Luxury property market has held up well
While much of the Islands real estate sector has experienced sharp housing price falls, the luxury market has seen less volatility in the last few years, according to Global Property Guide.
The publication aimed at international buyers said homes over $1 million rose in value last year, as most of the rest of the market decreased both in sales and pricing.
Rents fell as well except for the most expensive, executive rental houses and estates.
The publication also gave insight into the Islands property boom of 2000 to around 2007/2008 when average rents nearly doubled and some executive homes shot up to $20,000 a month.
Citing local realtor reports, the Guide said that property transactions have fallen 75 percent in the last five years and overall prices have plummeted in the same period of time.
Declining rental demand wont help mid-level properties, the report said, but luxury properties are expected to continue performing.
It is a mixed picture, GPG said in an article on Tuesday, based on the local realtor reports.
Bermuda luxury home sales are climbing, and condominium sales were up in 2012, comprising 19 percent of total properties sold as of October 2012, due to lower prices. This has pushed condominium inventories down from around more than 60 percent of the market in 2008, to around 40 percent in 2012.
Condominium prices continue to decline, and rents too continue to decline, except for the most expensive houses, and for the rent-controlled sector. And the economy remains sluggish.
Properties below $1 million are the most popular. Around 74 percent of the sales (as of August 2012) were in this category; 45 percent of which were under $750,000.
The publication noted the average price of condominiums was around $653,000 as of September 2012, down by 29 percent from 2011, according to Rego Sothebys International Realty President Buddy Rego, writing in his latest market update;
Stand-alone residential homes maintained a remarkably stable average selling price for the past four years. However, the median price fell by almost 10 percent to $930,000 in 2011, from last years median price of $1,025,000.
The average residential price in Bermuda rose 40 percent between 2003 and 2007, from US$976,000, to around US$1.6 million. However, the rise halted in the aftermath of the global financial meltdown in 2007. Single family homes, which were priced at around $1.6 million in 2007, fell by 16.9 percent to $1.3 million in 2009.
Looking at Bermudas weak economic growth, GPG said the Island has one of the highest GDP per capita incomes in the world, at around $85,996 in 2011.
Financial services and tourism propelled growth over the past decade, and are still the biggest contributors to GDP.
Real estate and renting accounted for 17.4 percent of GDP in 2011.
One Bermuda Alliance (OBA) won the general election last December, and GPG said realtors hope this will slow the decline of house prices, and increase business activity.
Between 2007 and 2010, there was an average of around 20 percent to 25 percent drop in rental prices, according to Rego Sothebys International Realtys July 2011 report, caused by decreasing demand, rather than the supply of more homes.
Average rents increased by around 40 percent from 2000 to 2007. An executive home that used to have a monthly rent of US$4,000 in 2004, rented for between US$8,000 to US$20,000 per month in 2008, GPG noted from local figures. But since then, rents in the non-rent controlled sector have declined.In 2011, rentals up to $5,000 per month fell by 18.72 percent, while rentals from $5,000 to $18,000 per month dropped by 16.95 percent.
In contrast, executive rentals ($10,000 to $18,000 per month range) continued strong, with the $10,000 to $12,000 per month bracket having the greatest demand, according to Rego Sothebys International Realty.
GPG also noted how the Bermudas Consumer Price Index indicated that rents have risen every year since 2006. But this was due to rising rents of rent-controlled apartments.
Rent for housing is the largest weight in Bermudas CPI, at around 32.5 percent of the index. According to the Rent Commission, 54 percent out of the 31,700 rented properties in Bermuda are rent controlled.
Rental yields for houses range from four percent to 4.8 percent. Yields for condominiums range from 3.9 percent and 6.4 percent, according to Global Property Guide research.
The Guide noted sales of luxury properties declined sharply by 61 percent from 2008 to 2009, with a $28 million annual sales value.
The trend continued in 2010 but at a slower pace, with sales falling by 29 percent to $20 million, it said.
But luxury home sales grew significantly in 2011. Sales of stand-alone luxury homes with annual rental values (ARV) exceeding $153,000 rose strongly during the first two quarters in 2011, with approximately $35 million sold in that period, surpassing annual sales in 2009 and 2010, according to Coldwell Banker Bermuda Realty.
Luxury home sales in Bermuda, as predicted, closed significantly higher compared to the years 2009/2010, said CBBR president Brian Madeiros.
Mr Madeiros pointed that in 2011 the market in Manhattan and Boston for properties over $1 million had heated up, with half a dozen sales over $10 million in the Boston area: This is all good news for our luxury home market here in Bermuda as a significant number of our overseas buyers live in these east coast gateway cities, and are clearly comfortable buying large luxury homes.
GPG noted variable mortgage rates in Bermuda can be obtained with terms ranging from 5 up to a maximum of 30 years, and interest rates on long-term loans range from 6.50 percent to 6.75 percent, excluding other fees. The Loan to Value Ratio (LVR) is typically 80% (up to 95 percent at HSBC Bermuda) of the appraised value of the property.
The Guide further noted while there have been some policy changes relating to international buyers, when acquiring a residential property, a foreign buyer must obtain a license from Government. The alien license fee is 25 percent of the purchase price of a house, or 18 percent for a condominium.