Property prices in Bermuda dropped dramatically in 2011,with many properties on the Island now taking as long as a year or longer to sell.
Condos in the under $32,400 ARV (Annual Rental Value) were the hardest to sell, with double digit drops in both price and volume sold in 2011, however, the luxury home market saw increases in the number of sales and average price. That said, the under $153,000 ARV housing market suffered significantly in the economic downturn, representing less than half of the total property sales in 2010, Rego Sotheby’s International Realty’s 2011 figures showed.
The average price of a house under $153,000 ARV declined 6% from 2010 to just under $1.2 million in 2011. There was a 38% drop in sales volume in that sector, with 66 homes sold last year. For condos, the news was worse. The average price fell to $473,000, reflecting a 6% decline in average price for 2011 versus 2010. Sales volume decreased 14%, to just 18 condos sold.
“The main factor for the decline in price and volume is without a doubt the economic climate,” said Buddy Rego, president and CEO of Rego Sotheby’s. “Also, there are clearly more conservative lending practices by the lending institutions, their criteria are more stringent than before.” He said the bottom line was that in 2008, sales volume in the then booming housing market was almost $680 million, compared to $250 million in 2011. Mr Rego said he was not optimistic the Island would see any significant increase in price or volume this year and it could even go lower.
The amount of time homes are sitting on the market has increased significantly.
Penny MacIntyre, executive vice-president of Rego Sotheby’s, said 60% of the homes under $153,000 ARV in 2011 averaged 353 days on market, while 72% of the condos under $32,400 ARV in 2011 averaged 369 days on market. Please note that data is only available for a particular percentage of the sales, because when the closings are collected from the land registry office, original list dates were not available.
Figures for last year also showed rents for apartments and houses on the Island have come down by as much as 25% in the last five years. However, Mr Rego pointed out there is still actually demand for executive homes in the $12,000 to $15,000-and-higher range because of limited inventory.
Government authorities of Bermuda are considering easing the rules on foreigners wanting to acquire property in this British overseas territory.
With one of the highest property costs applied to non-residents, Bermuda is now working on reviewing laws to make it easier for non-residents to own or invest in property on the island.
The British Overseas Territory’s National Security Minister Wayne Perinchief, addressed delegates of the Real Estate Division of the Bermuda Chamber of Commerce, at a recent convention. He said that the government is seriously considering changes to existing property laws that have caused loss of interest from foreign buyers.
“I support an urgent review of the ARV (Annual Rental Value) bands with a view to permitting the sale of properties by Bermudans to non-Bermudans provided they fall within that highest ARV band,” Mr. Perinchief said. The conference was attended by the country’s real estate firms and brokers.
Part of the challenges faced by foreign buyers in Bermuda is in securing a licence for a non-Bermudan spouse in order to purchase a property.
“I have recommended to Cabinet that the requirement for a licence in these circumstances be removed and that this legal barrier denying home ownership to non-Bermudan members of Bermudian families be eliminated,” Mr Perinchief said.
This is one of the key policy changes for review, and according to the new president of the real estate division of the Chamber of Commerce, Ms Dale Young a welcome one, that could further promote the growth of the property sector.
Ms Young said this move by the government if it would really take effect will increase the development of properties as there would be more people to sell to. Buyers of property would also be encouraged if the government would be able to reduce the fees slapped on PRC (Permanent Residents Certificate) holders, which currently is that they have to pay 18% of the value of the property. She cited that the government was able to lower the fees to about 6% for condominiums built at Tucker’s Point, and it does make a difference to buyers if the PRC rate was reduced and best to abolish it altogether.
The rules governing the acquisition of property by non-Bermudians were first set out in the Bermuda Immigration and Protection Act 1956. Under the Act, as amended, Bermuda manages foreign property ownership through government policies that limit the number of properties available for sale to non-Bermudians. The basic tool used by government to regulate land ownership is ARV (Annual Rental Value), a value assigned to every property in Bermuda and used by the Government as part of its Land Tax calculation.
Only houses having and ARV of 153,000 and condominiums having an ARV of 32,400 can be available to non-Bermudians and only houses and Condominiums already owned by non-Bermudians can e sold to other non-Bermudians. Homes available to non-Bermudians typically start about 3,250,000 million. Non- Bermudians may only purchase condominiums that are within one of the 23 designated developments, where prices typically start at approximately 800,000. Non- Bermudians may not acquire undeveloped land.
Fractional Developments have become more popular form of ownership for non-Bermudians with 3 current developments and more on the way. Prices for Fractional ownership tend to vary between 95,000 and 400,000.
A non-Bermudian can only buy a Bermuda property if they have been granted a license to do so by the Minister of National Security. The license fee is 25% of the purchase price for a house and 25% for a condominium. Unless the property is within a designated resort property in which case the condominium fee is 6.5%. There is no fee for the purchase of a hotel or commercial property. The fee must be received by the Minister before the license is issued and the license is required before prior to the closing of the transaction.
Generally, a non-Bermudian will not be permitted to own more than one residential property at any one time. A non-Bermudian will be permitted to purchase a second property on the condition that he/she disposes of the original property within 12 months.
Non-Bermudians acquiring a property with a Bermudian spouse will pay a license fee exceeding US $1,000. The format of the application for a non-Bermudian alone or one married to and living with a Bermudian is set out in law, so a lawyer is advised. It requires all involved as new purchasers to provide a current marriage certificate, two references and a separate bank reference.
The laws concerning Bermudian status are stringent and grants of status to non-Bermudians are rare, save for applications that result through marriage. This conservative approach to status grants has resulted in a significant population of long-term non-Bermudian residents, who for many years were accorded no rights or benefits of citizenship under the law.
In 2002, steps were taken to correct this situation when the Bermuda Immigration and Protection Amendment Act introduced the concept of the Permanent Residents Certificate (PRC). The PRC is not a means to acquire status. But it does offer certain benefits to qualifying candidates, defined as people who have been ordinarily resident in Bermuda prior to July 31, 1989 and who are at least 40 years old on the date of application.
The principal advantage of a PRC is that it offers the holder the right to live and work in Bermuda without the need for a work permit, and thereby provides increased security of employment and residence. People with a Permanent Resident’s Certificate are entitled to reside in Bermuda, but they are not citizens and there is currently no prospect of them being offered citizenship.
The right to reside and work in Bermuda sets a PRC holder apart from other non-Bermudians. There are also other, somewhat limited, benefits in terms of real estate. A Permanent Resident may not purchase property on the same footing as a Bermudian however, as of the summer of 2007, they are able to purchase condominiums from non-Bermudians. In all other respects, they remain on the same footing as other non-Bermudians. Like non-Bermudians, a Permanent Resident:
• Must apply to the Minister of Labour, Home Affairs and Public Safety for a ‘License to Acquire’ a property; and
• Must, upon approval of the License, pay the same fees as other non-Bermudian applicants - 22% of the purchase price of a freehold property and 15% of the purchase price of a town house or condominium; and
• Cannot subdivide the property;
• Cannot purchase property with multiple ARVs; and
• Cannot rent the property without ministerial consent.