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Published Articles on Real Estate - Anguilla Life Magazine
 


 
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REAL ESTATE VALUES AND ANGUILLA'S INTERNATIONAL SERVICES

The first--and ongoing--wave of international service which fostered the tremendous increases in land values which began in the late nineteen seventies, was tourism. Tourism fundamentally created real estate value along the coastlines--especially along the sandy fore shores--and along those high ridges commanding views of the sea. Insofar as tourism generated a demand for goods and services to support the hotels, condominiums, and residences being developed along the coasts and ridges, there was a "trickle down" effect with regard to increased interior land values. As businesses grew to accommodate tourism's expansion (and the contingent increase in local demand for goods and services which grew as a function of tourism's introduction of higher, steadier salaries for a larger, more diversified number of Anguillians) businesses expanded in central areas, thereby raising demand for-and prices of--centrally located property.

The second--and emerging--wave of international service which has the potential to foster impressive increases in land values, is the world of international finance. Insofar as international finance is an office oriented service, from a real estate perspective it is very well suited to not only complement the previously mentioned "trickle down" increases in the land values of Anguilla's central areas, but to increase and expand the boundaries of those central areas. When one takes into consideration the fact that nearly thirty small, independently owned businesses currently operate on the George Hill Road between the Galaxy and Vista Supermarkets, it is not difficult to imagine additional, low impact, business development in Anguilla--a development which would logically result from increased international financial services on Island.

As with any international service, the fundamental benefit must flow to the host country--tourism was not introduced to please overseas residents, but to increase Anguilla's standard of living by taking economic advantage of a legitimate international desire for personal peace and tranquillity. This same desire can be harnessed with regard to international finance in an effort to realize visible, socially desirable goals--from creating new forms of employment on Island, to decentralizing the economic base of Anguilla; from generating impressive fees payable directly to Government for improving and upgrading Anguilla's infrastructure, to developing an increased demand for first class office space throughout the Island. Anguilla had beautiful beaches long before she had first class hotels--policy decisions and global economic realities brought those hotels to our shores. In the same manner, Anguilla has had tax policies beneficial to international finance for a number of years--emerging policy decisions and global economic realities can be focused to bring first class international finance to our shores as well.

In truth, both tourism and international finance can be problematic, and must be monitored. However from a general business view point, and with an emphasized perspective on real estate values and new development opportunities, these two international services are in fact quite complementary. By developing both international services in a controlled manner-- i.e. Alien Land Holding Licences and planning permission, on the one hand; innovative legislation and auditing requirements, on the other--Anguilla can realize a better standard of living than would be possible by exclusively relying on either alone.

 

CREATIVE DEVELOPMENT RELATIONSHIPS

Quite a while ago, while at a party at the Governor's--back in those days when bacon wrapped prunes were served as cocktail hors deourves (very tasty, really)--I was made aware of the sincere concern in some circles of the impending impact on Anguilla of recently approved coastal real estate development, i.e. tourism. At the time I was managing the construction effort for Cinnamon Reef at Little Harbour--the first of the approved late seventies and early eighties expatriate funded resorts.

Development is change--not necessarily improvement. In the unique realm of real estate change can be seen to be (or can convincingly be argued to be) very permanent, quite significant. The knowledge that coastal real estate development has fostered considerable change on Anguilla is not disputed--the great debates revolve around challenges to the value or worth of the changes that have been brought forth.

Concomitantly, and perhaps more importantly, debates are beginning to focus on how to creatively control those changes still to come to Anguilla, with a vision to improving the quality of life on Island-to create a future that is compatible with, and sensitive to, the great traditions of the past. Fundamental to that debate is an awareness of the fact that the structures which are erected, and the manner in which those structures are arranged, define the built environments that constitute the physical fabric of social life. As such, there are artistic and historic--as well as fiscal--responsibilities concerning the development of real estate which should be innovatively shouldered by the developer and his counter part, the government. These social responsibilities are especially pressing when considered within the framework of a land mass and population as finite as ours.

In those societies where governments have moved furthest along the road with regard to creative development relationships, specific goals or targets which it is felt need to be addressed are identified, and then incentives are devised for their completion. For example, in Boston there is an established linkage program, whereby developers interested in developing high-rent downtown office plazas or shopping centers are required to develop low income housing in adjoining urban areas. Other specific examples of negotiated incentive based development include: allowing a developer to build above height limits in exchange for the developer including day care centers or exercise and fitness areas within their projects; allowing a developer to increase plot coverage provided he restores an identified historic landmark; allowing a developer to extend permit schedules provided he donate and maintain a public park, etc.

One can readily see ways in which such negotiations can have interesting results. In Anguilla there are museums to complete, libraries to stock, historic public buildings to renovate, playgrounds to build. Although there is theoretical truth to the fact that such projects could be completed by the public sector alone through collected duties and fees, experience has shown that by focusing a developer or development on an identifiable public benefit, that benefit is more readily realized. In addition, the developer becomes a more integral (and, hopefully, more caring) member of society through his identification with a tangible public good.

Obviously there has to be a balance between the size and scope of the development and the identified public benefit which the developer is asked to adopt. Furthermore, it is apparent that an opportune time to discuss such linkage is during the Alien Land Holder Licence process, keeping in mind this concept of linkage is not to be punitive, but creative. Setting targets too high will discourage the very development needed to get the process started. However with a proper perspective on the strength of the market, the type of development, and the identified public project, very sweet and beneficial societal flowers may begin to bloom.

 

RESIDENTIAL OWNERSHIP AND ENTREPRENEURIAL DEVELOPMENT

There is an increasingly obvious disparity within the retail community of Anguilla. As in many other tourism oriented economies (Cape Cod, Massachusetts, comes quickly to mind) the retail sector has developed in a manner whereby the tourist's holiday desires are easily satisfied, but the requirements of the Island's residents are either not available, or available without sufficient selection.

Due to the fact that Anguilla's tourism is geared to the well heeled and the upmarket, this disparity between the "fun" and the "fundamental" is not as glaringly obvious as would be the case in, for example, a cruise ship environment. However, the fact remains that Anguilla's strongest retail sector is the restaurant niche, and while there is absolutely nothing wrong with a proliferation of expensive, attractive, elegant restaurants, a development policy which recognizes the need to encourage a more diversified entrepreneurial retail sector is essential to Anguilla's well being.

Hotel development has been crucial in the economic growth of Anguilla. However one must attempt to identify the point at which the benefits of such capital intensive, high density, development begins to diminish. Resort development has undeniably created an impressive number of service sector jobs, and has fostered substantial growth in privately --locally--owned businesses. However, when analyzing the "law of diminishing returns" of future development, one pertinent guide must be the impact of that new development with regard to increasing the variety and scope of Anguilla's entrepreneurial retail activity.

Service sector jobs should not be condemned--they shall always fill an important economic role, as witnessed by the growth of the service sector industry within the United States itself. However, independence and self reliance (both politically and economically) are the true foundations of Anguilla's identity and character--the true foundations of its success. As such, a development policy which encourages expatriate residential home or condominium ownership--as opposed to encouraging additional resort or holiday development--should be adopted. Such an emphasis would have many benefits (i.e. decentralization of land sales, protection of beach land, etc), but such an emphasis should become policy if for no other reason than to assist in fostering the growth and diversity of Anguilla's retail activity--small, locally owned, locally conceived, and locally managed, businesses. Anguilla has the necessary talent, it simply lacks the proper critical mass.

Hotel guests do not buy furniture or professional clothes, do not buy house plants or television sets, do not get watches repaired or appliances serviced, do not go to music recitals or attend cultural events--resident home owners would. A development policy that focuses on increasing the demand for such goods, services, and events, would benefit all residents--belonger and expatriate alike--economically, socially, and intellectually.

On a small Island of finite population, the best way to create the critical mass necessary to support the entrepreneurial growth of such business is to encourage expatriate residential ownership. The expatriate owner of an Anguillian property will inevitably require the diversity of retail options that those of us who live here currently travel to St. Maarten or Puerto Rico to find.

The expatriate resident, as opposed to the tourist, will want--and will help support--diversity, selection, and variety, within Anguilla's retail sector. Once you live here you quickly realize that there is no sustenance in eating out, night after night, in yet another elegant restaurant.

 

NON-BELONGER REAL ESTATE HURDLES: TRANSFER TAXES AND PENALTY PAYMENTS

It is essential for the well being of Anguilla that the local real estate market be properly regulated--a market as finite and as fragile as Anguilla's requires prudent protection. However, whereas the necessity of regulation is--I believe--beyond dispute, discourse becomes interesting when one considers the proper methods and true objectives of regulation.

In the context of this article, I shall not focus on regulation in terms of requiring projects to obtain planning permission, or to meet certain ecological standards, or to receive building permit approval--instead, I shall focus on regulation as it directly impacts the value and liquidity of real estate.

The fundamental factor affecting the liquidity of Anguilla's real estate--affecting real estate's ability to be converted into cash-is the Alien Land Holding Licence. Whereas I do believe (as stated in a previous article) that the Alien Land Holding Licence concept is fundamentally sound, I also am convinced that the core of the law should be amended to allow for Licenses to be issued on a non-site specific basis.

However, with the fore going reservation in mind, the fundamental factor relating to the acceptance of the principal of the Alien Land Holding Licence requirement is a willingness to accept two different categories of land owner--Belonger and non-Belonger. While I accept the dual category concept, I do believe that two particular conditions currently imposed on the non-Belonger are not in Anguilla's true interest.

These two onerous real estate conditions which fundamentally decrease market liquidity and, therefore, decrease value are:

  1. the 10% transfer tax required in addition to the 5% stamp duty; and
  2. the 10% performance payment required to ensure timely development of undeveloped property.

The additional transfer tax stifles indigenous development due to the fact that the tax is calculated and payable on the value of the land to be transferred plus any improvements thereon. Therefore, a purchaser is less inclined to buy a house already built, or a condo project already approved--and more inclined to purchase raw land--because of the substantial tax savings involved.

The performance payment, on the other hand, stifles interest in raw land. Due to the fact that Alien Land Holding Licence conditions impose penalties for non-performance, it is essential that the off Island purchaser maintain flexibility in pursuing completion. The necessity of paying substantial sums into an inactive Government account prior to title transfer--when significant amounts of money are already being paid by the purchaser to the vendor--increases the strain of compliance.

These lump sum taxes and payments decrease the value of land--they drive away potential consumers, or result in discounted land and development prices, because they substantially increase the cost of the transaction. This is not to say that Government should not reap additional revenue from the non-Belonger, nor does it mean that Government should not protect Anguilla from the land speculator. However there are more creative methods available, methods that do not depress the land market.

First--instead of an onerous additional 10% lump sum transfer tax, the annual property tax which is levied on all improved property should be levied at some percentage higher for the non-Belonger. Such a policy would make it easier for a non-Belonger to successfully enter the land market--and would make it easier to sell or re-sell developed property--by replacing the difficult one time lump sum payment with easier annual payments. In addition such a policy would assure Government of a long term tax stream, would raise more revenue over the long term, and would even out budgetary bulges caused by irregular one time payments, thereby making annual economic forecasting more reliable.

Second--instead of a 10% performance payment required in cash prior to title transfer, a non-Belonger should have the option of posting a bond to cover the 10% requested. Such a system is currently in place with regard to the importation of perishable goods by Anguillian businesses. By accepting bonds rather than demanding cash payments, the Government would be guaranteed access to funds in case penalties are to be applied, yet would be freed from the potential for facing a cash call (and potential short fall) caused by the necessity of issuing a refund upon investor compliance. In addition, such a policy would allow the purchaser to invest the 10% that would have been paid to Government into productive use developing his land to assure compliance.

By creatively addressing those issues which hinder liquidity in the real estate market, more transactions will take place, more revenue will be realized, more economic activity will result. Amazingly, all of these benefits can be realized without the loss of proper control.

 

LAND AUCTIONS AND ALIEN LICENCES

Anguilla has recently seen what other countries have been seeing for quite some time now--the public auction of property that had been pledged as collateral on loans which have gone into default. Auctions are unpleasant events--I know, I lost a condominium I pledged as collateral for a mortgage in the United States. However, pleasant or not, economic conditions and existing debt on Anguilla have now reached the point where additional auctions appear to be inevitable. As such, the fundamental question to be addressed is: how do we maximize the return on auctioned property?

On Anguilla, one may equate tourism with cash flow, real estate with capital. It has been real estate which has provided the capital for indigenous development--whether that capital was realized through property sale or lease, on the one hand, or through bank financing, on the other. On Anguilla there is a commendable reluctance to sell property without necessity. As such, real estate has increasingly been the pledged capital underpinning most of the local loans made by the banks over the past few years. It has been those local loans which kept the world recession from our shores--the home improvement loans, construction loans, business loans, etc., kept our economy liquid even as tourism arrivals and expenditures slowed or levelled off, and as foreign funded capital intensive tourism projects were completed.

It is in everyone's interest to avoid a "credit crunch" on Anguilla--and such a "credit crunch" will arrive (perhaps has arrived) due to the fact that our banks are under increasing pressure to refuse real estate as pledged collateral for local loans. This refusal is inevitable in light of the fact that thus far the auction process has not been responsive-- i.e. the auctions which have been held have not resulted in sales, and therefore have not provided the remedy required by the banks to retire loans in default.

Whereas I am convinced that the first step in all cases of loans in default should be a renegotiation of terms--especially with regard to decreasing the interest rates charged by banks on the loans that they make to an internationally acceptable increment over the interest rates those banks pay on the deposits that they hold--I am equally convinced that the auction process, if it must be invoked, needs radical revision to protect land values.

