Whether you are an investor, developer, lender, consultant, designer, engineer, project manager, builder, real estate broker, hotel franchiser or operator, manufacturer or supplier of building products, or in any other occupation related to property development and construction, you should have an eye on business — and lifestyle — opportunities in the Caribbean.
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Made up of 32 emerging economies, the region in general did not suffer from the recession as much as the more advanced economies of the world, and most are well on their way to recovery.
In spite of the problems commonly associated with developing countries — institutional flaws, crime and family violence, unequal distribution of wealth, sanitary problems, energy shortages and the like — the Caribbean tourist industry is posting one of its best years in history, and its profits are spilling over to other sectors of the island economies.
The Largest Pie
For those who are unfamiliar with this part of the world, much of the attention is focused on a particular nation — the Dominican Republic. The DR is the largest and most highly populated island country in the region, as well as the one with the most vigorous economy.
I recommend you view the video at the end of this article on Economic Boom in the Dominican Republic.
Its GDP growth rate, conservatively forecast at 5% (above average for Latin America) is now reported to be closer to 7% for 2014. Other relevant indicators are:
- Leading tourist destination (4.8 million tourist arrivals in 2013)
- Leader in lodging capacity (68,000 hotel rooms in 2013)
- Most championship quality golf courses (32, with many more in the pipeline)
- Most international airports (8)
- Most global air connections (airline routes from over 60 major cities worldwide)
- Most ocean ports (including recreational marinas)
- Longest network of paved roads in the region
- Most international quality beaches (220) including many Blue Flag designations
In the past few years there has been a considerable influx of foreign investment into the country, particularly in the hotel/resort industry and its offspring, recreational real estate. In 2012, the DR led the Caribbean as the foremost recipient of direct foreign investment with nearly 50% of the total. As of mid 2014, it is second only to the Bahamas in number of hotel rooms being constructed, with over 800.
Most Promising Opportunities
In my opinion, hotel/resort and recreational real estate development are the best opportunities awaiting foreign investors and developers.
The government grants tourist projects generous tax incentives (including a 15-year tax exemption and the possibility to renew the incentives when the facility is renovated). This is part of a strategy for achieving an official goal of 10 million tourist arrivals by 2023. Here are the specific areas I recommend every potential investor takes a look at:
- New developments in virgin areas. Through rezoning and a massive program of coastal road development, new regions are being opened up for tourism. Raw land in those areas is still quite reasonably priced but won’t stay that way for long, as speculation will set in when the word finally gets out to the world.
- Redevelopment of older facilities. While most of our hotels are relatively new, there are also many outdated facilities in need of renovation and repositioning. Some of these lend themselves to conversion into senior housing or retirement communities within a medical tourism environment — an area that has hardly been exploited in spite of the aging of the population worldwide.
- Boutique hotels. There is a shift in preference from massive all-inclusive resorts to more intimate upscale boutique hotels with heavy emphasis on wellness facilities; these hotels and inns are cropping up in and around towns and cities as well, as tourists seek culture, shopping and other non-traditional travel experiences.
- Resort condominiums and villas. A number of small-to-mid sized resort residential developments ran out of funds (and/or market support) when the real estate bubble burst. There are huge opportunities here to acquire, finish, and sell/operate/rent these facilities which are typically too small to interest the large hotel companies.
- Vacation ownership. Though our legislation does not yet envision fee-simple deeded ownership, some well-run vacation products have been very successful and I foresee a larger demand for this type of facility given the greater mobility and distinct preferences of the post-baby boom generations.
Where to Start
If you’d like to explore some of these opportunities, I highly recommend that you start by getting a first hand look at our country. A fact finding trip of at least a week’s duration that will take you to two or three tourist regions is a must. You might want to take a “working vacation” and have the possibility of a partial or full tax deduction.
First and foremost, I recommend you attend this year’s Caribbean Hotel Investment Conference & Operations Summit (CHICOS 2014), to be held at the Hard Rock Hotel in Punta Cana on November 13/4. The conference is hosted by HVS, the Caribbean Hotel & Tourism Association (CHTA) and the Caribbean Tourism Organization (CTO). For details on this event click on the link at the end of this article.
Visits to the regulatory agencies, local hotel associations, foreign investors’ trade association (ASIEX), the chambers of commerce and your country’s embassy will likely give you a fuller picture of the opportunities and constraints of investing in our country
But your research would not be complete until you talk to the general population — the natives, the tourists and the expats as well. They will give you unbiased, grassroots opinions about living and doing business in the country which you must consider when making your initial go-no go decision.
