by Conti, the Overseas Mortgage Specialist
HOW TO BUY PROPERTY IN THE CARIBBEAN
The Caribbean - the Full Package
Ask most people to choose their ultimate holiday destination during the winter months, and it's likely that the Caribbean will come out a winner. Quite simply, it offers the full package in terms of sunshine, beaches and charm. But it also offers a whole lot more - many traditional cultures have been preserved, and the ecological treasures of the islands are among their most eminent features. The area’s rich history is also gaining a more appreciative audience among holidaymakers and investors alike.
And, contrary to popular belief, it seems that the playground of the rich and famous is becoming more affordable. The current economic climate means there are some bargains to be snapped up in some of the most popular Caribbean destinations. This is due to fewer sales and fewer tourist numbers, so estate and agents and developers obviously want to remain competitive and offer realistic price levels.
Whilst property prices in the more popular and developed islands can easily reach over $1 million for a property near the beach, cheaper properties tend to be found in emerging markets such as Jamaica, Aruba and the Dominican Republic at the moment. But, if a little slice of luxury is what you’re after, prices in the more glamorous locations like the Bahamas and the Turks and Caicos islands are now open for negotiation too.
Ultimately, the decision to purchase property in the Caribbean is one of either investment or lifestyle, in some cases both. And many experts agree that the Caribbean offers good investment potential. As an established tourist market, not to mention a hot spot for holiday-homers and retirees, the desirability of these islands is unlikely to diminish. Consequently, rental returns tend to be good, especially as this is a year round market.
How Do I Finance the Purchase?
One of the first considerations for anyone buying a property in the Caribbean is how they’re going to finance the purchase. There are generally two options here – either raising capital on existing property in your home country by means of an additional or new mortgage (providing you have sufficient equity), or alternatively, taking out an overseas mortgage secured on the Caribbean property.
Releasing cash from the equity of an existing property may help to secure the overseas property quickly – let’s face it, who doesn’t like to be paid in cash? But being a cash buyer does present some risks, especially if specialist, independent legal advice isn’t sought. For example, issue may arise over problems with title to the property if this has not been competently and thoroughly investigated.
How much can you afford?
It’s vital that you determine how much you can afford before embarking on the purchase process. An 'Approval in Principle' will do just that – it will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search. And it will avoid potential disappointment later on in the buying process, if you’ve got your heart set on a property which is simply beyond your means.
An AIP will also put you in a much better position with developers, or private sellers, and prove to them that you’re a serious buyer. Given a choice, they’re bound to prefer a purchaser who can demonstrate that they have their finance in place, rather than somebody who has yet to consider how to fund their purchase. Buyers with an AIP could also be better placed to negotiate price.
And on that note, remember that costs don’t end at the asking price. Things like lawyer's fees, agent’s fees, stamp duty and insurance all have to be met, and can add up to a further 20 per cent to your cost of acquisition in the Caribbean.
As the overseas lending market has developed and become more competitive over the past 20 years or so, people are increasingly taking out an overseas mortgage to finance the purchase of their property using a bank or financial organisation in their chosen destination. In many cases, this means achieving a better interest rate than raising money on a property at home.
However, the biggest advantage to choosing this route is that the lender will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation takes place to check other issues such as proper planning permission and building licences are correct.
The types of mortgages available in the Caribbean are similar to those offered at home. There are a variety of interest rates and these can be fixed or variable. The interest rate payable is usually driven by how much of a loan is required compared with the value of the property. Generally speaking, the bigger the deposit you have to put down on a property, the more competitive the mortgage deal will be.
At the moment, mortgage interest rates are pretty reasonable at around 5 or 6 per cent. You’ll generally be expected to have at least a 30 per cent deposit, the minimum loan is $250,000 and the mortgage can be on a repayment or interest-only basis. The length of the mortgage term may be shorter than you’re used to at 15 to 20 years.
The Buying Process
If you’re buying an off-plan property, you’ll be asked to make stage payments. This will usually consist of an initial 10 per cent deposit, and payments for the remainder of the balance will depend on the development you’ve chosen. Even though you’re buying a new-build home, your independent lawyer will need to search for the Register of Title.
If you’re buying a resale property, you need to find a lawyer as soon as a price has been agreed. You’ll usually be required to pay a 10 per cent deposit on signing the purchase agreement and this cash is kept in the vendor’s lawyer’s escrow account until you pay the balance on completion and it is all transferred to the seller. The whole process takes a few months.
Many of the Caribbean islands have different currencies, including the Barbados and East Caribbean dollars, but the majority of property transactions are conducted in the US dollar, even on the islands where it is not the official unit of currency.
Research, Research, Research
As with any other destination, it’s of paramount importance that you do your research before buying a property in the Caribbean. Take specialist legal advice and enlist the help of a tax expert, especially if avoiding tax is one of the main reasons you are buying there. It’s important to get it right in the first place and avoid complications further down the line.
If you’re going to rent your property out, you need to check the terms of the income you will receive. For some investors, the income obtained relies on the resort as whole making a profit, whereas in other resorts, they receive a cut of the total revenue instead. As with any other destination, it’s of paramount importance that you do your research before signing any contracts. Ensure that you visit the property. If the resort seems very quiet, then it may not be making a profit, in which case you're unlikely to get much of a regular income and you’ll have to rely on potential capital growth instead.
And don’t be tempted to rely solely on rental returns to pay your mortgage, especially if your repayments are in US dollars and therefore subject to currency fluctuations. The rental market in the Caribbean is strong, but you can never take this as a given.
Clare Nessling from Conti, says: “The Caribbean mortgage market does lack the sophistication and range of products available in the mature mortgage markets of North America and Europe. But an overseas mortgage specialist will have familiarity and understanding of the lenders and will know of any restrictions and administration requirements, which can save you a lot of time, cost and hassle when arranging a mortgage.“