The driving force behind land values on Anguilla has been the expatriate, and, therefore, a special effort must be made to include the expatriate in the auction process. Insofar as there is a social cost to an auction which puts a downward pressure on land values (especially in a community as small as Anguilla's whereby everyone knows the owner of the land under auction) the effort made to include the expatriate community in the auction process will strengthen distressed land values. In the context of this analysis, strong land values are in everyone's interest -they protect the foreclosed owner by making it more likely that auction proceeds will exceed his debt obligations; they protect the bank by ensuring the value of their collateral; they protect the community by avoiding the prospect of a "credit crunch".

In my next article, I shall explore various alternatives to the existing public auction process--from silent private offers made with the consent of the land owner to contractual protections for the potential purchaser, from an analysis of pro-active planning permission to an in depth review of the potentially very positive role of my proposed "non-site specific" alien land holding licence.

 

LAND AUCTIONS AND ALIEN LICENCES

At the conclusion of my last article I stated that I would continue my discussion of the public auction process as it relates to real estate on Anguilla by exploring some innovative alternatives to the existing system. Foremost in innovation would be the implementation of an Alien Land Holding Licence that is not site specific.

Auctions in a small society are unpleasant and unpopular events due to the fact that bidders inevitably know the owner of the property being auctioned--there is little to no anonymity regarding such a sale.

Bidders are therefore reluctant to purchase auctioned property until the price is irresistible--in other words, until the reserve price has been lowered to bedrock levels through a succession of unsuccessful auctions. Such delays often mean that the bedrock levels attained from the sale of the property may not retire the debt obligation, thereby forcing the banks to pursue further remedy--making a painful situation all the worse.

This problem of intimacy is compounded by Anguilla's two tier system of land ownership (i.e Belonger and Alien). Alien ownership has undeniably been the fundamental factor behind stable or rising land values, however existing Land License requirements deflate the value of property most just at the time when that property can use the most help--when it is in distress.

The fundamental licence requirement which is at fault with regard to the auction process is the requirement that stipulates an Alien must apply for a licence for a specific parcel of land. If licences were issued in a controlled manner to allow approved Aliens to purchase and develop real estate within given established guidelines regarding use, acreage, timing, etc., then those Aliens holding such licences could be selectively examined for a correct fit in an effort to secure a purchaser for a specific property at any time--in this context, at the time when a property pledged as collateral needs to be sold.

In so far as Government would have a list of all Aliens holding Licenses, the property owner, a broker, or the auctioneer, could access that list in an effort to find a suitable buyer. If a licensed purchaser is found in this manner, the transaction could be completed quickly due to the fact that a Licence has already been issued and that no one concerned would need to worry about the approval process regarding the right of ownership.

For example, a lovely beach front parcel with a restaurant developed thereon is currently being auctioned due to economic misfortune. A number of auction efforts have been attempted, each has failed, and the reserve price continues to be lowered--a very unsatisfactory scenario for all involved. If a system were in place as is being advocated, the owner or his broker could search the Land License database to find a suitable purchaser--i.e. one who had applied for and received a License to develop a tourism oriented project. As such, negotiations could begin and hopefully concluded quickly and professionally, because the approvals process with regard to the right of ownership will have already been completed. Of course, approvals for planning permission and building permits would still have to be obtained, but that is the case for Belonger or Alien alike.

The foregoing is especially important when the concern over the approval process regarding ownership is exacerbated--such as is the case for an Alien in a sale by auction. In so far as the Alien cannot know of the potential political ramifications of his proposed purchase, he cannot evaluate the likelihood of his ownership efforts. Such uncertainty once again makes him less likely to bid and thereby artificially deflates land values.

Review an Alien--approve or reject an Alien--but once approved let us harness his purchasing power in the most advantageous way possible. To do that we must let him into the general real estate market so that he can be focused upon to help the economy--not only when it is healthy but especially when it is distressed.

Beach Access and Real Estate Values

No one disputes the fact or argues with the concept that all beaches on Anguilla are and should remain public property. However, when one begins to consider the options available for getting to those public beaches there is need to pause, reflect and plan.

When I moved to Anguilla some seventeen years ago, consideration of the issue of beach access did not exist in so far as the property surrounding the beaches had seen only minimal development, we all had maximum access. However, times do change.

I am aware enough of my own feeling to know that I personally feel uncomfortable about going to some of Anguilla's beaches and am concerned that my daughter may grow up to find that discomfort magnified. While I do not believe anyone is intentionally trying to "privatize" Anguilla's beaches, I do believe than an encroaching discomfort with regard to beach access, may have that effect.

The remedy to combat this notion of encroaching privatization resulting from inadequate access is -- quite simply -- to create additional access via routes and paths, clearly defined and easily identified. Such a project should be undertaken island wide, whereby properly located beach access routes should be established to every major beach.

These routes should be located along lines which would minimize any potential negative economic impact, and maximize public enjoyment and use. They should have clearly defined car parking facilities, changing rooms, toilet facilities, trash containers, etc. -- for cars, naked bodies, waste and garbage must be kept off the beaches. In fact, all of these elements (and others) should be incorporated into the route design for by all means these routes should be "designed".

As our beaches are our greatest natural resource, so should their access routes be of a world class standard. Facilities should be designed with respect for Anguilla's traditional methods of concept and construction, our historic wooden buildings and boats should guide the process of creating a uniquely Anguillian/West Indian approach to our sandy coast. None of this need be expensive -- just creative.

With regard to the rationale -- quite quickly, two fold -- one moral, one economic. The moral speaks for itself -- if the public is entitled to enjoy the beaches, the public must be entitled to access those beaches. The economic is also quite clear: for those of us who live here -- belonger and non-belonger alike -- unless we live on the beach, our real estate values are increased by having excellent access to those beaches.

 

THE ALIEN LAND HOLDING LICENCE: TIME FOR A CHANGE?

Over the past number of weeks, a Government sponsored review has been under way to gather public opinion on the matter of the alienation of Anguillian land--an interesting topic which has generated intriguing thoughts and responses. In this brief piece, I would like to highlight one specific proposal put forward: the issuance of an alien licence to hold Anguillian land which is not a "site specific" licence.

The permitting process involved in the development of real estate is a fact of life which benefits both the public and private sector. From Boston to Anguilla (and beyond), the requirement for public sector review of private sector development proposals with regard to social impact, architectural design and material specification is an established and beneficial reality.

In Anguilla there is an additional requirement for the non-belonger: he must receive a licence to own or lease land before he can enter into the planning permission and building permitting process. In concept, such a policy is absolutely correct--the alienation of land must be monitored and regulated. At the moment, however, the licence an alien must obtain is a "site specific" licence--in other words, a registered land owner must contract to sell or lease land to an alien individual or company before that alien can apply to Government for a licence.

Hence, the private sector negotiation is always conducted against a background of substantial uncertainty--will the Government issue the alien a licence; will the alien complete the purchase after the licence has been approved; will the licence be refused, with the resulting consequence that the land was forced dormant while the licence was under review; etc. Inevitably, such uncertainty has a deflating impact on land prices, while simultaneously increasing the probability that private sector negotiations may involve hard work without reward.

A proposal to end such uncertainty, while maintaining control, is to allow an alien to apply for a "non-site specific" licence. By submitting personal records (i.e. financial, social, legal, etc.) for review and approval prior to negotiating the lease or purchase of a specific site, Government is able to maintain control while freeing the private sector to negotiate. The "non-site specific" licence could have as many (or as few) restrictions as Government deemed necessary, but once issued would allow the alien to negotiate with land owners from a position of mutual confidence.

"Non-site specific" licences could be broken into different categories (i.e. residential, tourism, or commercial--purchase or lease); could be issued for a set amount of time to allow for private sector negotiation and public sector registration (i.e. six months, one year); could be size specific (i.e. half acre, two acres, etc.) could be fee based (i.e. fixed fees or percentages based on category, average values and allowed size); and could maintain the conditions regarding development time frames, square footage requirements, construction values, etc., which presently exist or are deemed to be appropriate. However, all such conditions would be established prior to private sector negotiation.

Such a system is beneficial to both the alien and the registered land owner--both parties know in advance what Government has allowed the alien to do with regard to real estate. Once an agreement is reached, transfer and registration can be quickly completed provided the agreement does not violate the licence conditions with regard to category or size. Planning permission and building permit approval would be required for the alien in the same manner as it is required for the Anguillian, and any specific licence requirements with regard to square footage and construction value can be monitored at that stage.

With "non-site specific" licences, penalties (even forfeiture) can still be enforced if agreed licence conditions are not met--however, the beauty is that public sector review and approval is granted prior to private sector negotiations. Such a policy would introduce confidence without diminishing control, and bears further discussion.

GROWING ANGUILLA

In these modern days of increasing world wide discussion focusing on the relationship between environment and land use--from wetlands issues to the Not In My Backyard (NIMBY) syndrome--emotions can run high whenever specific projects are discussed for approval.

These emotional concerns are addressed in a number of ways. For example, in most American communities development proposals are routinely reviewed by citizens groups whose approval is an essential component of Government permitting. In fact, citizens groups are generally those most feared by developers--such groups are usually the most demanding, for those immediately affected raise the hardest issues. Citizen review might result in the developer decreasing his requested density, or might convince the developer to increase various community amenities within his proposed project, or might result in any number of changes which the community accepts as improvements to the original proposal.

In essence, local citizen review and approval of development projects which are proposed for construction within their community assures Government (both elected and administrative) that the community is satisfied with the trade-offs between approving a project, and rejecting it. Such assurance helps Government both with approvals and refusals, for the public will of the surrounding community has been expressed.

In a community as small as Anguilla's, such review of every project could bring all development to a standstill--a condition very few of us who live and work here would wish for. However such a review of larger projects-- projects which exceed certain, established, criteria -could well be reviewed by the community as a whole, perhaps through referendum. The referendum process of putting specific proposals to the community for direct vote, has been used extensively in many American communities, and has provided both public sector guidance and legislation.

With all the concern raised about the Beacon expansion--all the heart felt legal, political, and emotional concerns--and with the excitement of the proposed Brimegen airport relocation (to name just two), it might be well to think about "expanding the pie" so that everyone wins. Such an expansion may help us all, if we grow Anguilla by putting more development emphasis on our surrounding islands--Dog, Prickly Pear, Scrub, Sombrero.

As uninhabited, but valuable real estate, these Islands could be used to absorb development pressure from those larger scale projects which raise more questions and concerns than can be answered within the community. In addition, such larger projects can often be used as the cutting edge which encourage entrepreneurs to follow and grow--and such growth will bring the Islands into Anguilla, and away from illicit use.

For example, what would be the impact of putting the new prison on Prickly Pear? The Beacon on Sombrero? The airport on Scrub?

 

Time Shares - Trauma or Treasure?

When you discuss the introduction of time share hotels on Anguilla, the customary first response is: Not here! We don't want those kind of people on Island. But what is wrong with time share development? Where do the fundamental problems lie? The design or concept? -- I think not. The management and marketing? I think so.

When one considers the fact that the customary length of stay for vacationers from North America to the Caribbean is one week, it is obviously sensible to develop and market products which accommodate that one week window. However, in the case of most time shares, that "product" is not (and should never be viewed as) real estate, but as a prepaid annual vacation reservation.

Essentially, time shares allow the vacationer to reserve a series of one week hotel reservations at a discount over traditional rack rates for an equivalent room, by paying for those vacation reservations in advance. Subsequently, in addition to this initial payment which purchases the advance reservation itself, there are annual maintenance fees which must be paid by the purchaser.

So, time shres can be seen to make a lot of sense -- from the standpoint of the developer, the hotel repays its development costs quickly, plus a traditionally handsome profit, with income derived from advance reservation sales. From the standpoint of the manager, the hotel repays its operating budget, plus a traditionally handsome profit, with income derived from maintenance fees, food/beverage/retail sales, and various ancillary services. From the standpoint of the purchasers, they bought what they need, one week.

However, nothing is as simple as it seems. No one familiar with the bombardment of time share sales efforts should be too surprised that it is not unusual for sales, marketing, and promotion budgets to rival or exceed construction costs for tie share hotels. The free casino chip that you are offered for going on a timeshare "tour", the payments offered to bus and taxi drivers for bringing in a client for the "tour", the commissions paid to the sales force, the number of people on the sales force, all work to poison the atmosphere surrounding the concept -- especially when one takes into account the number of sales that must be made, i.e. fifty per room.

I do not believe that anyone wants Shoal Bay, or any other beach or any other location on Anguilla, poisoned by a breakdown in the respect for privacy which so often accompanies time share development -- the sales pressures can be relentless and devastating. Considering that time share development is now an accepted component of many international hotel chains, from Disney to Hyatt to Hilton, if time share is deemed necessary, let Anguilla negotiate with those quality providers in preference to little known, independent, entrepreneurial developers, so that the assurances we need to confidently introduce time share without trauma can be realized.

However, no development should be approved -- and certainly no time share development -- until a need for additional local employment is confirmed. Developers may come and go, but we stay.

 

Radio Waves and Real Estate

In addition to the age old adage of "location, location, location", one must add the modern parable of "perception, perception, perception", for increasingly the value of the former is dependent upon the interpretation of the latter.

