What are the strengths and weaknesses of the Bahamian real estate market?
SYMONETTE: One of the strengths is obviously proximity to the United States. Older people needing medical care can fly quickly from New York, Florida, or wherever. We are getting a lot of interest from the European market as France and Britain start to tighten on their tax regimes. The Chinese are making a tremendous investment here. We are seeing some degree of Chinese investment in the condominiums which are a part of the hotel investment. So it is fairly strong at the moment. If you look out the back, I’m doing a marina project and I am about ready to do a hotel project. We are currently waiting on final government approval. The Prime Minister is to have an on-site meeting on the island of Eleuthera on May 2nd to discuss the finalities. We are going to build a mixed use project split between condominiums, single family homes, and a partial hotel block on a wonderful beach that is just a few minutes’ drive from the airport.
How does a damp US economy impact the Bahamas?
SYMONETTE: There is an old saying here, that if the United States catches a cold, we catch pneumonia. I think that is a good analogy of the relationship. For instance, out West in areas such as Lyford Cay, the house prices will be $3m, $5m, $7m, but they are not getting their asking prices; there is a substantial reduction. So the property market in that area, it is actually more expensive to build a home than to buy a home that is already built. So there are good deals to be had in purchasing because it is a buyer’s market, which is a reflection of the downturn of the economy.
Do you see major shifts in the Bahamas’ target markets on a macroeconomic level?
SYMONETTE: Traditionally in tourism, which is our number one industry, the tourism promotion dollars have tended to go to North America. There has been a recent segue into South America with the Copa flight from Panama, which connects with their network all through South America. This has worked, number one for tourism, but also for the financial services sector. Some of the banks have subsidiaries in South America and that has worked well. Europe has not been very high on marketing dollars because 80% of our tourists are coming from North America and they are coming from the tri-state are of New York, Florida, and North Carolina, so they are focusing their dollars on those areas.
Government joint ventures with the likes of Kerzner at the Atlantis or with the Chinese at Baha Mar, have agreements in place where they put a certain amount of money in the marketing fund. I think it is $24m over a certain amount of time for Baha Mar and is directed into joint advertising in the areas where the hotel thinks they are going to get their passengers from. Again, this is going to be the same traditional markets. With Baha Mar, there is quite a bit more investment into Europe and in London; they are doing some promotional trips. A lot of that is to introduce the Baha Mar hotel product, but there is a high number of condominium units in the hotel pool. These range from $4.5m, so they are trying to market that type of room which will be left in the hotel pool, but also those that will be privately owned.
What are the smart money investments in the Bahamas today?
SYMONETTE: Property is still a smart investment today. We do not have an equity market where you can come and buy the equivalent of Sand Inc. so there is not that type of move. Over the Easter weekend a couple of weeks ago, I was told that over $78m of real estate was sold over at Albany, at a Joe Lewis, Tiger Woods product. They are mainly condos on the marina and I think people are using those as second homes and also residency. That means they could get tax breaks and incentives by being residents here. So that is a strong market. You are also seeing a strong market in yachts. The yachts seem to be getting bigger and bigger, 200 footers and so forth, which will winter here and then summer in the Med or elsewhere. There is a great market in that both for the Atlantis and Albany for their marinas.
What are the greatest challenges facing the Bahamas today?
SYMONETTE: Challenges, certainly for the government, is revenue collection. I think that is going to be their biggest issue. As the Bahamas moves towards World Trade Organization (WTO) status, we are going to have to shift from our duty collection, which is about 80% of our revenue into a VAT combination of duty. I see that as a challenge. Things like real property tax, which are levied on buildings, Bahamians tend not to pay. In fact we are going through an amnesty where they are allowing a rebate on interest to convince people to buy into starting to pay their real property taxes. Those types of taxes traditionally Bahamians do not pay. I suppose worldwide that is an issue. So the customs duty is actually a fairly easy one, you do not get your product off the dock unless you pay the duty. So collection will be difficult. Once government revenue is down due to lack of collection, obviously the investment they can do in capital investments in roads and hospitals is going to be down. The question of employing people is also going to be a challenge. So I see in the next year or two there is probably a degree of skepticism about where the economy is going to go because if you do not have that kind of revenue coming in, it is not going to happen.
There is an old saying here, that if the United States catches a cold, we catch pneumonia. I think that is a good analogy of the relationship.
We also rely on foreign direct investment and there are not many projects left on the drawing board after Baha Mar. So we need that infusion of money because traditionally Bahamians do not have access to the type of credit needed. When we borrow, we have to borrow in Bahamian dollars. So we cannot go to New York or London or any of the big money markets and borrow in US dollars because of our exchange control. So that limits Bahamian investment. In reality, there are not that many Bahamians, if there are any, that can put together a Baha Mar. So domestic investments will be small. You can couple that with the idea that on some of the family islands, you do not need a 20 story hotel, you need more of a boutique hotel. So therefore it is easier for some Bahamians to do that because they can develop it in stages progressively. I have just seen a Bahamian group take over a hotel in Hopetown Abaco, so you do see some of that happening.
I do think there are going to continue to be challenges. One of those is always air-lift, it always is a challenge. Coming out of Europe, you always have an abundance of cheap seats into Miami, so that is very difficult. But fortunately with the new airport, we should even be able to take the superliners. So it is just a product of dollars and if the government supports airlines going in. There is the potential to create a hub here if we can work with some of the international airlines. They can fly in with their long-haul heavier aircraft and we can then link into Turks and Caicos, Cayman, Jamaica, and create a regional hub. But in the Caribbean region, you have Liat and Caribbean Airlines and they have had their challenges and I think people are nervous about regional airlines and about how they work. So those are some of the challenges and we have to get over those issues.