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| Caribbean Property Magazine Home / January 2009 / 'Caribbean Investment : The Buyers Advantage' | SEND THIS PAGE TO A FRIEND  |
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JANUARY  2 0 0 9Issue 24
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CARIBBEAN REAL ESTATE INVESTMENT Where to Invest in the climate of 2009 The ‘Buyers Advantage’ By Jason Kumpf I think many people are very, very pleased to see 2008 come to close. And all of us are looking for a brighter future in 2009 and beyond. If you are a realist, you may find that an expectation of a brighter financial future a bit harder to manage than you would have done a few years ago. The wisdom of the words engraved on King Solomon’s ring by his shrewd chief advisor “this too shall pass” comes to mind. Legend has it that Solomon accumulated fabulous wealth and ruled his kingdom with justice and strength for forty years. There are not too many modern leaders who can claim as much! The real question isn’t whether its good or bad now; let’s face it, it’s not good. But it will pass, and inevitably it will be good. The real question is what can you do now to position yourself financially to get the best, not only out the existing Caribbean property market, but also the future? Let’s ask some more questions to find this answer. What did those smart property buyers who have gone through tough times in the past and done very well out of them do then, and now?  They took up the opportunity of what is known as the ‘buyers’ advantage’. A tried and tested formula. These cycles come round regularly... and here we are again in a bear real estate market. There are many shrewd investors who have dumped their paper money and are buying into a property market, where developers and owners are being forced to sell and the market bottoming out. What did those property buyers who are really hurting now, do? They did the opposite. They waited for the good times to be well started, and while they were buying during the “boom” in a ‘seller’s advantage’ environment, the smart property investor (that bought during the last downturn at discount) was selling.
Here is the once in a lifetime chance, in an economic recession that is lower than anything we have seen before. FACT Recent wealth creation in developed countries has created a strong demand for safe, accessible, exotic vacation properties. THUS Investment opportunities in the English and French speaking Caribbean are supported by a good rule of law, rapidly improving/affordable telecommunications, political maturity and positive attitude to foreign direct investment and tourism. FACT The strength of the Euro and the British Pound has given rise to an enlarged investor base eager to invest in “affordable” dollar-based assets. Real estate denominated in US dollars is also perceived as a natural hedge for US dollar based investors. THUS The main sources of foreign investors in the Latin America/Caribbean region in 2007 were the United States, the Netherlands and Spain. FACT Supply and demand are key factors and the Caribbean has annually 8 times the enquiries for accommodation than available. The flights are highly booked which is reflected in the prices both for the air travel and for the room or cabana. (From: Harlequin Property) THUS The12th Annual Caribbean Hotel & Tourism Investment Conference (CHTIC) concluded with a very optimistic outlook for the Caribbean region as a record breaking 522 delegates (up from 404 a year ago) met at the newly opened Hyatt Regency Trinidad and heard that there is currently more than $100 billion in investment in the region (according to the World Travel & Tourism Council) devoted to improving and expanding tourism facilities and infrastructure. "This is a clear indication that there is strong interest in the Caribbean from the investment community that is looking at the future.” THUS Latin America and the Caribbean received a record $105.9 billion in foreign direct investment (FDI) last year, up from $72.9 billion in 2006, according to the U.N. Economic Commission on Latin America and the Caribbean (ECLAC), due to regional economic growth and sustained global demand for natural resources. Within the context of global FDI, growth in Latin America and the Caribbean in 2006-'07 reached 46%. FACT The Caribbean is more than just a vacation destination, its also a steadily growing market full of business opportunities for international companies.So you are convinced now that the Caribbean is a great current and long term opportunity to put your money? So am I! Now we can dig down a bit and review some of the opportunities available. The downturn has not affected raw land prices that I can find, on any of the islands or Central America. If anything prices are edging up still. What’s happening is that large pieces of land which have been sitting on our books for months, even years; have suddenly been snapped up in the last three months. A result I believe, of money moving out of banks and the stock market and into the safety zone of real estate, especially beach front real estate. A Variety of Options to Choose from …. Waterfront property has always been hot. As Florida's coastal property becomes harder to find, more difficult to afford, and more constricted by regulations, the Caribbean is luring an increasing number of investors to its shores.  Resort operators are "falling over each other" to find resort sites in the region, says Florida broker Michael Saunders. The newer Caribbean resort properties are available at a wide range of prices, from $600,000 to over $4 million, and many condos at the lower end of that range can be rented out as hotel rooms when not in use by the owner to help offset carrying costs. Ritz-Carlton, Trump, The Raffles Hotel Group, St. Regis Hotels, and Starwood Hotels and Resorts are among the major players joining in the new Caribbean rush, according to Saunders.  | ||