Anguilla is of course known for its white sand beaches, and although there is the constant murmur regarding litter (which must be continually addressed) Anguilla is an exceptionally clean place. Anguilla's cleanliness with regard to toxic waste, industrial emissions, air pollution, etc., is the most valuable intangible we possess -- in fact, it is the ultimate perception of healthy cleanliness that gives value to our location, location, location.

Perception is a particularly difficult condition to address, for often fact has nothing to do with its evolution -- often myth, predisposition, even rumour, create the "facts" that create the perception. However, one must never dismiss perception based on myth -- to the believer, fact seldom impacts itself, and for us all perception dictates value.

In Anguilla today there is a project being contemplated, being analyzed, which may, if approved, have disastrous effects on the international perception of Anguilla as a desirable location in which to vacation, invest, or (indeed) to live -- a project which may, if approved and constructed, have disastrous effects on real estate values.

This contemplated project is the Caribbean Beacon's transmission expansion, as it attempts to increase its broadcasting reach to a worldwide audience. There has already been considerable concern on the impact of the new radio waves (or whatever the signal is properly called) on the health of the area's residents in particular, and of the Island in general. As a matter of fact, questions have already been raised regarding the implications and reasoning behind the Beacon's recent donation of an Ambulance to the Government, i.e. what does the Beacon know that we don't know. However my article's focus isn't health, but real estate and real estate values -- and the impact is just as problematic.

I have no doubt that somewhere someone will produce an "expert" to say: "lAll is well, there is no potential for harm, I wish this tower were being located in my neighborhood". However, the fact of the matter is that regardless of the validity of such claims, no one will believe them -- not those of us who live here, and not those of us who come from the developed world that is now exporting such technology south, to us. The perception will remain that an invisible enemy is now within our midst -- the same sort of invisible enemy that has plagued the developed world, and from which the affluent in the developed world attempt to escape.

I do not wish to ignore the potential revenue to the Government form the Beacon's proposed expansion (which I hope is significant), nor do I wish to chant the mantra "Not in my back yard". However, I do wish to point out that any potential public revenue generated from an expanded transmission capability could be more than offset by a dramatic decline in both private and public real estate values Island wide, and I do wish to say "Not in my living room".

If the Beacon wants to reach the world, let them do so from Sombrero or some other uninhabited locale, not from the middle of a residential neighborhood, not from the middle of Anguilla. Let the lizards and the limestone reflect the radio waves -- do not invite the local and international perception that the people will. If such an uninhabited locale is not as "convenient", the next question is "convenient for who?" Homes and land in the Sandy Hill area will lose value immediately -- and like the cancer people will perceive as the potential result of the increased transmissions, a decrease in property values could soon spread Island wide.

Expert testimonials claiming "all is well" will not impress anyone. Simply ask yourself whether or not you would buy a home in Sandy Hill or surrounding areas after the increased broadcasting begins -- and insofar as those of us who live here would avoid the area, our international vacationers and investors will begin to avoid the entire Island -- we are, after all only 36 square miles, and out international clientele will not wish to be even that close, given a choice.

Let us not ignore the impact of perception upon value and our quality of life. Let us build a long term economic viability. If my daughter cannot grow up environmentally protected (in so far as possible) on Anguilla, where can she go? Where can we go? Expand? Lovely -- but somewhere else!

 

HURRICANE LUIS: A "NON-EVENT"?

No, not really a "non-event"--it was obviously quite a storm which disrupted all of our lives in one way or another. Some unfortunate souls lost homes and possessions, others lost businesses or income, while still others lost their sense of contentment and safety. But when one considers the long term impact on real estate, Luis may in fact be a "non-event"--and may eventually be viewed in a positive light.

Real estate on Anguilla has always been glacial: it moves steadily but slowly--perhaps, at times, imperceptibly. However, it does constantly move. High prices, aggressive transfer taxes, painful interest rates, difficult logistics, and numerous other ills, all conspire to slow the market, but have never succeeded in stopping or reversing it. So the question becomes: Will the addition of 200 mile per hour winds to the list of ills identified tip the scales against us? I don't think so.

The underlying value of real estate on Anguilla is not driven by indigenous population growth and demand, but by external perception and investment. The high net worth individual who is contemplating a Caribbean commitment and considering Anguilla, is fundamentally focused on concerns such as the quality of our daily life, our social tranquillity, our aversion to intrusive wealth taxes, our commitment to maintaining a healthy environment--in a word, our decency in an increasingly indecent world. From such a perspective, and to such individuals, Luis will simply be viewed as an explosion of mother nature which, ironically, may actually reinforce the positive perception that Anguilla so rightfully enjoys.

No deaths. No injuries. No curfews. No guns. No vengeance. No rationing. No breakdown in social order or civilized behaviour.

Such facts simply overwhelm the temporary disruption of electricity, telecommunication, and cable t.v.--such facts simply reinforce the long term value of living on Anguilla. Beaches that eroded will return, restaurants that washed away will reopen, hotels that suffered damage will rebuild, for such events are part of an inevitable cycle understood by both environmentalists and entrepreneurs. However when basic decency crumbles, when trust is lost to violence and social recrimination, society never rebounds properly. Thankfully on Anguilla such decency did not crumble, such trust was not lost.

This is not to say that all behaviour, everywhere, was exemplary--but it is to say that while a few individuals did take advantage of the situation and inexcusably steal, Anguilla society itself stood firm-it did not decay, did not plunder, did not loot. The record thus far indicates the world of investors is very aware of the difference.

Property transactions are still being negotiated, most at pre-hurricane prices. Alien land holding licence applications are still being submitted, analyzed, and where appropriate, approved.

Glacial, perhaps, but not frozen--real estate values will hold and soon begin to climb once again, in spite of, perhaps because of, Luis.

THE ALIEN LAND HOLDING LICENSE

An often heard Government complaint in the real estate world on Anguilla concerns the fact that Alien Land Holding Licenses are applied for and issued, but then either not registered or not honoured--not registered insofar as transfer tax / stamp duty is not paid, not honoured insofar as the time table for construction is not followed.

The problem is a real concern for all of us for two primary reasons:

1. It is important that Government be able to pace License issuance with job creation requirements in an effort to ensure that construction activity is sufficient to keep Anguillian contractors in work, without overheating the market thereby creating the necessity of importing labor.

2. It is important that Government remain comfortable with issuing new licenses, for any discomfort in issuing new Licenses punishes new applicants as a result of the inappropriate behaviour of previous applicants.

I believe both problems can be overcome by the creative reallocation of existing fees, taxes, and stamp duties.

Currently, the Alien Land Holding License Application fee is EC$665, an amount which is so low as to encourage the simply curious to apply, an amount which is easy to forfeit if an applicant changes his mind, an amount which does not cover Government's costs in reviewing the Application.

A more reasonable approach would be to drastically increase the application fee, whereby a portion of that fee would be refunded if the License was refused, or applied to transfer tax / stamp duty when an approved License is registered, or forfeited if the License is approved but not registered within a given time period, at the termination of which time period the License is null and void.

As an example: a US$5000 application fee, whereby US$2500 would be returned if the License was refused, or US$2500 would be credited to transfer tax / stamp duty if the License was approved and registered within 90 days, or US$5000 would be forfeited if the License was approved but not registered within the 90 day life of the registration period.

Furthermore, the penalties which are currently in place to encourage adherence to the terms of the License are so low as to invite applicants to ignore their construction schedules.

Currently penalty fees begin 18 months after License approval, and are EC$500 per month for the first 12 months after the 18 month grace period, with penalties of EC$1000 per month for the next 6 months, with forfeiture to the Government possible after the 18 months of penalties (a forfeiture process which has yet to be implemented).

However, for the penalties to have real bite they should begin after a longer initial time period, but then be increased and made more specific--they should allow time for the applicant to progress steadily, but provide remedy for Government that is swift and secure if such progress is not made.

As an example: the time schedule for construction should be increased to 24 months from the date of License registration, but the penalty should be increased to a monthly amount of 10% of the performance deposit currently required, with auction of the property to commence after the performance deposit is depleted (i.e. in 10 months after the 24 months allowed).

In order to achieve these goals, Government should register both a charge and a caution on alienated property at the time the applicant registers the land into his name. Such a policy would enable Government to more easily exert control over the property as per the Registered Land Ordinance, for as the holder of a charge the Government can auction the property or appoint a receiver if the owner of the property does not perform (i.e. does not submit an authorized certificate of occupancy or substantial completion), and as the holder of a caution the Government can control all activity of the property with regard to sales, leases, or additional charges.

This combined impact of creatively increased application fees and penalties would not deter the serious participant, would discourage the speculator, and would smooth out the real estate cycle for us all.

PROPERTY VALUATIONS AND TAXATION

Anguilla has an unusual system of taxation that makes the pricing of property crucial- i.e. the 5% transfer tax applicable to all land transfers and the additional 12.5% stamp duty which is applied to all Alien land transfers.

Although annual property taxes are levied not on land but on built structures only (at the nominal rate of .075% of the assessed building value for both Belongers and Aliens), the transfer tax and stamp duty cited above are calculated upon land alone if the purchased parcel is undeveloped, but are based upon both land and building values if the parcel is built upon.

As such, the pricing of developed property is especially sensitive to the impact of transfer taxes and stamp duties, which total 17 ½ % and are payable in total prior to title registration. The Alien purchaser of property in Anguilla (whether purchasing from a Belonger or an Alien) is faced with a substantial tax burden which is due immediately after the substantial costs of the purchase itself.

Of course, one way to minimize the impact of the current tax burden on Purchasers would be for Government to accept staged payments, another would be for Government to reduce the taxes due prior to title registration and increase the annual taxes due thereafter (realizing that revenue loss is not a plausible scenario).

However, given that neither of the above changes are imminent--although both have merit and could, if introduced, improve cash flows to Government without any ill effect--it is essential that Sellers come to grips with what these taxes means to Purchasers.

Essentially, taxes that are due prior to title registration are an integral part of the purchase price-they are an integral part of the closing. Therefore, once a value is established, the keen Purchaser will be prepared to pay the Seller 82.5% of that value because he must pay 17.5% of that value to Government, and all he is prepared to pay is what the property is worth, i.e. 100% of its value.

Traditionally, on Anguilla the Purchaser pays the transfer taxes. However if the combined amount of the purchase price plus tax exceeds the value, he will not pay the taxes for he will not purchase the property.

Again, this is especially true for developed property, and a refusal to discount price below value to account for the applicable taxes is why so many developed properties remain on the market for so long, or until the price is dropped--often in desperation as Sellers wait so long for an offer that an aggressive Purchaser senses their frustration, makes a low ball offer, and is rewarded.

Sellers should separate emotional myths from market realities--unless of course they are prepared to wait and wait, while fighting frustration and desperation discounting. In order to understand how Purchasers will value property, Sellers should start with some basic rules of thumb (i.e. US$100 / sq ft for kitchens and bathrooms, US$80 / sq ft for bedrooms and living areas, US$60 / sq ft for patios and verandas, US$1 / gallon for pools, septic tanks, and cisterns), add in comparable land values (i.e. US$80,000 per half acre coastal land, US$60,000 per half acre inland with views), add premiums for landscaping and related amenities, then discount the total value by 17.5% to establish a sales price-which will hopefully, but not necessarily, yield a gain on the asset.

Everyone believes that their property has some special elegance or feature (and often it does) but do not lose sight of what someone would be willing to pay for that feature-and do not assume that the headache of construction will entice the Purchaser to pay an extravagant premium for the joy of immediate occupancy. Everyone is intrigued by the idea of building their own dream.

 

CONTINGENT LIABILITY AND REAL ESTATE VALUES

A phrase which is being heard with increasing frequency on Anguilla (as well as on other British Dependent Territories, and indeed world wide) is contingent liability. Contingent liability, in its most basic sense, addresses the legal responsibility of one entity to any other entity which is under its legal control.

Recently, for example, in the United States parents were held legally responsible for the actions of their teenage son, who while living at home who had committed numerous criminal offences. The charge against the parents was based on the contention that their negligence in controlling their son led to the crimes the son committed and, therefore, the parents were responsible for the son’s acts—i.e. the parents were found by a court to have contingent liability.

Within the Anguillian context, contingent liability has been identified as the necessary rationale driving numerous British positions and concerns—from the Rifkin letter regarding reserve powers on the one hand, to the British control of international financial services on the other. As such, contingent liability is a concept which is of singular importance. Essentially, the resolution of the question as to the extent and degree of Britain’s contingent liability vis-a-vis Anguilla is central to the creation of a viable long term legal relationship between the two countries.

With regard to the Rifkin letter, a keynote speaker at a recent dinner raised the example of a maritime commission making recommendations for improving ferry safety which (for whatever reason) the local legislature decided not to adopt. If an accident occurred which might have been avoided if the recommendations had been adopted, what would Britain’s responsibility be with regard to that accident if Britain allowed the local legislature to ignore the commissions findings? Fair question.

With regard to international financial services, the forum at which the above example was posed, a similar question exists—i.e. what would be Britain’s legal liability if the local minister of finance or registrar of companies approved a project (or projects) which proved to be fraudulent? Given the parent to child analogy of Britain to the Dependent Territories, and given the United States recent court findings of parental liability, fair question.

However within the arena of real estate, the issue of contingent liability has not been frequently raised—but one wonders why, and wonders what the consequences might be if the concept was applied to land as well as to sea and finance.

For example, the airport. The Government of Anguilla has been trying for quite some time to relocate the airport from its existing location, with Brimegen being the generally preferred site of relocation since the early 1980’s. The existing airport has been a focus of concern with regard to the risk faced by all those who live, work, or travel in the George Hill / South Hill / Old Ta areas due to the fact that the current runway approach takes aircraft over all those high density regions. A catastrophic aircraft accident is an unwelcome event waiting to happen.