If the DR passes that first test — i.e., if your initial decision is to invest more time and resources in actually planning, funding and implementing a DR business venture — then a whole new world of opportunities may open up for your business, and eventually Caribbean lifestyle opportunities for you and your family as well.
IMPORTANT UPDATE. OCT. 20, 2014 – The Ministry of Tourism just called on foreign investors and developers to build 35,000 new hotel rooms which already have all permits in place but their construction was stalled years ago when the real estate bubble burst. The government’s official goal is to reach 10 million tourist arrivals annually by 2023. This has been one of the best years ever; just in September, there was a record upsurge of 13% over the previous year. For part of the winter season, the forecast is full occupancy so some tour wholesalers are canceling packages or rerouting them to other areas. This excess of demand over supply forebodes healthy tax-free profits for new hotel investors as well as for developers of resort-residential communities.
The author welcomes comments and inquiries about business opportunities in the DR hospitality, construction and/or real estate markets. He can be reached email@example.com.
NO. # 5 FASTEST GROWING REAL ESTATE MARKET
To find the best real estate investment opportunities in Honduras, one must look beyond the tropical climate and attractions. Investor Randy Jorgensen did that, and is now profiting from the experience.
Successful real estate portfolios are not built overnight. It took Randy Jorgensen 16 years before he found the answers he had been looking for. A frequent visitor to Honduras, particularly the city of Trujillo, he realized there was money to be made there.
“After 16 years of vacationing and visiting, becoming familiar with the local regulations, and developing relationships, the opportunity presented itself, as Honduras began to encourage foreign investment with a focus on tourism,” the CEO of Life Vision Properties recounts.
“I felt if Honduras met all the criteria and Trujillo specifically met the ambience and location expectations I had; it would for others as well.”
In addition to being a great area for investing, the country’s economy is relatively strong. According to the IMF, the GDP is forecast to expand by 3.3 per cent in 2013 and 3 per cent the following year.
THE FIRST PURCHASE
Originally from Moosomin, Sask., Jorgensen took the first step and built a vacation home in 1992. “My initial purchase was 42 acres with 1,000 feet of beachfront,” he says. “The property was covered with extremely thick jungle that could only be walked across by blazing a trail with a machete.”
Jorgensen knew that he faced an uphill battle with the undeveloped land. “The property was raw land with no services or infrastructure with a large swampy, low area,” he says. “The purchase price was $50,000 USD, and the original documentation stated 50 acres.”
He also faced issues with the actual size of the land. “It is common in Honduras for land size to be significantly different from documents to actual survey,” he continues. “The final size should only be accepted if a recent survey by a qualified surveyor and reviewed by a qualified civil engineer.”
Once the land survey process was complete, Jorgensen performed an extensive cleanup of the area. “After purchasing the land, plans were made to clear the property so topography could be conducted and further plans for road access, power, water, drainage where required, and choosing a site for the home,” says Jorgensen.
Jorgensen generally prefers to focus on areas that have had some development, as it makes the process easier for both investors and developers. “Clearing and infrastructure costs initially cost about $60,000,” Jorgensen says. “The low cost was mainly due to the ability to perform most of the work myself without paying outside contractors, and the luxury of taking four years to complete.”
HOT SPOT: TRUJILLO
Since entering the market 21 years ago, Jorgensen has always focused his attention on Trujillo. “I personally have begun developing property producing serviced acreages to enable ease of acquisition for foreign property owners, specifically Canadians,” Jorgensen says. “Currently, 1,500 acres are under development with 500 lots sold to date.”
Two key factors are responsible for Trujillo’s growth. The first is affordable average prices. Many properties in Trujillo can be purchased for between $200,000 and $250,000, according to the Global Property Guide.
The second reason is an expected influx of retirees and vacationers over the next 15 years. “The time to purchase at an affordable cost grows shorter each year, so anyone considering a tropical property should take action sooner than later to enjoy the lower pricing still available.”
DEVELOPING A STRATEGY
As Jorgensen began to add to his portfolio, he developed an investment strategy that would best fit his personal needs. “When purchasing property as an investment, I first decide if it’s a short-term (3 to 5 years), or long-term (10 to 20 years) project,” he says.
He prefers the long-term approach when it comes to his holdings. He says he finds this method more financially stable and less susceptible to changes that may occur in the market.
Before entering a foreign market, Jorgensen advises investors to perform a detailed analysis of the area they’ll be targeting. “In both short– and long-term investments, use of the property needs to be clear, exit strategy developed, target market identified, and improvements to add value begin immediately,” he says. “Carrying costs need to be included in the projections and personal use needs a value assigned.”
