the “sell at completion” model works out for the developer.
Port Ferdinand has just about broken ground and is one of the most exciting projects to be embarked upon in Barbados. The driving force behind the development, the Bjerkhamn Group, is a home-grown developer who has achieved a reputation on the world stage. Adding another 96 villas with attached marina berths to the island can only compliment Port St Charles and take our marina product to the next level. Watch this project closely as there will be great opportunities for discerning investors.
So while the wind was blowing hard I am pleased to say that Barbados was wearing knickers.
“When the tide comes in all ships float.”
“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”
And my favorite:
“When the wind blows strong you see who is wearing knickers.”
We have certainly seen a few without knickers in the last year! But how has it all translated into the Barbados market and where do we go from here? While I do not believe it is over as yet (July 2009) I think that the worse is behind the large economies of the world. Unfortunately for Barbados the ripple or large wave is only now really reaching our shores. The worst for us is still ahead. Our foreign exchange reserves are coming under pressure with the steep decline in foreign direct investment. In addition Government revenues are falling from all sources (income tax, VAT, customs duties etc.)
We are fearing a great deal better than our neighbours St. Lucia, Grenada and Antigua. It is in these markets that the cliché “When the tide comes in all ships float” is best applied. These markets were punching above their weight when there was an abundance of money following a limited number of opportunities. The market is now about fundamentals and the tide has gone out, so it is only markets where the core demand is sustainable that the projects are not sinking – to keep with the metaphor so to speak. It is not that Grenada, St. Lucia and Antigua do not have beautiful beaches or tropical landscape but rather it is a matter of the established markets being able to sustain themselves in a poor environment while secondary or tertiary markets simply cannot.
The difficulties faced by the Four Seasons project at Paradise Beach present a significant risk for Barbados’ reputation as a safe haven in a storm. The final analysis of the causes of their issues will not be known for a few years but I am certain that in the end greed will be at the core of the issue. From a real estate perspective my concern continues to be the erosion of the confidence that investors need have in all aspects of a Barbados investment. The legal system, the social stability, the Government stability, the banking regulations, and all the other fundamental facilitators for investors are pillars upon which investor confidence stands, and it is important to understand how Barbados could be affected by the failure of one such high profile project.
The good news is that transactions are starting to flow again. Seller’s expectations adjust long after the reality has set in for purchasers. The last 9 months was dominated by a mismatch of expectations and the result was very few transactions. Lets be clear, it was not a result of a lack of product or even purchasers, but rather a complete disconnect between asking prices and willing purchasers. There was no doubt a period when no amount of price reduction (within reason) would have encouraged a purchaser to perform. The best decision for both purchaser and seller was certainly to make no decision. We did see a great deal of intelligence invested by vendors to make themselves believe that the market would not go through a correction. I have not met a property owner who did not want to see property values rise or stay firm. I have met a number of purchasers who on the day before they purchased argued for a declining market and the day after had become staunch optimists. It seems we all tell ourselves what we want to hear, and we argue with humble advisors like myself who simply try to present the market evidence.
Today we see that vendors have adjusted their asking prices and we see purchasers with renewed confidence making informed decisions. While activity is still not what it was at the peak, we are building back to what could be characterized as reasonable market activity. Of course these comments all refer to the foreign market. That is costal and themed properties that non-nationals purchase as investments or for vacation homes. The local market has feared differently. Through the first half of 2009 the effects on the local economy have been insulated and both land and finished homes have sold well. Demand continued to exceed supply especially in the upper middle class market. However, we suspect that the second half of the year will see a different picture emerging, with liquidity in the banking sector tightening and layoffs having the inevitable impact, we are already seeing a fall in demand for local property investment. We anticipate that this softening of demand will extend through to the end of 2010 when it is possible that the Barbados economy could right itself.
