The development of real estate in Barbados has over the last 5 to10 years been at an all time high. This has primarily been due to the high demand for housing and the establishment of the island as both an off shore business sector and island resort.
In this regard several private housing and condominium type projects have been established on the island, primarily its costal regions, catering to both the local and international investor. These projects with a price range of US$425,000 to US$5 million have for the most part been established to accommodate the upper middle and upper class segments of the society as well as the international investor seeking to secure a holiday home in the Caribbean.
Cognizant of the absence of suitable housing projects for lower and middle income societal segments, the government of Barbados has also been consistent in its efforts in the development of housing projects which would satisfy the demand in this sector.
An interesting phenomena which however seems to continually eluded real estate development in Barbados is that it is a function of Financial and Economic Markets. Practitioners who embrace this very important theoretical principle recognize that there is an unquestionable correlation between Incomes, Real Estate Development and Real Estate Maintenance. By extension they function within an understanding that there is also a correlation between Real Estate Valuations and Income.
It follows that where demand is high and there is an element of scarcity then an increase in price is not unreasonable. The challenge however must be addressed within the context of other factors that have driven real estate prices to inordinately high levels.
An assessment of this would suggest that the greatest challenge facing the real estate market (commercial and residential) in Barbados is its growing unbalanced characteristics. Considered within the context that real estate turnover is occasioned by a willing seller disposing to a willing buyer with the income potential to acquire and noting our earlier discussion of the relationship between incomes and real estate acquisitions it is clear based on average incomes that a significant number of properties within the local market do not have willing buyers with the income potential in the local market.
For example, to afford a mortgage valued $500,000 at an interest rate of 7% over 25 years, monthly payments of $3,533.90 are required and a single or joint income position of $10,096.85 must be evident. This does not augur well for the local environment and will undoubtedly have very negative impacts. Recognition of this and relating to the ongoing challenges faced by average income earning Barbadians is an important first step towards resolution.
Noting the forgoing, the global market has consequently become the forum for property disposals given the escalating values and private developers quest to maximize their return on investment. The result is:
1. The creation of a Global Market with a local product resulting in willing buyers with greater earning capacity in markets with more significant economic power
2. Creation of market and market valuations which are based on global demands characterized high values and low volume in a local market characterized by high demand for low values
Clearly the issues of escalating valuations within an environment of increasing inflation and the consequent inability of earnings to compete, is an economic issue and as a result requires an economic response.
The capping of valuations is not the answer. Such goes against the fundamentals of competition and free market principles. Instead, government should through its tri-parti relationship consider the development of a national model which addresses the distinction of property values and income relations for the local market viz a viz that of the global market. Don't tell me it is impossible. London Bourne Towers as a simplified example of the recommended concept, is situated on prime ocean view land but would not attract a valuation similar to Margate Garden a half mile away as London Bourne Towers was defined for the local market and the consequent values and target market were in alignment with local individual incomes. If London Bourne Towers is re-defined for the global market, values and rental potential will undoubtedly also change.
I suggest speedy defining, testing and implementation of such a model with a view market realignment and socio-economic balance.