One of the biggest obstacles Canadian investors face with international properties is obtaining financing. Jorgensen experienced a litany of financial issues when he began investing in Honduras, but he was able to find some solutions over time.
“Leveraging equity in current assets, (and) then using the funds to purchase the investment property is the most common (solution), followed closely by paying cash from (your) savings,” he reveals. “Vendor financing is sometimes available, particularly on serviced lots and raw land, but improvements, such as home building, will need financing as above, or be paid by cash.
“I usually only leverage the property when a clear income is being, or can be, realized that will carry the debt,” Jorgensen says. “I usually only consider this (for) commercial properties or long term residential rental properties, and only if I need the cash for a specific purpose; otherwise, I just enjoy the cash flow and income they produce.”
Although his portfolio has been profitable, Jorgensen believes his holdings have the potential to boost the Honduran economy. “(They) will provide a much-needed industry that will support local residents, create reasonably-paying jobs for young people, create government revenue to improve public services, improve and expand recreational activities for vacationers and visitors and expand product and service selection to improve living conditions for local residents,” he says. To learn more about Investing in the Banana Republic Contact one of FHI Investment Specialist.
The Turks and Caicos Islands, located north of the Dominican Republic, is emerging as one of the fastest-growing markets in the Caribbean region.
A rapidly emerging market, Turks and Caicos is only beginning to attract North American investors. “Currently, the prices are down to what they were prior to 2008, when the economic situation in most of the world went down.”
The numbers tell the real story about the region’s market. “If you want a two-bedroom condominium, you will probably pay between $450,000 and $800,000, depending on where the development is, and the size of the unit.
Single-family homes are also attractively priced. “If you’re buying a home, you may be able to get a two-bedroom home for $250,000. “Most properties are sold fully furnished. The reason for this is because there is not often enough room to move furniture.”
I would say that the properties in Turks & Caicos can provide North American with good returns on their Investments.” Going forward, the returns will be even better, as values are already starting to increase.”
DEALING WITH FINANCIAL ISSUES
Many countries have stringent rules for conducting business. However, this is not the case in the Turks and Caicos Islands, as there is far less for investors to worry about there.
“There are no taxes.” “There is no property tax, income tax, or any other tax. There is, however, a one-time stamp duty that is paid at the time of purchase, depending on the price.”
The Turks and Caicos Islands rely on the British legal system for business dealings, similar to the North American system. “ Turks & Caicos is a British protectorate, which means that we are under British common law.” When your name is on the deed, this guarantees ownership of property.”Sourcing finance from financial institutions there is also much easier. “Banks in Turks & Caicos are mostly Canadian banks.
The Turks and Caicos Islands weren’t always a popular investment locale. “Ten years ago, most North Americans had never even heard of the Turks and Caicos Islands.” “ Turks and Caicos have a great reputation, and anyone that comes to visit comes home and tells their friends and family about it.”
We are very optimistic about the colony’s potential. “I believe that the future of the Turks and Caicos Islands is very bright.” It’s a developing country, and we’re just getting started. The islands are trying to maintain their integrity as being a paradise. And that’s what people expect when they go there.”
As one of the most economically and politically stable countries in Latin America, Costa Rica is viewed as a safe bet. We examine why now is the best time to get a slice of the action.
From its political to natural landscape, there are many reasons why Costa Rica is viewed by investors as one of the safest emerging markets to expand their real estate portfolio.
Its exports remain strong, tourism numbers are at record levels while the country has one of the highest levels of foreign direct investment per capita in Latin America. Historically, Costa Rica has been a profitable real estate investment with 15-20 per cent returns recorded year-on-year from 2000 to 2008. The financial crisis did have an impact on the market, but prices have stabilized in recent years.
Foreign investors have been capitalizing on this particular market of late with purchasing activity already up 14 per cent in the first quarter of 2014 compared to the same period last year.
Economically, Costa Rica’s GDP is expected to rise, which will fuel investor interest. The IMF indicates that the GDP will increase by 4.2 per cent in 2014 and 4.4 per cent in 2015.
In the aftermath of the global crisis, over inflated real estate prices dipped to more realistic and fair market values.
“There is definitely a lot more interest in Costa Rica as investors see the long-term potential there, especially with the new airport terminal providing more access and new residential development projects. “Prices have levelled off, so now is a great time to consider buying.”
Gross rental yields in Costa Rica remains generally healthy with average figures between 6 and 7.8 per cent. “The rental market is quite strong, as Canadian and U.S. snowbirds and tourists continue to flock to the country.” “Investors can get from between $125 to $150 per night on a short-term rental basis. The returns in the long run are just as attractive.”
