Worries about war and terrorism are sparking a sudden and unusual spurt in the number of Americans buying vacation homes in the Caribbean.
After a brutal two-year slump, sales of investment properties have perked up over the past several months in many islands in and around the Caribbean, including the Dominican Republic, the Bahamas and the Cayman Islands. In the Cayman Islands, for example, sales activity has shot up 62 percent in the first two months of this year compared with a year earlier, says Elizabeth Ross at ERA Kirkconnell Realty on Grand Cayman.
In the Dominican Republic, meanwhile, Coldwell Banker’s local franchise reports that sales rose 32 percent in December and January, the most recent months available. And in the Bahamas, Paradise Sales & Rentals President Andrea Brownrigg says her office is busier than at any time in the past two years, with about the same number of sales registered so far this year as in all of 2002.
“We think it’s partly related to war,” which has driven more Americans to get moving on buying a second home, Ms. Brownrigg says. She cites a wealthy Florida-based businessman who recently bought a $3 million island lot because he feels “Miami is the next target” if there are terrorist reprisals from the Iraq war.
Real-estate experts who follow the Caribbean market attribute the sudden upturn in part to a “safe haven” bounce, driven by the popular perception that the islands are pro-American at a critical time, unlike much of Europe. Also, the islands aren’t too far away, meaning travelers can get there in just a few hours if something goes wrong at home.
With all the torrent of bad news, “people are looking for quieter getaways” where they don’t feel at risk, says George Egosarian, managing director of Resort Consultants Ltd., a Massachusetts-based consultant that specializes in Caribbean investing. Indeed, among his latest clients is a San Francisco couple in their early 40s that he says “wants out” from the U.S. because they are nervous about terror attacks.
Of course, not all Caribbean islands are booming. Jamaica, for example, continues to struggle with its image as a high-crime destination. And even those islands that are seeing big sales increases still aren’t selling as many homes as they were in late 1990s.
Moreover, the safe-haven concept is far from the only factor driving sales. Long before they were viewed as safe havens, these islands were tax havens. Many impose little or no taxes on property, income or capital gains. Unlike the continental U.S., where residential real estate has been booming, prices on some homes in the Caribbean have slid by as much as 15 percent in the past two years — a period when the soft U.S. economy and its beaten-down stock market have chipped away at the portfolios of the affluent investors who dominate the offshore market. What’s more, the Sept. 11, 2001, terrorist attacks put a damper on second-home sales in the Caribbean, since some potential buyers were afraid to fly in the months immediately following the attacks.
For Paul Schaeder, a real-estate investor in North Beach, N.J., all that created a buying opportunity. Six months ago, he bought a $245,000 two-bedroom condominium on Grand Cayman, which he intends to rent out much of the year, and he is soon to close on a second $250,000 condo in the same complex. A two-bedroom house in his area along the Jersey shore, by contrast, might cost as much as $2 million if it is on the beach. “I’m taking advantage of the buyer’s market in the Caribbean,” he says.
For other buyers, however, prices can seem awfully steep, ranging from as low as $50,000 for a two-bedroom house in the Dominican Republic to $10 million or more for prime houses on Bermuda. Condominiums can reach $3 million in some cases, according to Coldwell Banker Island Affiliates. On top of that, islands often levy a one-time transfer tax of as much as 12 percent on real-esate sales.
But some islands have been making concessions to jump-start their markets from their post-Sept. 11 slump. The Bahamas, for example, now exempts some buyers who intend to occupy the residence they are buying, and the Caymans has temporarily reduced its transfer tax to about 5 percent from the previous 7.5 percent in most areas.
Owning island real estate can present some hassles. For one, a hurricane could blow your home away. And most investors have to pay maintenance fees for their properties if they don’t intend to live full time on the islands. Severely ill residents sometimes have to be airlifted out to Puerto Rico or Miami if they need specialized medical care.
Financing the properties, meanwhile, can get complicated. Many buyers are required to put down larger down payments than in the continental U.S., and mortgage rates from local banks often run higher than stateside. In other cases, lenders won’t provide long-term 30-year loans. To get around all that, some buyers take out second mortgages on their homes in the U.S., using the proceeds to pay cash for their island properties.
By Patrick Barta, Associated Press