As such, what would Britain’s contingent liability be if such an aircraft accident occurred—not only with regard to the loss of life on the plane, but on the ground as well? Would the liability be any less than that posed by the aforementioned ferry example? Ignoring fatal accidents for less gruesome economics, what would Britain’s contingent liability be if she does not take the lead in relocating the airport and as a result of that inaction American Eagle is no longer able to service the Island due to its concern over its own liability?

Who would be responsible for the economic loss and real estate devaluation that would inevitably result from either an airline accident or an airline’s decision to terminate island service? Based on the notion of contingent liability and parental responsibility, it would appear to be Britain.

Therefore, given this notion of contingent liability, who then should pay for the costs of airport relocation—Anguilla as the dependent or Britain as the guarantor? Should, therefore, contingent liability replace all other concerns? Is it all a matter of who might be sued, who might be liable?

While there are no immediate answers, there are numerous immediate questions—and a realization that the notion of contingent liability is both an opportunity and an obligation for us all.

 

GROSS VS. NET VS. ACCESS

Anguilla has dedicated itself to pursuing the up-market track, be it in tourism, financial services or real estate development.  The concept is hard to fault-Anguilla has been enjoying prosperity within the radiance of a civilized quality of life for quite a while now.  However, in order to ensure the high net worth individual remains attracted to Anguilla, we must occasionally test our underlying assumptions in order to make sure they are in synch our up-market objectives.

Two key components of establishing high quality have inevitably tended to be lower density and higher price-in tourism: fewer rooms with higher room rates; in financial services: fewer clients with higher professional fees; in real estate development: larger sites with expensive properties. Anguilla currently possesses many of  the qualities necessary to attract an up-market clientele in all these sectors, but I believe we can further our objectives if we revisit a few real estate thoughts with regard to Government's preferred size for alienated residential property purchases by non-belongers and to the development required of them..

Traditionally, a half acre has been Government's preferred size for alienated land purchases by non-belongers for home construction, although (in my experience) exceptions are reasonably made when conditions warrant based on unusual topography, existing lot sizes, degree of development, etc. However, in addition to those factors, a new consideration should now be taken into account when analyzing variances for lot size, for with the passage of Hurricane Luis there has been a general increase in set back requirements from the coast--the property type most in demand by non-belongers.  As result of increased coastal setbacks, the gross area of any coastal parcel will be significantly less than the net buildable area remaining after those set back areas are deducted..

Therefore, with regard to alienated coastal property sales to non-belongers in particular, if one half acre of net buildable area were to be available for residential land purchases instead of one half acre of gross site area, we would reinforce our up-market positioning as the average price per coastal transaction would increase as non-belongers could purchase larger parcels of land.  Would they? Based on my experience, yes-most investors are less price sensitive than site sensitive, and would spend more money for more property. 

But with every benefit comes an obligation-in particular, with larger alienated coastal parcels, non-belongers should be required to increase building size or grandeur and (more importantly) should be required to guarantee coastal access to belongers.  If the increase in required building size is less than the increase in the preferred site size, the result will be additional open land--and on that open land foot paths to the coast and rest areas along the coast should be established..

For example, "shared" fences on alienated land (whereby two adjoining land owners share one fence between their properties) should be prohibited-fences on alienated property should be set back from the property line leading to the sea far enough to ensure that there is a viable path to the coast. In the same vein, "cul-de-sac" preserves on alienated land (where there is an additional arc of open space at the end of these paths) should be required-fences on alienated property should provide an extra area of usable space at the coast to ensure enjoyment of the sea..

Do these requirements unfairly burden the non-belonger?  I think not-in fact, they show a courtesy for the non-belonger's desire for increased parcel sizes to ensure that their property does fall prey to suburban subdivision claustrophobia, while showing a courtesy to those of us who live here and worship our access to the coast..

 

The High Value of Low Impact-Villa Tourism & Real Estate

As the real estate market has improved on Anguilla over the last number of months, and as there has been an increasing number of up market property and home purchases and sales, the growth of villa tourism is becoming an interesting issue. Most real estate transactions on Anguilla that require an Alien Land Holding License are for the development or purchase of vacation homes. Due to the fact that those interested in retirement homes are primarily interested in areas that offer community settings with state of the art medical facilities (i.e. Florida and Arizona), the investors interested in Anguilla tend to be pre-retirement high net worth individuals anxious to improve their quality of life. As such, the homes most foreigners own on Island will be vacant most of the time, unless they are rented-hence, villa tourism..

Villa tourism represents the opposite end of the spectrum from cruise ship tourism, with hotel tourism occupying a central position between these two extremes. Cruise ships disgorge large numbers quickly, in one spot, then take them away; hotels congregate tourists in one spot for extended stays; villas disperse people throughout the island, so even if large numbers are involved the impact is minimized. Cruise ship tourists can be expected to know the least about a destination because their mode of transport is their ultimate focus; hotel tourists can be expected to learn a bit more during their stay; but it's villa tourists that can be expected to learn the most. Villa tourists are more often independent and on their own..

Following from the above, villa owners can be expected to know even more about their island home than any of these types of tourists. Villa owners become more closely associated with their second home by virtue of the fact that they have made a substantial financial commitment and are usually resident more frequently and for longer periods. Therefore, as we work to expand our economy and improve our standard of living while maintaining our values and traditions, what better type of tourist than the villa tourist, what better type of investor than the villa developer?

Not only are villa tourists and villa owners more likely to respect existing values on Island, the fact that their villas are located throughout the island improves the value of all land-not just the beach land demanded by hotels. Due to the fact that Anguilla is flat that it is difficult to protect view lines from anywhere but the coast, the highest land values will accrue to coastal property giving an economic advantage to those with coastal land to sell. However private homes and villas ultimately represent the best investment vehicle for the greatest number of landowners to realize their real estate values.

An interesting side note to consider is the impact decentralized villa development will have on the general affordability of property on Island. While foreign land sales will put upward price pressure on all land, it is particularly coastal land that will be impacted. Foreign investment will not significantly inflate inland prices because foreigner investors normally require unobstructed and protected sea views. Such unobstructed and protected sea views can only be realized on Anguilla from coastal property--we lack the mountainous interior that can provide these required views from inland locations. Therefore, inland property should remain relatively available and affordable. Given that inland property has traditionally been the property of choice for Anguillian development (less sea blast, less hurricane threat, etc.), foreign coastal land and villa development should have minimal negative societal implications, provided coastal access is ensured for all..

In order to maximize the benefit to Anguilla, to maximize the value of coastal property, to maximize the investment that foreigners will be prepared to make to purchase or develop their villa, it is essential that there be the opportunity for a viable return on investment. To accomplish this viable return, villa tourism must be encouraged--but not mandated. Freedom of choice must be the operative principal, for flexibility is a fundamental incentive required to encourage private, high net worth investment.

Anguilla can take over from where Montserrat left off-- with world class beaches as well..

 

PROPERTY TAX AND PERMANENT RESIDENCE

As Anguilla's villa rental industry has grown and flourished, and as high-end villa rentals have begun to compete directly with hotels in terms of amenities and price, it is an opportune time to consider the impact of this decentralized villa rental activity on Anguilla's economy in general and on real estate in particular.

Over the past number of years, there has been a substantial increase in the construction of grand homes and elegant villas on island-primarily built on coastal property, normally rocky foreshore. The current growth of high-end residential development has been fuelled by the same factors that initially fuelled the growth of high-end hotel development-a civilized quality of life, an acceptable proximity to North America and Europe, and (of course) pristine beaches. In fact, many of the individuals who have built elegant villas on island were initially introduced to Anguilla by our high-end hotels-a logical evolution, especially given the increased value of most individual stock portfolios over the last few years.

The vibrancy of the villa rental industry bodes well for Anguilla's economy in numerous ways. Villa rentals foster the purchase and sale of real estate--in undeveloped land for new construction, and in existing homes for renovations. Villa rentals help to diversify the tourism product with in the high-end market by providing additional avenues for those famous faces that require maximum privacy and for those extended families that require personal communal space. Villa rentals also provide increased employment opportunities in the service and construction sectors, and their decentralized character helps to generate entrepreneurial activity and foster support for local retail efforts.

However, even with the above benefits in mind, the question remains as to whether or not villa owners are doing their fair share--with particular reference made to the proper payment of accommodation tax. This question must be addressed boldly, not only because the perception of fairness is important to the Government's continued support of the villa rental industry, but because we should all strive to improve Anguilla's current system of consumption and use taxation rather than invite taxes on wealth and savings.

Whereas accommodation tax is a viable concept with regard to centralized hotels whose sole reason for existence is to attract paying guests, the concept is very difficult to monitor on the villa front-and this very difficulty leads to questions of propriety and to temptations of silence. It is extremely problematic, if not impossible, to fairly and unobtrusively differentiate between personal use and commercial use of a private home-and this virtual impossibility leads to the suggestion herein put forward that villas be exempt from paying accommodation tax and the concomitant yearly rental license fee.

However, if villa owners are exempted from the above referenced fiscal obligations they must still pay their fair share of our taxes. It is in this regard that I would suggest that all property owners who obtain their property via an Alien Land Holding License should pay a premium percentage on their annual property taxes-whether they rent their homes or not.

At this time, annual property taxes are a mere 0.075% of the assessed building value-a truly miniscule tariff. If Alien Land Owners had to pay, say, an additional 3% of their assessed building value plus a fixed fee of, say, an additional US$1000 per year (instead of having to pay accommodation tax and rental license fees) everyone would benefit. Villa owners would be spared cumbersome guest reporting requirements, villa visitors would be spared obtrusive questions, and Government would be assured of a steady cash flow within an existing monitoring framework.

Although villa owners who do not need an Alien Land Holding License to own their property (i.e. Belongers) would benefit from the proposed tax exemptions without having to shoulder the proposed increased property tax, that would simply help to level the playing field between Anguillian and expatriate villa owners, and would minimize the possibility of friction between the two groups from competition that is occasionally perceived as unfair.

However, in order to equitably offset this increased tax burden for expatriate villa owners, and in order to ensure their continued investment in this sector of our economy, I would propose that Alien Land Holding Licenses should not only mandate the above referenced increases, but they should also provide Permits of Permanent Residence for all foreigners approved to own land. With the foregoing in mind, would any expatriate villa owner object?

 

THE SKY IS NOT FALLING

Over the last few months, as elections approached and as winners were announced, there was concern voiced with regard to the outcome and implications of the election results-within the context of this article I'll address myself to those concerns as they relate to expatriate property ownership.

While it is certainly fair to say that some of the speeches and campaign literature of this past election could make many uncomfortable, it is important to balance the rhetoric of the campaign with the reality of the past five years. While I do not wish to apologize for hard remarks made by anyone, on the campaign stump or elsewhere (as hard remarks beget hurt feelings which in turn beget more hard remarks), it is important to point out that on Anguilla (as in most other democracies) the politics of winning elections is often quite different from the reality of governing. To buttress the point, let's focus on land-in particular, private residential and tourism development.

Over the past five years, an average of approximately twenty-five Alien Land Holding Licenses have been activated each year. While the number of Licenses approved and prepared by the Government has been considerably higher, an annual average of approximately twenty five foreign investors have actually paid their stamp duties and registered their title to land. For a small economy with a limited number of contractors, this activated average is not insignificant. What is surprising, however, is how few people seem aware of the number--a number that does not surprise me, as I've been involved in a considerable percentage of those approved Licenses.

These License approvals have covered purchases of small tracks of land by West Indian nationals who are not Anguillian Belongers, as well as purchases of alienated homes for renovation and remodeling, and purchases of undeveloped land for construction of elegant vacation villas and significant tourism projects, as bought by North Americans and Europeans alike.

From Sonesta's purchase of Casablanca to Cuisinart's purchase at Rendezvous Bay, from the purchase of Coccoloba to the sale of Sea Grape, from the introduction of elegant rental villas such as Cerulean to the sale at Cul de Sac, real estate has been transferring and (in general) profits have been realized. In sum, deals are being done and the investment climate remains strong, as I (for one) continue to see active interest in real estate purchases for which I anticipate continued License approvals.

As an aside to the above, but in parallel with it, is the number of Belonger Applications that have been granted over these past five years. While some may feel too many were issued and others too few (in fact, I personally know of a couple of Applications that appear worthy but are still in limbo), the fact remains that Belonger Status (like Alien Land Holding Licenses) have been bestowed on numerous individuals these past five years-contrary to many erroneous perceptions.

On a slightly different vein-a correction: in my last article I put forward the proposal that Accommodation Tax be scrapped for private residences that are rented, and replaced with a higher annual Property Tax for all foreign owned homes. While I still feel there is merit in the concept, the tax rate I threw out was far too high-the shift from the existing Accommodation Tax to a higher Property Tax should not be punitive, but corrective. Whereas I initially referred to a tax rate of 3%, I subsequently realized that on a $500,000 home the annual Property Tax would be US$15,000-far too high. As such, instead of the .075% Property Tax that is currently in place, perhaps an additional point in lieu of Accommodation Tax would be feasible-bringing the annual tax on that $500,000 house to US$5,375 instead of the current US$375. All this could be avoided if property owners required to pay Accommodation Tax actually paid it, but as they often do not, Property Taxes (rather than intrusive questions, exempted guest lists, etc.) might be a viable alternative-especially if coupled with Permits of Permanent Residence, as proposed.