Whenever I am asked to write an article for Business Barbados I am conscious that my predictions will have a shelf life of one year or more. That is long enough to be both right and wrong given the pace of change. Luckily for me I seem to have gotten it mostly right and I hope I will be right again. I believe that investing in real estate continues to be the safest of any asset class. I believe that there continue to be great opportunities for property investors in Barbados and here is why:
(1) God made only 166 square miles of Barbados and then he stopped. We have a limited but depleting resource in a world that is growing in wealth and people.
(2) Within the Caribbean market the experience of owning a villa in Barbados is unparalleled. This takes into account the stability of the country, the sophistication of the infrastructure, the access to cultural and social events, the development of sports, the low crime rate, and many other factors that contribute to the experience of being in Barbados.
(3) We have been blessed with good Governance for a long time. Of course you can take political sides but in general we have taken a very conservative approach in our Governance and we have avoided the wild swings in prosperity that can so often punctuate small island states.
(4) Our banking system is dominated by Canadian banks who were the best prepared for the world financial crisis. We should thank the Canadian regulators who did a great job of avoiding what others failed to notice.
The obvious follow on from this is to identify those areas where I think that great investments can be found. My reasons should be obvious so I will not state them. Here is where I will be steering clients.
Beachfront is king. Price adjustments have occurred around the market and beachfront has not been immune. It will be the first to recover and will offer superior returns. This applies equally to the South and West Coasts. Sapphire Beach and Palm Beach on the South and Portico and St. Peters Bay on the West are worthy of a close look.
Communities that offer an enhanced living experience are next on my list. Royal Westmoreland and Sugar Hill offer a community in addition to the real estate itself. I continue to learn that while we as real estate agents sell property most of our customers buy the living experience. It is not good enough to have a nice house; it must be part of a great community. Apes Hill Club promises to be such a community and are now reaching the phase when the promise must be translated into reality.
In the commercial property arena the Warrens area is a magnet. The two new office buildings under construction in the area along with the other plans are likely to push land prices even higher in the area. There are few opportunities to participate in this market but it is likely that returns from this location will be superior. I also feel that the South Coast has an opportunity for transformation. There have been some significant commercial investments made in Hastings and Worthing and those areas have also offered superior returns.
I am getting mixed signals from the market from the traditional safe area of land development. Historically demand has outpaced supply for residential land lots and the pace of conversion from agriculture to residential has lagged the market demand. On the one hand the current Government has stated a very pro-agriculture preservation policy (which would limit supply) and on the other hand with the decline in the local economy the demand for land as an investment or for a housing solution is likely to be falling. I think uncertainty still dominates this area but if I had to bet I would risk that there is still a good return to be had from the development of raw land into residential housing lots.
Finally, lets look at what new projects are on the horizon where investors can look to move early. My predictions are:
Four Seasons will get back on track but the road will be very bumpy. I think that there are still more issues to be resolved that have not yet been aired. Ultimately it is a great project for Barbados and we all have a vested interest in its outcome.
Beachlands is scheduled to commence building construction in Easter 2010. The work that has been completed on the beach preservation and enhancement has paid significant dividends and that strip of beach is certainly amongst the best on the island. This project has already attracted some of the wealthiest of Barbados’ international clients. When you know Barbados, Beachlands will likely be at the top of your list of places to call home.
St. Peters Bay is scheduled for completion early in 2010. This winter the sales will start in earnest. The project represents the majority of new product that is available on the West Coast. All of the apartments will not sell in the first season but certainly industry experts will be watching the progress closely to see how the “sell at completion” model works out for the developer.
Port Ferdinand has just about broken ground and is one of the most exciting projects to be embarked upon in Barbados. The driving force behind the development, the Bjerkhamn Group, is a home-grown developer who has achieved a reputation on the world stage. Adding another 96 villas with attached marina berths to the island can only compliment Port St Charles and take our marina product to the next level. Watch this project closely as there will be great opportunities for discerning investors.
So while the wind was blowing hard I am pleased to say that Barbados was wearing knickers.
