THE HOYOS FILE: Revenge of the South Coast investor
If Return on Investment (ROI) is not a factor, consider a west coast villa; but if it is, the south coast beckons the thrifty investor.
There was an era when tourism on the south coast was looked down on as if it were a poor relation to the west coast.
That era is still with us, you say? Well, you might be right, but thanks to The Lanterns Mall and general improvements (not as many as we south coasters at heart would like), things have brightened up a lot between Oistins and the Garrison.
Now, a new study suggests that it is actually better to own a condo on the south coast than on the west coast, in terms of generating income from rentals and long-term rise in property value.
In the latest edition of The Red Book, published every year by Terra Caribbean, Hayden Hutton, the firm’s director of brokerage and real estate services, provides a chart comparing condominium returns for both the south and west coast, and throws in a villa for fun. The villa ROI was the worst, but more on that later.
Mr Hutton’s numbers show that the south coast is actually a good place to invest in real estate, if you are looking for a steady 3-5 per cent return on investment (ROI).
The data, he writes, shows that “the south coast unit has a 48 per cent increase in net cash return over the west unit and, correspondingly, a lower occupancy-to-breakeven threshold”.
Translation: You pay a lot more for a west coast condo, but you can earn about the same net revenue from a less expensive one on the south coast. For while it would have cost you 75 per cent more to buy that west coast property, “it only manages a 39 per cent premium in average nightly rate”.
For purposes of comparison, Mr Hutton uses the same “metrics” of revenue for both south and west coast units: 60 per cent occupancy level, 18 per cent commission and 50 per cent operational costs.
So, starting with a south cost condo valued at $660 000 and a west coast one at close to $1.2 million, he ends up with net annual income for the first of $30 000 and the second, $35 000. After being treated as second-class real estate purchases for so many years, the south coast has gotten its revenge, proving it is after all, actually a better investment.
As for that villa on the west coast, Mr Hutton, applying the same factors to one costing just over $7 million, shows a net loss of $24 000 annually.
Finally, with the rate of appreciation in property values for beachfront condos on both coasts being the same, writes Mr Hutton, “one could therefore reasonably conclude that the overall return (say, over a 10-year horizon) from a condo on the south would be more favourable than one on the west”.
He ends his analysis, however, by noting that ROI may not be the main driver of west coast real estate, “lifestyle choices” and “pride of ownership” figuring much higher in the final decision.
Of course, the west coast villa market exists in a space all its own (one step down from Mount Olympus) and is impervious to such cheap notions of return on investment. Why, the very thought.
Another chart accompanying Mr Hutton’s report explains it by the numbers: it shows that on the south coast there are 136 beachfront apartments available for “first sale,” priced between US$225 000 and US$3.5 million, while on the west coast the number is 113, priced between US$600 000 and US$8.2 million.
Triple the difference.
Of course, the point that earning profits from rentals not being the driving factor on the decision to purchase a villa on the west coast rings true, given the way that business developed.
A good snapshot of this is provided by Terry Hanton, managing director of PCS, which itself is a member of the Altman Real Estate Group.
Writing in the latest issue of the Altman property guide, The List, Mr Hanton notes that the luxury lifestyle on the west coast developed after the opening of Sandy Lane Hotel in 1961.
Sandy Lane was built by Ronald Tree, a pal of Sir Winston Churchill, who, along with Oliver Messel and other members of the British high society of the 1940s and 1950s, turned the once shunned “mosquito coast” into the “gold coast” by their eccentric decision to build houses on the long, placid, secluded beachfronts.
As the rich people followed Tree and Messel to Bim, they built up a thriving rental market, which may not have paid them much in terms of ROI but covered many of the expenses of keeping the place going in between holidays, and employed lots of people directly and also indirectly as a result of the need to provision the houses.
As Mr Hanton notes, “the impact on Government tax revenues, particularly VAT and land tax, is also very significant”.
The expansion of the villa market came with the introduction of the Concorde flight service to Barbados which, writes Mr Hanton “coincided with the expansion of resorts such as Royal Westmoreland and Port St Charles . . . . There are now over 2 500 single family homes, condominiums and townhouses owned by non-residents, mostly British, for whom the Barbadian home-away-from-home is a dream come true”.
I don’t know if Mr Hanton’s counting of units for sale squares with Mr Hutton’s, but he puts the total value of available “property targeted at the non-resident buyer” at US$800 million. And he points out that “the villa sector, at its peak in 2007, contributed over Bds$1 billion (yes, one thousand million dollars) to the economy, and this foreign direct investment is second only to tourism as a source of foreign exchange”.
Mr Hanton acknowledges that recent years have provided challenges to the villa sector. But, he writes: “2011 delivered to market expectations,” and relatively new projects like Apes Hill, Saint Peter’s Bay and One Sandy Lane have enhanced the market, with all eyes on Port Ferdinand coming on stream this year.
• Patrick Hoyos is a long-standing journalist and publisher of the Broad Street Journal.