Costa Rica’s hot spots are the northern Pacific Coast and the southern zone. The former can be accessed by the Daniel Oduber International Airport in Liberia near the popular Guanacaste Gold Coast.
The southern zone is considered as the best place to invest due to advances in infrastructure, including a planned new airport and highway. A number of government-approved projects are expected to drive up property values and boost the region.
Much of the commercial activity is taking place in the Central Valley and San José’s greater metropolitan area.
BUYING IN COSTA RICA
It is relatively easy to buy property in Costa Rica with a simple tourist visa. Many foreign investors set up a private business or corporation, as there is a lot of commercial freedom and protection with this method. It is even possible to establish a corporation in Costa Rica without having to obtain legal residency or citizenship. The taxes paid are based on gross income but applied to net income through this method.
Locals and foreigners enjoy the same rights in terms property ownership in Costa Rica. All potential buyers should hire a lawyer to carry out an independent title search and investigation to ensure the title details are true and accurate. When buying Costa Rican property, the title is transferred from seller to buyer by executing a transfer deed (escritura) before a public notary.
Investors needs to be cautious and practical when assessing potential properties in Costa Rica. “As with all countries, there are a few good and bad projects, so due diligence is essential, especially when you are looking at the title of the land lot.” “Look at regions that enjoy positive tourism figures, are near major access routes and (ensure) that the developer is legitimate.”
Once a sale has been agreed, a 10 per cent deposit is generally required and it is recommended that the monies be placed in a government-registered escrow account. Final closing can take between 30 and 60 days and it is also recommended to get title insurance to safeguard your interests.
Prices in Costa Rica vary from coast to coast. “You can pay anything from $65,000 to $250,000 U.S, depending whether it’s a land lot, house or new development.” The least expensive properties are more prominent in “up and coming areas,” such as the new developments in the South. There has been a significant increase in residential development in recent years with many investors gravitating towards gated communities.
“With the U.S. local economies improving again, prices in Costa Rica are also rising as Americans are increasingly attracted to the region.”“I have seen that in some areas, but there is still a lot of value and return for investment.”
There have been an increasing number of Canadian real estate investment companies buying land in Costa Rica to construct eco-developments. This type of investment is more suited to those who are more interested in buy-and-holds than flipping.
“The best returns are in the long run, especially as the country is set to continue enjoying increasing tourist and snowbird numbers.” With more foreigners moving into Costa Rica, demand for high end property has risen in key areas, such as San José.
Costa Rica’s tenancy laws are still very much pro-tenant. Rents can initially be freely negotiated between landlord and tenant and the minimum lease term is three years but the tenant can cancel it by serving a three month notice period.
If the rent has been agreed in any foreign currency, no yearly increases are allowed. Increases are only permitted if transactions are agreed and paid in the Costa Rican currency (the colones), while unpaid rent can be very difficult to collect. For more info regarding Investing in Costa Rica, Contact one of FHI Investment Specialist.
No North American Investor is an Island, but several have been looking to the Cayman Islands. There are plenty of properties in this region that are sure to keep portfolios afloat with steady profits.
North American buyers looking to expand into international markets will find that there is far more to the Cayman Islands than water-skiing, tanning, and the vacation lifestyle. The British colony’s property inventory is afford-ably priced, leading to increased business from foreign buyers.
Economic forecasts are favorable for the Cayman Islands, with the GDP expected to increase 1.8 per cent this year and by another 2.3 per cent the following year, according to the IMF. Analysis from TradingEconomics. com is even more optimistic, with growth of 3.44 per cent and 3.53, respectively.
“The Cayman Islands are not overpriced like some countries where they saw 60 to 80 per cent (fall) off their prices,” Cayman Islands have slow and steady gains year after year.”
The Cayman Islands’ rules for international transactions are relatively relaxed, which has attracted more foreign business to the country. “There are no restrictions on foreign ownership, (and) the Cayman Islands (government) encourages foreign investment,” Kiss says. “The title can go into your own personal name or company name.”
Also comprehensive is how the colony’s government deals with land purchased for development. “Their is a very sophisticated lands and survey system where the Cayman Islands government guarantees titles,” “So there are no worries that someone will come along and take back your property.”
George Town, the colony’s capital and largest metropolitan center, is among its best markets. The properties in this market are generally affordable, and provide good rental returns.
“A two-bedroom condo generally sells for $350,000,” “You can rent them out for $2,500 net, and you can earn a 7 per cent ROI from them over time.”
As many Cayman Islanders are on short-term work permits, they prefer to rent. “We have a work force consisting of people who are here on two to three year work permits,” she says. “This means that they usually rent a condo or home for anywhere between $3,000 and $5,000 a month.”
