The following article is from Canadian Real Estate Wealth Magazine.
Buried treasure can be found in the Caribbean, and you don't need a pirate ship to find it. The treasure comes in the form of affordable real estate in five sub-tropical markets primed for growth. These areas are all poised to experience an economic boom in 2013 and beyond, and that has put wind in the sails of North American baby boomers. Each market has an inventory of move-in-ready properties that are suitable for retirement and investment purposes. They are also relatively inexpensive.
As well, the large ex-pat populations there provide Canadians 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. CREW 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 Canadians 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.
Marie-France Dayan, founder of The Zen Investor in Montreal, has been behind some successful developments in the country. As she explains, there are five main reasons why Canadian 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 Canada'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 Canada."
The country is also considered a "tax heaven" in the sense that there is no capital gain in Belize, Dayan says. "When an investor sells a property, there is no capital gain, and that's important for us here."
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)," Dayan explains. "There is so much potential for growth, new businesses and ventures, and the prices are relatively low compared to other Caribbean regions."
Belize's hot spots
The country's top markets include the Cayo district, which includes Belmopan, Belize's capital. Dayan notes that 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," says Dayan. "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, notes Dayan, is known to be a big hit with vacationers. "San Pedro is one of the most visited areas in Belize," she says. "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 Canadians invest offshore, it's always tougher to get mortgage conditions," Dayan says. "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 Canada. "You're looking at about 60 to 65 per cent LTV for Belize," Dayan explains. "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," says Dayan. "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."
No Canadian 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.
Canadian buyers looking to expand into international markets will find that there is far more to the Cayman Islands than waterskiing, tanning, and the vacation lifestyle. The British colony's property inventory is affordably priced, leading to increased business from foreign buyers.
Economic forecasts are favourable 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," explains Heidi Kiss, broker and owner of Capital Realty in Grand Cayman. "We 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. "We have a very sophisticated lands and survey system where the Cayman Islands government guarantees titles," says Kiss. "So there are no worries that someone will come along and take back your property."
George Town, the colony's capital and largest metropolitan centre, 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," Kiss says. "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, Canadians 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," says Kiss. "Additionally, there are no onerous landlord legislations."
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. Kiss chalks this up to the stability of the market.
"There are no surprises here, just consistent income," she says. "We have 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.
"We have been seeing a few very large projects across the country, and employment is on the rise," says Kiss. "So 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," says Kiss. "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."
Riches in Costa Rica
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 2013 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 2013 and 4.4 per cent in 2014.
In the aftermath of the global crisis, overinflated real estate prices dipped to more realistic and fair market values, according to local real estate agents.
"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," says David Otanez from Recap Investments. "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," he says. "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.
Otanez warns investors 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," he says. "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 buyer interests.
Prices in Costa Rica vary from coast to coast. "You can pay anything from $65,000 to $250,000 CAD, depending whether it's a land lot, house or new development," says Otanez. The least expensive properties are more prominent in "up and coming areas," such as the new developments in the South. Otanez says 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," says Otanez. "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. Otanez says 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.
Heating up in Honduras
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.
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 Canadian investors. "Currently, the prices are down to what they were prior to 2008, when the economic situation in most of the world went down," explains Kathryn Brown, Chief Operating Officer of ERA Coralie Properties.
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," she says.
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," says Brown. "Most properties are sold fully furnished. The reason for this is because there is not often enough room to move furniture."
She also believes the returns will increase in time. "I would say that the properties here can provide Canadians with good returns," says Brown. "Going forward, the returns will be even better, and our 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.
"We have no taxes," Brown says. "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 Canadian system. "We are a British protectorate, which means that we are under British common law," says Brown. "So when your name is on the deed, this guarantees ownership of property."
Sourcing finance from financial institutions there is also much easier. "Our banks here are all Canadian banks," Brown reveals. "Canadians can get access to some of the major Canadian institutions, including Royal Bank, Scotiabank and CIBC."
The Turks and Caicos Islands weren't always a popular investment locale. "Ten years ago, most Canadians had never even heard of the Turks and Caicos Islands," Brown says. "And now, when it's mentioned, people say the opposite. We have a great reputation, and anyone that comes to visit comes home and tells their friends and family about it."
Brown is optimistic about the colony's potential. "I believe that the future of the Turks and Caicos Islands is very bright," she says. "We are a developing country, and we're just getting started. We will never be like the Dominican Republic or Jamaica, but the islands are trying to maintain their integrity as being a paradise. And that's what people expect when they come here."
From Canadian Real Estate Wealth Magazine, a monthly publication focused on building value through property investment, covering topics such as values and trends, mortgages, investment strategies, surveys of regional markets and general tips for buyers and sellers.