 

THE STEPS OF THE LICENSE

In looking over the articles I've written these past nine years, I realized that I've never detailed the steps involved in obtaining an Alien Land Holding License and registering title to property once the License is obtained-herein that omission is corrected.

An Alien Land Holding License is a site specific and a purchaser specific document that cannot be assigned or transferred. A License allows an approved purchaser to buy a clearly identified parcel of property for generally defined purposes-the primarily areas of use being either residential or tourism development.

A License Application can be submitted to Government with or without a private sector agreement concerning the Land for which the License is sought--in fact, the Vendor of the property identified on the Application is not required to sign, or otherwise attest to, the Application itself. Nonetheless, it is customary to have a signed Purchase Agreement in hand prior to License Application-an Agreement that stipulates price, parcel, refund conditions, etc. If the License Application is for undeveloped land, Planning Permission is required prior to License Application-Planning Permission is obtained by application to the Planning Board, which meets every three weeks.

The License Application must be completed in duplicate and submitted to the Department of Lands-a nominal fee of US$250 is charged when the paperwork is presented. At the Department of Lands the particulars of the property are reviewed and the value of the property as declared on the Application is confirmed. Once those hurdles are climbed, the Application is noted and then forwarded to the Registry Office at the Secretariat.

From the Registry Office the Application is forwarded to the Chief Minister's Office for review prior to the required Interview-every applicant applying for an Alien Land Holding License must be interviewed. Most interviews are very straight forward-the easiest scenarios involving the transfer of property that has already been alienated. The interviews that require a bit more discussion are those whereby land is being alienated for the first time-a major event, as alienated property seldom returns to local ownership.

Sometime after the interview is completed the Permanent Secretary in the Chief Minister's Office prepares a packet for the Chief Minister to bring to Executive Council for discussion and decision. Regardless of the decision that is made, the Minutes of the relevant ExCo meeting must be approved prior to the Applicant or his Agent receiving notification from Government-this normally occurs the week following the decision.

Sometime after the Minutes are approved, the Permanent Secretary will write a letter to the Applicant advising whether the Application was refused or approved-if refused, a reason may or may not be specified; if approved, the relevant taxes payable are noted. In addition, if the Application is approved, the letter written by the Permanent Secretary will advise that a second letter will be written when the License itself is ready to collect.

At that point, details of the approval are put into the standard License format by the Chief Minister's Office and the document is sent to the Governor's Office for his signature-every Alien Land Holding License must be signed by the Governor to be valid. After the Governor's signature is affixed, the License is sent back to the Chief Ministers' office, whereupon the Permanent Secretary then writes that second letter-this one advising the Applicant that the License is ready to collect.

At that point, the Applicant can go to the Chief Minister's Office to collect the completed License, which must them be presented (along with the relevant RL1 Land Transfer forms) to the Department of Lands-there the documents are stamped to confirm the taxable value of the property. Once the stamps are affixed, the papers must be carried to the Treasury where the taxes themselves are paid-5% Stamp Duty to register the land transfer, plus 12.5% Stamp Duty to register the License. Once the applicable taxes are paid and the receipts are issued, the paperwork is then brought back to the Department of Lands-at that point they will take the RL1 forms and the License and collect a fees of US$20 to actually transfer title into your name.

It's not an easy process-rather time consuming and a bit convoluted-but it does work. Although there is no doubt that the process can be frustrating and should be expedited as well as streamlined, the Alien Land Holding License hurdles help to maintain Anguilla's value and image by ensuring that the real estate market won't get too hot. It can't get too hot-the process takes too long for the boil.

 

POLITICS AND PROPERTY PRICES

With the elections on Anguilla so recently completed, it's nigh on impossible not to look at the impact of politics on property prices within the Anguillian context-and I just can't fight the impossible.

From my perspective, over the past six years real estate values on Anguilla increased steadily across the island--with a stronger upward tilt for coastal land and completed homes. During this time, the number Alien Land Holding Licenses that were activated remained fairly constant at approximately twenty per year-with the actual number of approved Licenses being (inevitably) somewhat higher. Interestingly enough, undeveloped property was the purchase of choice during the first half of the six year period, with the preference shifting to finished homes during the second half.

Real estate demand remained fairly constant since the mid 90's based on the number of completed Licensed transactions--however concerns over our political turmoil began to be heard more frequently from prospective purchasers during the last few months. With the election process now completed, I'd expect a continuation of, and an increase in, previous levels of real estate activity on Anguilla-whereby License applications will probably result in an average of twenty to thirty completed foreign transactions per year. Given Anguilla's stated preference for high value, low density, up-market development, the majority of these sales will in all likelihood be individual homes and home sites-not condominium or time share purchases. Such a pace of activity (i.e. 20 to 30 activated Alien Land Holding Licenses per year) should be able to both sustain, and be sustained by, Anguilla's construction crews and trades men-without putting undue pressure on the island's infrastructure.

It's been interesting to note over the last number of years how many property owners on Anguilla seemed to feel that Licenses were not being issued at all, or very sparingly-in fact, as far as I'm aware, Land Licenses were approved for the vast majority of applicants. Obviously not all applicants were successful in their effort for approval, but based on my experience refusal was rare-one reason for this being the difficulty in turning down deals that result in substantial revenue for Anguilla (tax receipts, duty income, construction wages, accommodation tax, etc). In truth, private expatriate residential real estate purchases and development are a major, and in many ways unsung, component of the island's economy-related to, but not certainly the same as, tourism in general.

One way to greatly improve the economic productivity of expatriate residential real estate development would be to decrease the amount of time required for License approval--with consideration being given to waiving the interview requirement for any expatriate wishing to purchase an existing home. Over the past six years, the average length of time that elapsed between interview and license completion was four to five months-if this were simply cut down to a month or two, the vast majority of a purchaser's anxiety would be overcome. Of course, if the required interview was waived for the purchase of an existing home, approval should take a month or two from submitting a properly completed License Application-no need to be quicker (or more deliberate) than that for the average residential transaction.

On a final note, it is important to remember that the highest and best use of rocky foreshore on Anguilla is expatriate residential development-especially in light of the traditional Anguillian preference to locate their homes on interior locations. Homes built off the coast are more protected from depreciation caused by sea blast, salt spray and hurricane winds, hence the logical local focus on interior sites-however, expatriates are more than ready to finance the additional costs associated with coastal development. In addition, given the fact that coastal land on Anguilla is seldom viable for agriculture, expatriate home development is the best opportunity for putting the land to good use. However, as I've written previously, this foreign coastal development must be sensitive to, and allow for, Anguillians traditional relationship with the sea by providing access to the coast-and along it.

 

LAND OWNERSHIP AND TITLE REGISTRATION

A disclaimer, right up front: It has been very tough trying to get consistent information on portions of this topic--especially those portions that reference inheritance and tax issues. As such, the information that follows is to the best of my knowledge accurate. If anyone has contradictory (or, preferably, supportive) evidence or information about the points raised, I'd greatly appreciate being so advised-I'll include any new insights in a subsequent article. OK…here goes.

There are two primary ways for the proprietorship of land to be registered in Anguilla-either personally (normally under individual or joint proprietorship) or through a corporation (most often using a Specified Private Company or a Limited Liability Company). Insofar as title can be registered in these different formats, the question must inevitably be asked: Which type of ownership is preferable-and why. However before exploring the intriguing differences, it might be best to first look at a few of the similarities.

The names of all property owners on Anguilla are recorded on parcel specific land registers located at the Department of Lands in The Valley-these are public documents that can be checked by any interested party upon request. Either the personal name or the corporate name will appear in the proprietor section, along with the proprietor's address-in the case of a personal owner, the home address is noted; in the case of a corporate owner, the address of the company's registered office is recorded. However, corporate ownership does not provide personal anonymity, as the names of all directors and shareholders of all companies that own real estate in Anguilla are (or should be) recorded at the Registry of Companies--which is located just about fifty yards from the Department of Lands.

With reference to expatriate property ownership, an Alien Land Holding License is required to register title regardless of the type of ownership employed-if an applicant applies personally, the License is issued in the applicant's personal name; if an applicant applies for corporate ownership, the License is issued in the company name (provided the listed and identified directors and shareholders meet with ExCo approval). However, with these basic similarities in mind, more complex differences quickly appear when looking at the key issues of inheritance and transfer taxes-differences that have special implications for expatriate property owners.

If real estate is personally and jointly owned whereby one of the joint owners dies, title can be transferred to the surviving owner by completing a simple "Deletion on Death" form that must be submitted to the Department of Lands along with the deceased's Death Certificate-in such a scenario, if the property is owned by expatriates there isn't any need to apply to ExCo to change the underlying Alien Land Holding License. However, if a property is personally and individually or jointly owned whereby the proposed inheritor is not a Belonger or does not possess an Alien Land Holding License authorizing him to own the property prior to the proposed inheritance, he must apply for a license in order to have his name registered as a new proprietor-in such a scenario, a License is normally (but not necessarily) granted.

The corresponding inheritance tax issues are also quite interesting. In matters of inheritance the basic transfer tax payable is 1%, but that fee only covers the stamp duty payable under the Stamp Act (which is ordinarily 5%)--it does not include the stamp duty payable under the Alien Land Holding Regulation Ordinance (which is ordinarily 12.5%, however if the inheritor is a "spouse, or father or mother, or son or daughter" the stamp duty payable is a nominal US$80). As such, it is possible that an inheritor who is neither a Belonger nor in a category identified on the exemption list might have to pay up to 13.5% of the value of the inherited property-however, if the inheritor is not a Belonger but is in a category identified on the exemption list the Stamp Duty due would be 1% plus US$80.

If, on the other hand, a corporation owns property, although the company itself never dies (unless, of course it is liquidated or struck from the Company Register for not filing annual returns, for example), the shareholders and directors of the company inevitably do pass away. In the case of an inheritor who is not a Belonger receiving shares in a company that owns land, the inheritor must apply for an Alien Land Holding License to have his name legally registered as a new shareholder-in such a scenario, once again, a License need not be (but normally is) granted. Although the Registrar of Companies might accept and register a share transfer not knowing the company owns land and that a License is therefore required, such an acceptance and registration would not be legally valid if challenged.

The inheritance of shares in a company that owns land does not require the property's registered title to change, as such there is no title transfer on which to impose stamp duty--therefore, the 1% transfer tax levied at the time of inheritance can be saved (however, this is a savings which might well be offset by the cost of incorporating the company and maintaining it over time). Nevertheless, expatriate inheritors still face the possibility of stamp duty being assessed on the License itself, which could be (as stated above) as high as 12.5% of the assessed value or as low as a flat fee of US$80. In the event the stock of a deceased shareholder is inherited by a fellow shareholder of the same company (who, by definition, already has a License), the inheritor would nonetheless have to apply for permission to have his License amended to own the additional shares-with the same potential tax liabilities of having to pay up to 12.5% of the assessed value of his portion of the inherited property if he is not in a category identified on the exemption list, but only having to pay US$80 if he is on the list.

However, perhaps the most intriguing aspect of company ownership of property lies in the fact that the issuance of new shares (as opposed to the transfer of existing shares) is not liable to property transfer taxes. Although this fact does not change the requirement that the recipient of the new shares obtain an Alien Land Holding License if he is not a Belonger, the License would not carry with it any taxable consequence. This is potentially quite useful in the event, for example, a shareholder knows of his impending death-in such a scenario, that shareholder could (with the concurrence of other shareholders, if necessary) issue new shares to dilute the value of the stock that will be transferred upon his passing, thereby reducing the tax liabilities to the inheritor. In fact, this same opportunity exists for the sale of property owned by a company-i.e. a vendor can issue new shares to a purchaser that are not subject to tax in advance of transferring those shares that are, thereby reducing the tax burden to the purchaser by diminishing the value of the transferred shares.

As Anguilla moves forward and as deals become more complex and as existing property owners pass away leaving properties of higher and higher value to their inheritors, it will be interesting to see how ExCo reacts to License applications that revolve around issuing new shares in land owning companies and the subsequent transfer of those shares that were previously in existence. In addition, it will be quite interesting to see how ExCo treats the stamp duty payable on Alien Land Holding Licenses when inheritors are not Belongers-be the inheritors family members of the deceased or not. Such questions are especially interesting when one keeps in mind that ExCo has full discretionary powers of acceptance and is not obligated to approve License Applications--nor is it required to waive or reduce the stamp duty payable on any of the Licenses it does approve.

 

TO THE BEACH…

In the spirit of this Christmas Season (and out of respect for Anguilla Life and fear of the Publisher) I'm writing this article on Boxing Day-as such, I'd like to offer what I hope is a gift: A guide on how to get to a few of Anguilla's harder to reach beaches.

I've always believed (and in the past have written about) the value of clearly marking and identifying the proper public access routes to all of our beaches, and I've suggested that all of these identified routes be punctuated with civilized parking and related facilities-but it hasn't happened yet. As such, I'll now take a few moments to point out how to get to some of our beaches which can be difficult to access without the previously suggested tell tale signs-and herein, I'll focus on the beaches of the west. Please note that the suggested routes to a number of the beaches discussed run over private land, but private land that is currently used for public purposes -where true public access is difficult, I've focused on viable hotel and restaurant beach access roads and adjacent parking areas.

