Buying an island property as a second home becoming more popular
Whether it is a villa on Mallorca, a hideaway in the Caribbean or a remote Scottish retreat, owning an island home is proving popular with wealthy real estate investors.
Some islands can still be expensive for buying property but others have seen property prices fall significantly, according to a new report from international real estate firm Knight Frank.
The report into the world’s top island destinations points out that while some islands are firmly back on the radar of second home buyers, others are still struggling to see sustained price growth following the financial crisis.
Prime property price in Bali increased by 15% in 2014 while in Mustique, once a favourite of the former Princess Margaret, and in Ibiza prices have increased by 5% while those in other popular locations, such as the Caribbean have increased but not by as much.
For example, in Jumby Bay prices increased 3% last year, in the Cayman islands they were up 2.5% and in the Bahamas they increased by 2%. Prices also went up by 2% in Cyprus and there was no change in St Barts.
But in Barbados, a popular location with riche overseas buyers, prices fell in 2014 by 3% and by 2% in Mallorca. While in the British Virgin Islands prices were down 7% and in Sardinia they fell by 8%.
In 2014 online viewings of island based properties via Knight Frank’s website increased by 21% year on year. Homes on Ibiza, Barbados and Bali were amongst those generating the strongest viewing rates.
Buyers are monitoring those islands where tight planning restrictions, or even some outright building moratoriums are in force, in order to gauge where the margin for price growth could be highest due to limited supply.
The report also explains that the Balearic Islands of Mallorca and Ibiza are seeing something of a revival. Tourist numbers increased by 8% and 12% respectively in 2014 compared with 2013 and online property viewings via Knight Frank’s website surged 31% and 11% respectively in the first three months of 2015 compared with the previous quarter.
The Balearics’ two largest islands boast good international schools, strong IT connectivity and year-round flights to the UK and the rest of Northern Europe. Although the beach resorts of Port d’Andratx, Puerto Pollensa and Santa Eulalia are firm favourites, the islands’ capitals, Palma and Ibiza Town, are also proving increasingly popular.
Elsewhere in the Mediterranean, Sardinia attracts a more affluent cohort of buyers appealing in particular to British, Scandinavian and Russian purchasers. Qatari Holding’s US$1.35 billion acquisition of Smeralda Holding, owner of four hotels, Porto Cervo marina and Pevero Golf Club on the Costa Smeralda, underlines the continuing importance of Sardinia to luxury buyers, according to the report.
In the Caribbean, the global financial crisis meant numerous development projects were halted in 2008/2009, and those islands with a bias towards mid-range apartments such as the Turks and Caicos islands, Anguilla and St Lucia were hit hard. However, the upturn in tourist numbers evident post-2011 has been mirrored in sales volumes and the strengthening US dollar since the middle of 2014 is filtering through to investor sentiment, the report adds.
The report also identifies key emerging island destinations in Central American countries such as Panama, Costa Rica, and Belize and in Asia Pacific such as the Philippines and Tonga. At the same time the concept of a second home or lifestyle purchase is slowly becoming more established in Asia.
‘We expect this trend will increase significantly in the next five years with major repercussions for global markets. Together Bali, Phuket and Fiji represent the most mature island markets but they remain tourist destinations rather than established hotspots in the western model,’ the report says.
It also explains that you don’t have to be a multi-millionaire to own a private island and some 65% of private island currently for sale are priced below US$500,000. Despite the limited inventory of ‘quality’ private islands, prices haven’t accelerated significantly and in fact, in some parts of the world remain relatively affordable. Private islands off the West Coast of Scotland and Ireland continue to change hands for as little as US$470,000 and some, in parts of Canada, Fiji and Belize, go for significantly less.
‘The assumption that private island ownership remains the exclusive goal of Ultra High Net Worth Individuals (UHNWIs) and celebrities is a misconception. Surprisingly, those that hold most of the title deeds are Governments, NGOs and conservationists, a trend that has increased by 283% in the last decade,’ the report points out.
It explains that most of these acquisitions are ring fenced by governments and land banked for political or conservation reasons. In those instances where the island exceeds the government’s budget some choose to encourage resort development for the health of the local economy. The government of the British Virgin Islands (BVI) will closely review any island sales to overseas investors and has frequently acquired islands in the BVI rather than see islands transfer to foreign ownership.
Where UHNWIs do buy private islands, they are increasingly seeking a different product compared to 10 to 20 years ago. There is a growing appetite amongst the ultra wealthy to buy portions of islands or peninsulas as opposed to entire islands.