While other countries in the Caribbean region have strict rules for foreign transactions, North American find that the rules in the Cayman Islands actually work to their advantage. “There is no income tax, property tax, or capital gain tax on any properties.” “Additionally, there are no onerous landlord legislation.”
The Cayman Islands did not become a real estate hotbed overnight. It took several years for the colony’s markets to reach their current state based upon to the stability of the market.
“There are no surprises here, just consistent income,” Their is a small population of slightly over 50,000, (and) about half of those are foreigners on work permits or retirees from all over the world.”
The Cayman Islands are primed to continue their steady growth. As the colony’s employment market grows, the demand for new housing will naturally grow alongside it.
Over the last few very large projects across the country, and employment is on the rise,” there is a definite need for more housing.
“The Cayman Islands only started to be developed in the late 70s, so there are is a lot more land to develop.” The infrastructure of roads, power and reverse osmosis water treatment, along with many upscale buildings, proves that there is a huge upside still to investing in Cayman.”
NO BUBBLE BURST ON THE HORIZON
As well, the large ex-pat populations there provide North Americans with the social familiarity they need to call a place home. Savvy investors are now moving to capitalize on the opportunity to furnish North American snowbirds with rental accommodations, at the same time they make second homes for themselves. FHI selected these areas based on average prices, expected rents, and projected economic growth. We spoke to local experts who explain why the time to get in on the ground floor and set sail for big profits is now.
BELIEVE IN BELIZE
An increasing number of North American are tapping into Belize’s thriving real estate market.
Located in the middle of Central America, Belize originally failed to command the attention surrounding countries have. But in recent years, the country’s real estate market has matured and Canadian buyers are getting an eyeful.
The country’s economy is relatively stable, which is good news for buyers. According to data from the International Monetary Fund, Belize’s GDP growth is forecast to climb 2.5 per cent in 2013, and jump by another 2.5 per cent in 2014.
There are five main reasons why North American investors are warming up to Belize.
“If you look at Belize in relation to North America, it’s very easy to access, as it’s only one hour and 45 minutes from Miami.”
Investing internationally also has certain legal pitfalls that can trap investors. But there are no so such traps in Belize as their legal structure is similar to North America’s.
“Belize is part of the British Commonwealth, and the legal system they apply is based on common law,” says Dayan. “So in terms of ownership titles, the terms are very similar to those used in North America.”
The country is also considered a “tax heaven” in the sense that there is no capital gain in Belize, “When an investor sells a property, there is no capital gain, and that’s very important.”
More foreign investors have been discovering Belize recently, as its markets are quickly emerging as real estate hotbeds. “Belize has yet to be discovered (by investors),” “There is so much potential for growth, new businesses and ventures, and the prices are relatively low compared to other Caribbean regions.”
BELIZE HOT SPOTS
The country’s top markets include the Cayo district, which includes Belmopan, Belize’s capital,this area has resonated well with tenants who are interested in eco-tourism.
“I would say that the Cayo district would be the number one place to go,” “The return on investment in this area is very good because people are just beginning to discover it, and it’s a great place to attract eco-tourists.”
San Pedro is another hot area. This city is known to be a big hit with vacationers. “San Pedro is one of the most visited areas in Belize,” “The main attraction there is the beaches. From an investment point of view, it’s a great place because you would have (tenants) pretty much all year long.”
Many countries have strict rules for foreign business. These rules often discourage buyers from entering their markets, and can create headaches for those who already have.
“Whenever North American invest offshore, it’s always tougher to get mortgage conditions,” “It’s difficult because if they default on their loan, the banks have no choice but to go after the property.”
Belize’s mortgage rules differ from those in North America. “You’re looking at about 60 to 65 per cent LTV for Belize,” “The interest rates are high, and can be anywhere from nine to 11 per cent and the amortization rates are only between five and 10 years maximum.”
As more foreign buyers begin to discover Belize, the market is expected to respond accordingly. Several new projects are in the works, a direct effect of the growing demand from those looking for retirement homes.
“Baby boomers are looking for a place where prices are affordable and they can feel comfortable and safe,” “Over the next 10 years, Belize is going to have a huge capital gain as a result of more people entering and leaving the market.”
Not everyone can live in a one-of-a-kind, architect-designed home, but there is no shortage of spectacular designs that make us wish we did, whether it’s a single-family house designed to almost disappear into the prairie or a high-rise apartment building designed to encourage social bonding. Thoughtfully designed with both the site and the future resident in mind, these residential projects are the antithesis of the McMansion. Here are the housing designs that most made us want to pick up and move this year.
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