Shoal Bay West: SBW is the home of Cove Castles, Blue Waters, and Altamer Resort--it's spectacular, but not easy for the public to access. The true access route to the beach runs along the western perimeter wall of the large pink home located near the middle of the beach-one can park nestled under the roadside trees. Although not the official access route, one can reach SBW more easily by heading to Trattoria Tramonto (a restaurant located a bit further east) and walk to the beach from their parking area--however, one must remember that here (as elsewhere) parking for the beach is not a public right, but is available as a private courtesy.

Barnes Bay: There are a couple of public access routes to BB, but they are difficult to locate and difficult to use-one runs near Cerulean, the other near a neighboring private home. However, the easiest way to reach BB is by taking the road to Mangos Restaurant / Caribella Resort-which is marked by their signs. During the day, one can normally park in the areas used for restaurant dining, as Mangos is only open for dinner-once again, however, this access route is not a public route by right but a private route available by convenience.

Meads Bay: MB is blessed with immediate and open public access to the beach by Malliouhana Hotel-a fairly wide clearing makes parking possible a few steps from the sea, without the concern of feeling as though you've parked in the wrong spot. In truth, a model-as it is easy to locate even without signs or symbols.

Long Bay: LB has a usable public access route to the beach that has been properly provided and once found it is easy to follow-but as the turn off from the main road isn't marked, it's difficult to locate. To access this route, one must turn off the main road by Luciano Restaurant and follow the winding road to the beach-it's a fairly short drive with some lovely views as you approach the sea. However, an easier way to get to LB is via Oliver's Restaurant--by simply following the signs to Oliver's you'll get to his place and a set of steps he's built to the beach. Although parking is a bit of a problem, and is not (once again) a public right, I've always been made to feel welcome-even if I didn't order lunch.

Rendezvous Bay: The main public access to RB is reached by following the signs to The Anguilla Great House-after turning off the main road, instead of turning west into the hotel itself, you simply carry on until the road ends and the beach begins. This beach has remained popular for Anguillian picnics, as it is a bit easier to access than most beaches and has more land available for parking.

The Cove: Is quite similar to Rendezvous Bay in that the main public access route to TC is reached by following signs to a resort-in this case Sonesta / Paradise Cove. After turning off the main road, instead of turning east toward the hotels themselves, you simply carry on until the road ends and the beach begins. Once again, this beach has remained popular for Anguillian outings, as it is a bit easier to access than most beaches and has more land available for parking.

Maundays Bay: MB has been, at one time or another, everyone's favorite beach-unfortunately the ravages our recent hurricanes have done more damage to MB that any other beach on Anguilla. The true access route to MB is toward the western edge of the beach, along the road currently marked with a sign saying "Firefly Lane"-however, this route brings you to the beach near Cap Juluca's warehouse facilities and therefore isn't very appealing. As such, the best way to reach MB is to go to Cap Juluca itself and either park in the areas marked for beach parking or head toward the parking area for Pimm's Restaurant -which is quite spacious.

Hopefully the forgoing has been helpful-of course, I'd be pleased to hear from anyone that might be willing to share alternative routes (or better routes) to these beaches than those I've identified (as always, please feel free to contact me at the numbers or addresses listed in the ProRealty advert on this page). And, oh yes, Merry Xmas to all…keeping in mind the merriest Xmas present might be to have the Departments of Planning and Lands establish viable, public routes with appropriate parking and related facilities to ensure access to all of Anguilla's beautiful beaches-our golden coast.

 

Real Estate Taxes and User Fees

In a recent conversation with a friend, a number of interesting concerns were raised with reference to user fees and real estate taxes on Anguilla. With regard to user fees, utility rates were the primary area of concern-in particular, electricity and water rates. With regard to taxes, the conversation focused on the annual property tax and to a lesser degree on land transfer and accommodation taxes--in particular, their collection, calculation and use. Ultimately, the discussion focused on the fairness of Anguilla's taxes and user fees with reference to Expatriates and Belongers-essentially focusing on the dichotomy between the graduated rates of user fees vs. the category specific rates of taxes. As it was an interesting chat, I thought it would make for an interesting article.

First of all, I believe it is important to keep in mind that Anguilla's basic user fee and tax principles focus on consumption-not wealth. As such, there are no income taxes or capital gains taxes on island as those types of taxes specifically target the accumulation of wealth-however, we do have property taxes, import duties, accommodation taxes, and transfer taxes as those taxes target spending or consumption. Whereas the details of implementation may not be perfect (even in dreamy Anguilla) the concept is sound-and evenly employed across the entire spectrum for both the Expatriate and the Belonger.

With regard to user fees, both the water rates and electricity rates are graduated so that the more one uses, the more one is charged per unit-i.e. per gallon or kilowatt-hour consumed. The idea behind this is two fold-to encourage general conservation on the one hand, and to ensure that heavy users subsidize light users on the other. At this point in time, the goal of conservation is universally recognized as being inherently worthwhile-especially in a small society with limited production capacities. As such, all users (the wealthy as well as the less fortunate) have an incentive to be economical with scarce resources as the cost for those resources rise with use-whereby the costs rise equally for Expatriate and Belonger alike. This graduated price structure is punitive only if one uses an abundance of scarce resources-insofar as resource consumption beyond that required for basic necessities is a unique personal decision, the graduated costs associated with Anguilla's utility rates can be avoided if one economizes. However, if a property owner wishes to have lush gardens that require substantial amounts of water and extensive lighting for dramatic effect, so be it-but that property owner will be (and should be) required to pay a premium for the extra water and electricity used in maintaining their oases.

In corollary, Anguilla's taxes and duties are not graduated but are category specific-a different slant that achieves the same purpose. For example, with reference to duties, the rate to import a car or truck (new or used) is 25%. As such, if one imports an old used vehicle of little value they'll pay minimal duty--on the other hand, however, if one imports a new vehicle that is expensive they'll pay a substantial amount of duty. Once again, these rates are the same for both Expatriate and Belonger, and once again they tax consumption, not wealth-if a rich fellow imports a cheap car he'll avoid high taxes, but if a less fortunate fellow imports an expensive vehicle he'll be saddled with high duty payments. As such, every individual can choose how much tax he pays by deciding on which vehicle he'll purchase and import-category specific tariffs are punitive only if one "consumes" expensive items, just as graduated user fees are punitive only if one "consumes" an abundance of resources.

Property tax is also category specific-with there being only one tax category on Anguilla that (once again) applies equally to both Belonger and Expatriate. The current property tax rate of .075% should in fact be called a building tax, as there is no tax on undeveloped land-on Anguilla annual real estate taxes are levied only on the assessed value of buildings. As such, if one builds a large home and in the process spends more money on construction and consumes more in terms of materials, supplies and labor in the process, they'll pay a higher annual property tax-just as the fellow that imports the more expensive vehicle will pay more in duty. While it is true that the person who builds more has already paid more in import duties than the fellow who builds less, there is no inconsistency in his also having to pay more property tax-the two taxes are separate but are both based on the same philosophy: "those who want more stuff have to pay more money". In fact, the combination of category specific import duties and real estate taxes simply means that the fellow who builds more must realize he'll be paying more in both import taxes and property tax than the fellow who builds less--regardless of the size of either's personal private wealth.

Land transfer taxes and accommodation taxes are, once again, category specific with each type of tax having only one category-transfer taxes being 17.5% and accommodation taxes being 8% (10% shortly). Whereas one might argue that there is a disparity in transfer taxes between the Belonger and the Expatriate based on the fact that the Belonger only pays 5% for a transfer whereas the Expatriate pays that amount plus an additional 12.5% for his Alien Land Holding License, such disparity has nothing to do with wealth or position-a Caribbean national pays the same additional 12.5% as the North American or European investor. The key point here is that if one buys a more expensive property or stays in a more expensive villa or hotel (i.e. consumes more space or luxury) they'll be paying more in transfer taxes and accommodation taxes respectively-regardless of the basic real estate or room cost, the tax is a fixed percentage of that cost.

In review, it appears that the user fee and tax schemes in place on Anguilla are quite fair--especially for a society with such a divergence in incomes as those represented by the average Belonger and the average Expatriate. Arguments for flat or negatively graduated user fees and taxes do not appear to be appropriate for a society without wealth based taxes-and Anguilla is blessed in that it taxes consumption, not wealth accumulation. If one spends substantial money on landscaping or lighting, that does not justify the argument that they should therefore pay lower utility rates for their higher consumption--similarly, the fact that one spends a substantial money on construction materials does not mean they should receive a preferential tariff for their import. If one consumes resources on a luxury level or imports goods that are expensive, one must be willing to pay the graduated utility costs and fixed import percentages applicable to such use and to such goods. Correspondingly, one shouldn't expect Government to discount the accommodation tax rate for renting more expensive properties or reduce the transfer taxes for purchasing more expensive real estate-if one chooses to consume the deluxe room or preferential property, they should be prepared to pay the corresponding taxes based on the fixed percentages in place.

Ultimately, it does not seem appropriate that Government or the utilities should be expected to provide discounts to those that spend and consume more-Anguilla is fortunate in that its fees and taxes allow consumers to regulate their expenses by regulating their consumption without fear that their private personal wealth will be taxed. As long as the rates that are in place for both graduated user fees and fixed tax categories apply equally to all (which they do) fairness is in full force--with consumption based user fees and taxes, paying once does not mean that you don't have to pay twice, nor should it.

 

The Draft Immigration Policy and Alien Land Holders

Over the past few weeks Government has been circulating it's Draft Immigration Policy 2001 for public review and comment-a very laudable move as you never know where a sound suggestion might come from (perhaps even from an article of mine!). Interestingly enough, however, I first touched on this subject in an Anguilla Life article in 1998 when I wrote: "I would propose that Alien Land Holding Licenses should… provide Permits of Permanent Residence for all foreigners approved to own land." In truth, the idea wasn't popular then and isn't popular now-but even if the concept must be modified to be accepted, I truly believe all aliens licensed to own property on Anguilla should be shown some special consideration with regard to residence.

While the Draft Immigration Policy 2001 touches on numerous issues that are important to foreign landowners, I shall direct my comments herein to those areas of specific concern to aliens licensed to own land-i.e. to the clause that deals with permits of Permits of Permanent Residence (as defined by Government) and to a proposed Provisional Residence Permit (as defined by me).

Permits of Permanent Residence essentially allow non-belongers to reside in Anguilla without the necessity of getting their passport periodically updated with permission to remain on Island-these permits do not allow for permit holders to work (unless they have a separate and distinct work permit), do not allow permit holders to own land (unless they have a separate and distinct alien land holding license) and do not allow permit holders to vote (unless they become belongers at a later date). Personally, I believe such restrictions are absolutely appropriate and should be maintained-but I also believe that because of the nature of those restrictions the permit can (and should) be evaluated differently.

With regard to real estate, the two key provisions of Clause #3 of the Draft Immigration Policy 2001 (which is the clause that deals with the Permits of Permanent Residence) states that a PPR will be "favorably considered" if the applicant has invested "at least US$2,500,000 in a business in Anguilla" (Clause 3c) and if the applicant is a "Retired person who owns property in Anguilla" (Clause 3e). Neither category has merit-the first condition is erroneous in that wealth is not a determinant of an individual's character and the second condition is erroneous in that economic activity off island has no bearing on an individual's character on island (and one assumes Anguilla only wants people of character to hold PPRs).

In addition, complications arise with such conditions: Does only the principal investing the money receive the PPR--or does his entire family receive one? Similarly, what about the shareholders and / or the directors of the investment company-what happens when the shares are sold or directors changed? Correspondingly, what happens if a husband and wife jointly own property, but only one is retired-does the working spouse still need to stand in line for an extension of their stay? What happens if a retired landowner re-enters the work off island force-does he have to surrender his PPR and get back in the Immigration line for extensions after he returns?

Neither wealth nor retirement are valid considerations when analyzing requests for a PPR and neither should be considered, however there are valid characteristics that should be taken into account--the type of characteristics that are reviewed with every Alien Land Holding License Application. Insofar as every successful Alien Land Holding License applicant has to submit letters of reference, bank statements and police reports, and insofar as every applicant has to be personally interviewed by the Minister of Lands, passing such review should in and of itself be sufficient to offer the successful applicant some special residency considerations--every alien licensed to own property on island should be eligible for some sort of residency protection.

However, if a scenario of linking Permits of Permanent Residence to successful Land License Applicants is not currently politically acceptable, approval of an Alien Land Holding License should at least a be sufficient for Government to issue a Provisional Residence Permit (PRP)-- provisional based on the fact that the residence rights would be relinquished if and when the property was sold, but otherwise a provisional permit would bestow the same rights on the holder as a permanent permit. Furthermore, as a transitional category, conditions could be established whereby Provisional Residence Permits could be converted into Permits of Permanent Residence after a given number of years.

Anguilla has always (quite correctly) viewed its finite land as a very valuable asset and the Government's approval of an applicant to allow the purchase of real estate on island means that the Government thinks the purchaser is of good character-character sufficient to allow their name to be registered as a legal proprietor of a piece of Anguilla itself. It is such considerations of character (along with the commitment of purchasing property on Island) that should determine the granting of residence permits-permanent, provisional or otherwise.

While I'm aware of the fact that there may be (or may have been) times when economic conditions have helped one Land License Applicant or another gain approval at a time when the island's economy was slow, such contingencies have never been established as principals (nor should they)-while reality may dictate special considerations be applied to any given Alien Land Holding License application, those special considerations should not become established rules. As such, any Land License Applicant who is approved to own land should be allowed to use that land in accord with the terms of his Land Holding License, without the necessity of periodic stay extensions-the right to own the land should bestow the right to reside on the land. Of course, if a landowner who is a holder of a Provisional Residency Permit (or PPR) breaks the law, to the courts with them-but assuming they don't break any laws, they shouldn't have to present themselves to Immigration authorities on a regular basis if they own property. In fact, if one were to argue that linking Permanent or Provisional Permits of Residence to Alien Land Holding Licenses means that the Land License requirements themselves should be toughened-so be it.

