In troubled economic times, real estate has remained a pillar of strength in Bermuda's economy.

Not only are housing prices and rents increasing, but investors are also turning to real estate as an alternative to stocks.

Buddy Rego, the president of Rego Realtors, said that between 30 and 40 percent of the houses his agency sells are bought by property investors who rent them rather than live in them. When the world's stock markets were performing better, only ten percent of his buyers had similar plans.

Larry Dunlop, the sales manager of W.J. Seymour Real Estate, agreed that the number of people he encountered who bought property to rent it out had increased.

Anecdotal evidence suggests that property is a sound investment, for both the rental income it can generate and escalating resale values. According to Mr. Dunlop, three-bedroom houses with an apartment which sold for $550,000 three years ago would fetch up $675,000 and up in the current market.

Mr. Dunlop said he had seen a few instances this year where several buyers were willing to pay the asking price for a house, so the owner decided to sell it by auction.

Increased residential construction activity has also made developable vacant lots harder to come by, and according to Mr. Dunlop, a quarter acre plot in a desirable but modest neighbourhood can now sell for $350,000 compared with a price in the high $200,000s in 2000. He said overall, land prices had increased between 10 and 20 percent during the past two years.

Susan Thompson, the sales manager of Coldwell Banker, said any property priced under $1.2 million is selling quite rapidly.

“We have numerous people looking to buy properties in that range,” she said, adding that properties can sell within days.

There are a couple of explanations for the buoyancy of the housing market.

As in the United States, lower interest rates have made borrowing more attractive, and as Mr. Dunlop explained, people who are paying increasingly high rents would prefer to show something for their money.

Getting banks to lend money is also easier. Until about two years ago, prospective buyers had to save between 25 and 35 percent of the purchase price of a house before they could get banks to lend them the rest. But then the Bank of Butterfield started offering 95 percent financing on loans of up to $600,000, based on the appraised value of the property. The new lending practices meant that many people who hadn't saved enough for a 25 percent to 35 percent down payment were suddenly eligible for a loan. The burst in demand pushed prices up considerably - so much so that some people were back in the same position they were before, unable to afford a house.

A Bank of Butterfield spokesman said retail loans, with an annual interest rate of 7.5 percent, had experienced a rise in popularity recently.

One real estate agents said the bank had got creative with loans in other ways was well. Some of the banks are allowing borrowers to co-sign with their parents who can use their house as collateral against borrowing the down payment for a house as well.

“The banks just aren't as rigid as they used to be,” she said.

The supply of houses for sale has ironically been stifled by the high selling prices, according to Mr. Rego (pictured), because property owners are having a hard time finding a replacement house at a suitable price. The strong overall performance of the housing market in the United States caused many people there to wonder whether there was a housing “bubble”, whereby prices spiral upward on speculation, and subsequently burst. But Alan Green span, the chairman of the Federal Reserve, told Congress earlier this month that such a scenario is unlikely.

Real estate agents here do not think Bermuda's house prices are rising on a bubble. Opposition leader Grant Gibbons said it was unlikely that property prices would fall unless international companies lost confidence in Bermuda. He added, however, that “it doesn't take much to have a real impact on the housing market here.”