Today I am here to announce that Government will be enacting regulations that will lower the minimum Annual Rental Value at which non-Bermudians and non-permanent residents, referred to as ‘Restricted Persons’ may purchase residential property from $153,000 to $126,000. Additionally, we will be reducing the minimum ARV threshold of $32,400 for condos to $25,800.
Such action will help stimulate economic activity at the higher end of the property market in Bermuda, thus helping with Bermuda’s overall balance of payments in future sales.
This follows on from the November 2013 ‘Speech From the Throne’ whereby the Ministry of Economic Development committed to working with the Ministry of Home Affairs to move forward with proposals to improve property market conditions.
The motivating factor behind this decision is the reduction of the value of the property sector in recent years and the corresponding reduction of Annual Rental Values, or 'ARVs', across the board in Bermuda. This reduction came about during the preparation of the 2015 draft valuation list, which reflects an analysis of rental information across Bermuda.
The draft list confirms the widely held opinion of many in the property sector, and in the community, that rental values in the open market generally have fallen between the valuation date of December 31, 2009, for the previous 2009 valuation list and July 1, 2014, which is the valuation date for the valuation units in the current 2015 draft valuation list.
Now that the Department of Land Valuation has finalised the new valuation list, which takes effect [retroactively] from January 1, 2016, the new list has lowered ARVs, which will require an adjustment to the ARV threshold for residential property for Restricted Persons.
As you may recall, the ARV at which Restricted Persons may purchase residential property was reduced last year to $153,000. With the fall in housing prices leading to a fall in ARVs being announced as I have just outlined, the minimum needs to be adjusted in order to capture the same group of properties which were previously available to Restricted Persons.
There are currently 425 designated condo units in the 2009 Valuation list with a current minimum ARV threshold of $32,400. In order for these designated units to remain available to restricted persons, the ARV must be reduced to $25,800 per the 2015 Draft Valuation List. If this threshold is not adjusted, 61 designated condos would fall below the minimum threshold of $32,400. As relating to residential units other than condos, there are currently 424 valuation units in the 2009 Valuation List with a minimum ARV of $153,000. To achieve relatively the same number of properties in the 2015 Draft Valuation List, the threshold must be reduced to $126,000 (equating to 426 valuation units) if the threshold is not adjusted, 198 valuation units would fall below the minimum threshold of $153,000.
If the Ministry does not act, then the economic stimulus provided by the reduction from last year will be reversed. This change will ensure that we are able to maintain efforts to save the floundering real estate market in Bermuda.
I wish to remind the public that Part VI of the Bermuda Immigration and Protection Act 1956 contains provisions aimed at protecting land in Bermuda for Bermudians. That Part also contains robust anti-fronting provisions which prevent individuals from using trust arrangements to circumvent the protections of the Act. Let me emphasize that these protections will remain unaffected – Restricted Persons will continue to require the permission of the Minister to purchase and hold land in Bermuda and the total acreage of land which may be held by Restricted Persons will not change and will remain at 2,500 acres.
The Act allows only the most expensive properties in Bermuda to be bought by Restricted Persons. The ARV is the threshold for these properties.
As I stated last year, liberalising real estate for PRCs and other non-Bermudians can be a sensitive topic for some Bermudians. But let me stress that our motivation in bringing this legislation forward is to stimulate a waning real estate market. Many of us know of at least one property that remains empty. Some of us may even be in the unfortunate position of being unable to sell such property ourselves.
It is clear to the Ministry that it is Bermudians who are primarily hurt by a real estate market which is not as robust as it can be. There are many Bermudians with property to sell but no one to buy. As a result, many of these Bermudians have seen the value of their investments plummet as a result of the status quo. Government is dedicated to helping these individuals.
This legislative change will continue our efforts to ease their burden a bit by maintaining our property market in a bid to attract more foreign investment to these shores.
By welcoming foreign investors and by attracting more people to our shores, we can achieve the kind of recovery that grows jobs and incomes for Bermudians.
I do not need to explain how in recent years, Bermuda had become less attractive for foreign investment, and how we paid the price in jobs, business closures, lost rents and lost confidence. The current Government has been hard at work to change that, to make Bermuda a more attractive place to do business, with less red tape and more red carpet. This set of regulations is a part of Government’s multi-pronged strategy to put in place conditions that lead to job creation.
Each transaction involving the sale of a property to a non-Bermudian leads to government revenue: stamp duty of the purchase, the land-holding charge on the property and the licence application fee. Such a transaction involves a net improvement to our balance of payments as funds are transferred from a non-Bermudian to a Bermudian seller, to Government and to various support services (such as banking and legal).
Based on detailed submissions received by industry stakeholders, I can report that when high net worth non-Bermudian purchasers acquire property in Bermuda, they almost always then expend considerable funds in the renovation of the property in order to have it suit their requirements. In certain cases, the renovation costs have almost matched or exceeded the initial purchase price itself.
This contributes to an economic multiplier effect and feeds back into our economy through increased Government revenue by way of import duties and payroll tax on construction, landscaping and housekeeping workers. All of this is in aid of Government’s efforts to foster job creation. This is and will continue to be the singular focus of this Government.