Interestingly enough, given a scenario of offering Provisional Residence Permits with Land Holding License approval, the Provisional Residence Permit could become a revenue producing entity during the time prior to its conversion into a permanent permit-making the approval of a Provisional Residence Permit automatic upon approval of an Alien Land Holding License does not mean that the Provisional Permit has to be "free", just "pre-approved" (like many home loans in the States). As such, an annual fee could be charged for the Provisional Permit-then those who wanted to execute the option could do so while those who were happy to stand in line can continue. Such a program could be established for existing as well as new land owners with very little difficulty-and it should be pursued.

 

Thou Shall Not Rent?

Over the past few months a very important issue has been on the boil in Anguilla-in fact, an issue which has been a concern for many years: the rental of villas owned by expatriates. Unfortunately, this issue was revisited this past summer when Government made a unilateral decision (without discussion or consultation with relevant private sector stakeholders) to approve new Alien Land Holding Licenses only with a specific "no rent" clause in the license itself-a policy which had immediate effect, as the sale of at least one piece of land died due to the restriction.

Ultimately, in a second home environment (which is how Anguilla is viewed by the vast majority of foreign investors from North America and Europe) real estate values have a direct relationship to rental rights and opportunities-due to the fact that most investors do not have the time (or the inclination) to live in Anguilla full time at the time of their investment, they look to rental income as a sensible way to offset maintenance costs, improvements, depreciation, etc…and, if they are lucky, their rental income might also cover their mortgage or provide a positive cash flow. However, take away the right to rent, and the value of all property on the island is devalued-not to mention the general devaluation of the economy itself. For example, in the one land deal referenced above that died as a result of the new "no rent" policy, instead of US$1,00,000 being pumped into the economy (in land payments, stamp duties, customs payments, construction employment, material purchases, heavy equipment rentals, etc), the purchasers deposit of nearly US$25,000 had to be returned and wired off island-not good for anyone.

Apparently the "no rent" policy sprang from concern voiced by hoteliers (primarily expatriate) and villa owners (primarily Anguillian) with regard to the increased competition (and lower occupancy rates) that they feel is due to the growth (and success) of the expatriate villa market--in addition, there is concern with the failure of expatriate villa owners to properly purchase their villa rental licenses and to pay their proper accommodation tax. Prior to the recent "no rent" policy, the guidelines required that an expatriate purchase a license to rent (which was US$1,200 per year) and that they pay accommodation tax (which is 10% of the room rate)-currently "no rent" means just that, i.e. that home owners can not buy a license to allow them to legally rent their homes.

For the sake of clarity, let me reconfirm my belief that every expatriate who rents their home should buy their license and pay their tax, but the villa rental industry should be shut down because it competes with other tourism sectors-the villa rental sector is simply too vital to the economy (not only in terms of the tourism activity generated by rentals themselves, but because of the real estate activity generated by the potential of rental income). Interestingly enough, the reinstitution of the expatriate right to rent was the consensus reached at a meeting chaired by Government that was held subsequent to the implication of the "no rent" rule-after it became apparent that the "no rent" rule was going to have some drastic effects (such as the loss of that afore mentioned US$1,000,000 real estate infusion). In fact, the consensus arrived at during the meeting would ensure that expatriates have the right to rent with the requirement that those properties that are rented retain an authorized property manager to ensure that all appropriate fees are paid to Government-fair enough, in my opinion. However the key items to focus on now are what will be the annual license fee for the right to rent and what will be the annual license fee for those who want to become authorized property managers-ultimately it is still possible to accept rental rights politically but to make those rights too expensive to realize economically (if, for instance, the annual license fee to rent was raised to US$50,000…as per more than one suggestion at the meeting).

Although this article has dealt most explicitly with the "no rent" rule as it is being applied to new Alien Land Holding Licenses, there are also serious implications for those who already purchased or built their homes here-whether or not they have been renting in the past. At the moment, for example, it is the position of the Treasury not to sell new villa rental licenses to expatriate home owners unless their underlying Alien Land Holding license specifically bestows the right to rent-silence on the issue is an implied "no rent" restriction that can only be addressed by appeal to Executive Council. However, insofar as ExCo refused to lift the "no rent" restriction on a deal that they knew was going to be cancelled without the variation, it will be interesting to see if they will issue rental right waivers to those that have already invested on island-and, again, at what cost to the home owner. To further complicate the matter, the current policy of the Anguilla Tourist Board stipulates that expatriates should be allowed to rent their homes as part of a diversified tourism product-and this policy was being published at the very time the "no rent" restriction was being added to all new Alien Land Holding Licenses and at the very time the sale of villa rental licenses was halted pending specific ExCo approval.

Unless clarity is brought to bear on expatriate real estate rights, with particular emphasis on rental rights, the real estate market in Anguilla will be in total disarray-in fact, I believe the real estate market in Anguilla is currently in total disarray because of the confusion over rental rights. Although there will always be some potential purchasers who will invest with out the right to rent, they are (in my experience) a very small segment of the investment community-and a segment that is shrinking. Correspondingly, those who invested in the past based on the knowledge that a rental license could be purchased might now find that they no longer have that option-or that the price they must pay is out of all proportion to their projected rental income. As such, it is crucial that Government addresses this policy quickly, clearly and openly-to that end, their recent meeting is a step in the right direction (let's hope that not too much damage has already been done). In addition, it is crucial that expatriate property owners that want to rent their homes follow the rules by buying their rental licenses and paying their accommodation taxes-to that end, the concept of authorized property managers is another step in the right direction (let's hope, once again, that not too much damage has already been done).

 

RENTAL RIGHTS REVIEWED... AND REVIEWED

The ongoing saga of expatriate rental rights continues--with no end in sight. Even though Government has put some proposals forward, I understand most of them have already been revised or rejected--unfortunately, this lack of clarity doesn't help the real estate market or real estate values…nor does it help Anguilla's economy. Herein I'll try to outline where we are to date, and where we might be going.

First and foremost I think it is very important to stress the fact that Government has apparently abandoned its "no rent" position with regard to the issuance of new Alien Land Holding Licenses-unfortunately the "no rent" policy was in place long enough to terminate at least one viable transaction (and perhaps deter others) but fortunately that draconian position has seemingly been rejected.

In the draft policy paper that Government released in March 2002, it was suggested that all expatriate properties be categorized either as a "home" which they defined as a property that would not be rented, or as a "villa" which they defined as a property that would be rented-furthermore it was suggested that these two classifications be assessed in separate ways. In the case of "homes" it was proposed that a US$1,000 annual fee be paid to Government-in the case of "villas" it was proposed that a US$5,000 annual fee be paid along with a US$.50 per square foot surcharge levied after the first 2,000 square feet of development…in addition, it was proposed that all "villas" would have to retain the services of a local registered agent for the "collection and payment of fees payable to Government". Furthermore, with regard to new purchases, a two tiered transfer tax approach was proposed-if a purchaser wanted to register his property as a "home" they would have to pay a total of 25% in stamp duties and taxes, however if a purchaser wanted to register their property as a "villa" they would have to pay 17.5% (the current rate for all expatriate property transfers).

With the foregoing in mind, I have been told that most of the above reference proposals are already under review and will be changed. For example, the US$1,000 annual fee for "homes" has been discarded-numerous expatriates complained bitterly about this fee, including the many Caribbean nationals that own property on island by virtue of an Alien Land Holding License who would have been subject to the fee along with their North American and European counterparts. In addition, I have been advised that the proposed US$5,000 annual "villa" fee will be reduced-brought down to the US$3,500 to US$4,000 range for those whose Alien Land Holding Licenses do not specify an annual fee of US$1,200 (which was the default fee before the policy was put on hold). For those whose current license does specify US$1,200 as the annual rental fee, their fee will remain unchanged for the duration of the time they own their property-however, insofar as Alien Land Holding Licenses run with the property owner and not with the property itself, new purchasers will be subject to the rates in place at the time of their purchase. Furthermore, the two tier transfer tax system proposed apparently needs Legislative Council approval (not just Executive Council approval) so that component of the March proposals has also been shelved.

So, where are we? In truth, I think it's very hard to know-these are uncertain times. However I do think it is fair to say that Government is now quite aware of the importance of the villa rental industry and will not undermine it-although do I believe that would have been the effect if their "no rent" policy on new Alien Land Holding Licenses had remained in place…and, perhaps, if all of their March 2002 proposals were enacted. However, just to throw one final element of confusion into the mix, I was recently advised by Treasury that they are so baffled as to how to charge for villa licenses, they will accept either the US$1,200 annual fee (referenced above) or a per bedroom fee (which ever the villa owner prefers). The fee per bedroom for properties that charge over US$300 per night is EC$250, and the fee per bedroom for properties that charge under US$300 per night is EC$100-which means a villa owner who has a four bedroom villa for which they charge (say) US$7,000 per week could pay only EC$1,000 for their right to rent. Are we all confused yet? I certainly am…let's hope the future brings some clarity and cohesion.

 

Rental Rights and the Real Estate Market

In following the ongoing issue of expatriate rental rights with regard to the Government's current policy of including a "no rent" clause in all new residential alien land holding licenses (a policy that precludes the issuing of waivers to those existing expatriate home owners who have a "no rent" clause in their present licenses), a number of interesting observations can now be seen insofar as the "no rent" policy has been in place for nearly one year.

While it is perhaps impossible to separate Anguilla's "no rent" policy from the international economic slowdown when discussing real estate values on island, there can be little doubt that the addition of the "no rent" policy to the general economic downturn has exacerbated the impact of both. In fact, the stamp duty paid on alien land holding licenses (which is12.5% of the assessed value of the real estate being purchased) during the first six months of 2002 is the lowest it has been for the first six months of any year since 1994 (the first year for which I have records) with the exception of 1999 (a very turbulent year in Anguilla's recent political travails).

This decrease in stamp duty revenue must be, I'd imagine, especially troubling to Government at a time when Government itself has made so many statements with regard to their budget difficulties-for not only is stamp duty on land transfers a potentially significant amount in and of itself, it is a precursor to additional potential revenue as well (primarily from customs duties levied on the importation of building and remodeling items generated by the primary construction work, secondarily from customs duties generated by the overall increase in the importation of goods fostered by steady employment).

Following from the fact that stamp duty on land transfers is at an all time low for the first six months of this year (with the exception of 1999, as noted above) is the conclusion that real estate values are correspondingly falling-as the number of transactions decrease, the pressure on sellers to lower their prices to find a purchaser increases…and this is exactly what has happened. Interestingly enough, two homes that were on the market for quite a long time both went to contract this year-however both went to contract at prices well below their initial listings…and it will be interesting to see if these deals actually close or if the reality of seeing a "no rent" clause in their license entices the purchasers to withdraw from their contracts.

Based on my experience with regard to expatriates and the real estate market on Anguilla, we attract high net worth investors that are interested in viewing their purchase not only in recreational terms (i.e. as a holiday home) but also in economic terms (i.e. as a source of rental and resale profit). Although Anguilla does have its fair share of extremely wealthy investors who may be more or less indifferent to the economic side of the equation, to safeguard real estate values it is important to protect the broader base of individual investors who are focused on the economics of their purchase. Considering that there aren't any immediate political benefits of owning real estate on Anguilla (insofar as real estate ownership doesn't bestow permanent residency, for example) it is important not to limit economic real estate rights by preventing villa rentals.

An interesting corollary to the above is the permission granted by Government to the new golf course development project with regard to the construction of "up to fifty residential estate lots on which there shall be constructed single family residences" whereby the "owners of residences who rent their properties will be required to do so as part of the hotel operation" with the stated commitment that "Government will encourage…the owners of the residences to lease their residences when not occupied by the respective owners". As such, one wonders: if Government is encouraging residential rental with regard to the private residences that form part of the golf course development, why is Government preventing the rental of private residences that are not part of that project? If the rationale is collection of accommodation tax, closing down the rental of independent residences for the sake of encouraging the rental of project protected residences doesn't seem equitable-in truth, it seems quite lopsided when one considers the negative impact that this dual policy will have on the value of independently owned real estate and the galaxy of independent businesses that service that sector (realtors, architects, valuation agents, contractors, etc.). Perhaps even more troubling are the questions that might arise as to whether or not curtailing the rental of independent residences was a policy decision taken to encourage the golf course project itself to proceed-time will tell (it always does)…

 

Expatriate Rental Right Developments

In the ongoing (and thus far seemingly endless) saga of expatriate villa rental rights, there is some new information to report—information that is still “unofficial” as it hasn’t been formally announced or published as yet, but information that seems to be quite reliable. In fact, a new Alien Land Holding License Application has already been created to reflect the new policy--in the new application a clear distinction is made between “private homes” (i.e. houses not to be rented) and “villas” (i.e. houses to be rented). This change to the application form itself is significant in that the new rental policy discussed below fundamentally impacts new expatriate purchasers—most existing alien homeowners are not impacted by the new policy (however, they have a separate set of concerns).