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Although the big resort operators are among the most prominent investors in the region now, the Caribbean market is still in its infancy, says Scott Berman of PricewaterhouseCoopers in Miami. A variety of investors are active in the region, and it is still possible to purchase a home and garden in a gated community in Panama for $75,000 and beachfront casitas in Belize for $99,000. The fund’s investments will only be opportunistic in nature and involve purchase of assets at a significant discount and/or development to a higher use. The recent sub prime crisis and related credit crunch has reduced available credit and liquidity whilst demand for high end secondary homes remains. This has increased the number of opportunities and improved the terms that the fund can achieve on its deal pipeline thus increasing overall anticipated returns.  Furthermore there is limited competition in this investment arena. 20-40% off High End Luxury Resort and Residences Ritz Carlton, Four Seasons, Raffles, Fairmont, Trump Resorts, Viceroy, Mandarin Oriental, to name but a few of the major luxury brands building small and large resorts in the Caribbean. All of them and many other national brands offer fantastic off-plan pre-construction prices. WHOLESALE PURCHASES AT THE HIGH END, PRE-SALE LEVEL CAN OFTEN YIELD A 20 TO 30 PERCENT PROFIT WITHIN A SHORT TIME Wholesale purchases at the hi-end pre-sale level can often yield a 20-30 profit within a short time. • From 1,000 acre golf resorts, to 40 acre beach resorts, the opportunities just in the high end market are diverse.Which Caribbean Islands are Up and Coming Islands versus the Established Islands? Telling the difference between a true up and coming island (5 - 10) year appreciation) vs. an island that is going to take 10 to 30 years is not so easy. All islands want luxury progress sooner rather than later, especially if they have a luxury development being constructed today, but without a long term government supported infrastructural and implementation plan, it's an impossible dream. My view is that buying in an established island carries the least risk. It has brand and market position, a suitable airport, amenities, international business people living and working there and some proven history of being stable. But, this comfort and lesser risk comes at a price. And that price is really not worth it for most of us, only for the very fortunate few that have the willingness and ability to buy at prices per square foot that are higher than in our own home countries. Also, the appreciation on these islands, again, in my view, will not be as dramatic as a true up and coming island. It is easy to spot an established island, Barbados, the BVI and Anguilla are established, there is very little land left, they have been catering to the rich and famous for many years, and are perfect if you are retiring today and have the funds and desire a pure high end lifestyle. But if you are prepared to take a little more risk and wait the time and even participate in the growth of a small island, then look at an up and coming island. Now or Later? : Five to Ten years VS Ten to Twenty Years First, this depends on your view of when the the economic market will be turning around; let’s assume the range is 1-5 years. If you believe that in 1-2 years we will be doing better, then you have got to search out a very very special deal. Perhaps a massive discount on units, interest paid or rental guarantees then you should go for that very special deal in a solid location.
If you think we are looking for a turnaround in the 3-4 year range, there may be opportunities now, but you have to ensure that you acquire the entire future discount now. In other words, make a low offer, but remember to still go after the best location, the best views, etc., even if this comes at a bit of a premium. This will always pay off down the road. You also want to factor in your carrying costs and if you are leaning toward the 4-5 year range, pre-construction, with minimal down payment now, might be a great way to secure in a great price, have relatively no carrying cost while its being built over the next few years, then reap the rewards when its eventually constructed and the market is much better. Right now construction costs in some areas are lower than they have ever been, materials are not in heavy demand and a smart developer will be buying contracts now to ensure that he reaps the rewards of the current situation too.  If you are looking for a place that will appreciate relatively quickly (quick in the current environment is 5-10 years – no more ‘flippers’), then an island that is already on the luxury path as of a few years may be a better option for you, and this is where I see the best ROI for that time frame. Summarising: Why People are Investing in Caribbean Real Estate?
Opportunities in all of these areas abound throughout the warm and sunny Caribbean. So while you are freezing this winter, why not cheer up and find some great deals now!
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This is a once in a lifetime opportunity in the Miami property market. Developers are dumping hundreds of units onto the market, and investors from all over the world are buying up from 5 units to 100…cash! One year ago luxury condos were selling Miami for $350 per squ ft, today you can pick up the same condo at $200 squ.ft and less. This is a short window of opportunity. Now is the time to buy a single unit investment at rock bottom prices.
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