Fortunately, the new policy strikes me as being fair and civilized—enabling the expatriate villa rental industry (an industry that I believe is crucial to Anguilla’s economic well being) to grow. Essentially the new rental policy will require expatriates to pay an annual license fee of US$2500 for the right to rent, plus US 50 cents per square foot under roof for every square foot after the first 2000, plus US 25 cents per square foot for every square foot of uncovered deck space, with the requirement that all expatriates who rent their villa retain the services of a Government approved property manager. For most new purchasers, such a policy should be viable.

The matter gets a bit more interesting and a bit more complex when the new policy is considered in light of existing licenses—to that end I’ve been advised that the conditions on licenses already issued will be grand fathered (as they should be) so that those license holders with the right to rent with no annual payments or those with the right to rent with US$1200 annual license fee requirements will be protected. However when those license holders sell their property their grand fathered conditions cannot be transferred to the new owners--the new owners will be subject to the new policy (as seems equitable). Furthermore, those license holders that do not have the right to rent stipulated in their licenses will be able to apply to Government for such rental rights and will be subject to the new policy—which also seems sensible.

An interesting wrinkle to the above is the fact that Government has recently mailed letters to many (perhaps to most, perhaps to all) expatriate home owners on island advising them that they must pay US$1200 per year to Government for each year since they received their license (less any annual fees previously paid). This letter apparently took no notice of the fact that in most cases (if not in all cases) the US$1200 annual fee was not an automatic yearly charge but was due only if the homeowner rented their home that that year. Current indications are that these letters were sent out erroneously and the US$1200 fee is in arrears only if rental activity occurred during that given year--however I don’t doubt this will continue to be a contentious issue as disputes will inevitably arise as to how many years a given expat did rent their home without paying their appropriate annual fee (and given the fact that many expats tried to pay their fees over the years in question but were apparently told by Treasury that they didn’t have to do so, further complicates the matter).

Underlying all of the above is the matter of trust between Government and the individual alien investor—with the fundamental question “Am I wanted here?” being more and more openly asked by expats. From the initially unannounced issuance of new land holding licenses with specific refusal to allow rental (and the corresponding refusal to grant rental rights upon further application) to the letters recently mailed, the issue of real estate investment protection for aliens has become a real concern for them—a concern which negatively impacts the real estate market on island and which, therefore, negatively impacts the well being of all of us who live on Anguilla.

Whereas I truly understand (and sympathize with) Government’s desire to ensure that annual rental fees (and concomitant accommodation taxes) are properly paid, their efforts to ensure such compliance have not been (in my opinion) been properly focused to date—thus far their efforts have resulted in general confusion and concern (as well as economic slowdown) without addressing the fundamental issues at hand. Given the fact that I do believe the Government does care, and cares very deeply, about raising revenue equitably between the Belonger and non-Belonger, for the protection of the real estate market Government should be more openly aware of the economic contributions of foreign investors as they attempt to ensure that they pay their fair share.

With the above in mind, and given the concerns that are now so entrenched with regard to the policies of the last eighteen months, Government should quickly take some proactive steps to restore the faith of expats in Anguilla’s real estate market to ensure that they continue to view Anguilla as a viable place to invest. One such way of being more proactive (and there are many) would be to grant Provisional Permits of Permanent Residence to all existing and all future alien land owners…such permits would, I believe, go a long way to answer the very troubling question “Am I wanted here?” I believe a Provisional Permit of Permanent Residence should be available to all expat landowners for as long as they hold a valid land holding license under the same conditions (and the same fees) as the Permit of Permanent Residence now available

Without the infusion of foreign capital, Anguilla will be in a precarious position—and it is very dangerous to depend on a few “mega-projects” for that infusion…the smaller, independent, high net worth individual investor should be valued (and courted). It is now very important to convince those foreign investors that the confusing steps of the last year and a half were innocent and not intended to be punitive —revenue collection is always a sensitive issue…one must always be aware of both the golden egg and the goose.

 

Boom Time?

Over the past few years the real estate market on Anguilla has been a bit confusing—perhaps because the world at large is a bit confusing right now…from the USA economy to the Afghanistan situation, from the Iraq War to the North Korea issue, from Iran’s nuclear program to SARS. However, while the market in Anguilla has been quite slow, a number of other Caribbean islands have had substantial real estate appreciation over the last number of months—appreciation based on increased interest in investment as the desire for a primary or second home in a “safe haven” has driven high net worth individuals to the region. Sadly, to date, Anguilla hasn’t been the focus of those investors—as such, one must look at the unique local issues that may be the cause.

First and foremost among the unique reasons that Anguilla has lagged behind recently was the (now resolved) issue of approving alien land holding license applications only with the condition that the purchased or built home not be rented--with the concomitant condition that ExCo would not consider subsequent rental applications for those properties. Happily, licenses are now being issued with rental rights protected and Government is accepting applications from those who don’t have rental rights in their licenses to be so permitted.

Another reason international private real estate investment has been slow on island has to do with the lack of infrastructure development and the discussions surrounding such development—from the airport location to the runway extension, from the potholes on the roads to the new road works programs, from the closing of once viable hotels to the auctions regularly advertised in the local papers. Happily, once again, many of the projects addressing these issues under way (visibly under way, in some cases)—the golf course project is moving along with intriguing rumours that the Ritz Carlton will manage the resort component and the attendant villas, road works projects are under way with the Little Harbour to Blowing Point Road moving forward, and the implacable runway extension is apparently making steady progress at long last.

Therefore, if Anguilla is beginning to be seen to be addressing the unique problems that kept investors wary (as they went elsewhere) it would now seem that the tide should be changing and there should be renewed interest in our market—and, in truth, I believe there is such renewed interest. Homes that were on the market for years and years are now moving—however often at substantial discounts to list price (which is not, I don’t believe, an indication of a poor market continuing but an indication that home owners who have consistently priced their properties in an overly optimistic manner are now more realistic) and undeveloped land is once again being seriously considered (which might be impacted by concern over labor shortages once the hotel and villas associated with the golf course come on line).

At the moment there are a substantial number of inland homes available on Anguilla, a smattering of coastal homes, numerous parcels of inland property with some coastal land on the market. With regard to existing homes, the majority of inland homes are currently priced between US$350,000 and US$500,000 with a few seven figure inland homes on the market as well—this inland group is (in my experience) the hardest group to sell, as most international purchasers are ready to accept the headaches of increased corrosion for the protection of view lines that can only be assured with coastal locations. With regard to the smattering of coastal homes on the market, there are a few available in the US$450,000 to US$600,000 range, but then there is a substantial gap in availability until one considers million dollar properties. With regard to inland property, based on a half acre purchase, the prevailing rates vary between US$65,000 and US$80,000—with regard to coastal property, based on a one acre purchase, the prevailing rates vary between US$150,000 and US$250,000 (please note: I quoted inland at half an acre and coastal at one acre as those are the most common sizes for the two different locations).

With the foregoing in mind, the general absence of top quality homes on the market priced between US$650,000 and US$950,000 is intriguing—in fact, any investor with such a budget is forced to buy a lower priced existing home and add the required improvements…or to buy land and build. In fact, in most cases, maximum value is often derived from the building scenario (although construction does take time, effort and planning, the results are normally worth the endeavor). In fact, I believe that many (if not most) owners of existing homes on the market would be well advised to remember that investors do have the option of new home construction—for with such an option (and given the entrepreneurial attitudes of many of the high net worth individuals that can afford holiday homes) many do decide to build their own dream home instead of buying someone else’s vision. As such, owners of existing homes might be well advised to lower their prices or make improvements to freshen their homes to ensure they are part of the upcoming boom, and aren’t left behind.

 

Anguilla’s Real Estate Outlook

Over the past number of years, the American stock market has been slumping while the US real estate market has been doing very well--as have all of those sectors of the US economy involved in the property process (i.e. realtors, contractors, financers, etc) with the primary reason for this dichotomy being historically low US interest rates. In Anguilla during that same period, while real estate activity has been steady, it has not shown the same rate of growth (in either appreciation or investment) as one might have expected considering what has been happening in the USA--in fact, real estate activity on island is just now beginning to accelerate. When one considers the reasons for this disparity, a number of interesting observations can be made--some of which are apparently contradictory but all of which are illuminating.

In contrast to the above referenced low interest rates in the USA, interest rates on Anguilla (with primary focus on mortgage rates) have remained exceptionally high, averaging 10.5%--nearly double the rates available to the north. Although economies of scale do come into play (with Anguilla being an unusually small market by any objective standard) the high interest rates have been seen to be a detriment to development--both internal and external. Interestingly those interest rates have just recently begun to fall and the concomitant loan details (such as down payment percentages and loan repayment terms) have also become more customer friendly--all of which has coincided, not surprisingly, with an increase in real estate activity.

But insofar as a primary engine (perhaps the primary engine) of real estate development on Anguilla is expatriate investment, and insofar as most expatriate investors are not dependent on Anguilla’s mortgage rates or terms, the question as to why real estate activity has increased just as the local lending institutions have made their loans more affordable, is intriguing. Expatriate investors normally either self finance their projects (as is the case with most personal homes) or finance their projects off island (which is the case with larger tourism projects)--in contrast, Anguillians normally finance their investments (either personal or for profit) from local lending facilities...as such, perhaps the reason for increased the real estate activity is not as dependent (or not as solely dependent) on local interest rates as one might initially expect.

With regard to recently approved or recently initiated projects on island, there are a number of very impressive undertakings on the board or underway which can be seen to be contributing to Anguilla’s now robust real estate environment--including: the current road improvement project which is upgrading the island’s infrastructure; the long awaited airport extension project which will improve international access; the sale of the Sonesta Hotel and surrounding land for the development of a world class hotel along with the island’s first golf course which will both bring more attention and activity to the island; the expanded focus of the tourism horizon to include an annual international regatta to coincide with Anguilla’s summer carnival and the introduction of a jazz festival featuring internationally recognized performers timed to jump start the season each fall will improve occupancy rates and revenues; the ambitious tennis facility slated for Blowing Point will be a focus in and of itself as well as hopefully being a catalyst for the long anticipated improvements to the port area nearby; and the not to be underestimated happy resolution to the issue of allowing and respecting the rental rights of foreign home owners which facilitates investment by the all important individual high net worth investor.

With the foregoing impressive list in mind, one can see an impressive mix of projects and concepts along with an impressive mix of funding scenarios--some international grants, some local private investment, some local financing, some foreign private investment, some foreign financing--all of which creates an environment that makes lower local interest rates reasonable (and most welcome).

 

HIGH VALUE / LOW VOLUME

The recent real estate boom on Anguilla that I discussed in my last Anguilla Life article (“The Rock Rocks”) has gained momentum—not only with regard to the sale of undeveloped coastal land (the availability of which is now more scarce than I’ve ever seen) but also with regard to the sale of existing homes (with the market virtually depleted of six figure properties). For the first time since I began real estate work on Anguilla in 1990, I don’t have any undeveloped coastal property in inventory—while I have more undeveloped coastal land under Purchase and Sale Agreement and pending License approval than I’ve ever had before…correspondingly, for the first time in fifteen years of brokerage, I have more seven figure homes in inventory than any other property type.

Four or five homes that had been on the market for an average of four or five years (all of which were in the approximate price range of US$450,000) went to contract within four or five weeks of each other this past winter season—a multimillion dollar home that had been on the market for three or four years went to contract within weeks of doubling its price…homes that were actively on the market are being taken off list as owners delay their sales in an effort to maximize their returns by waiting to see how much further prices will rise. Very shortly, existing homes will be purchased for their locations and then the homes themselves will be demolished—insofar as undeveloped coastal land is becoming harder and harder to find, while the high net worth individuals investing in Anguilla remain committed to creating their own tropical vision, this demolition development is inevitable…and will be another step in confirming Anguilla’s emergence as a focal point of real estate interest and activity.

With regard to the inevitable concern regarding “comparables” that potential purchasers raise, at this point I feel the appropriate frame of reference is not Anguilla’s prices of a year or six months ago, but of current prices in similar upscale locations elsewhere in the United States and the Caribbean—without much exaggeration (although with a bit of poetic license) Anguilla comparables are now Nantucket, South Hampton, South Beach, Aspen, St. Barths, Mustique, etc… pretty impressive company. This change in appropriate comparables is a function of celebrity holidays and sightings; the extended runway that enables private jets to comfortably land; the impressive travel press praising the overall quality of life and service on island; the very impressive architectural press lauding the design of private villas, super villas and hotels; the substantial commitment of high end institutional investors represented by the south coast west end project (golf course, hotel and residences), the north coast west end project (hotel and residences) and the upcoming south coast east end project (golf course, hotel and residences)—not to mention the political stability and basic wisdom of Anguilla’s Government…or the enduring civility and social stability of Anguillian society.

Given the above, however, one might wonder if Anguilla is about to be “ruined” by too much development, occurring too quickly. While I do believe over heated growth is a concern to be monitored, given the fact that all of the developments proposed and approved as referenced above are very high value and very low volume, I feel Anguilla is well positioned to avoid the ravages of unfettered growth—especially as Anguilla’s growth isn’t unfettered…but monitored through the cumbersome (but ultimately viable) Alien Land Holding License process. To my knowledge, there aren’t any low value / high volume developments (normally represented by large time share projects, correspondingly large condo projects, and facilities for high capacity cruise ships) being encouraged or considered—this restraint exists while the island continues to wisely invest in its infrastructure…with a primary focus being on the improvement and expansion of the road system, now the airport project has been fundamentally competed. As such, as far as I can foresee, Anguilla’s real estate position will continue to be (and, in fact, will increasingly be) the pride of those currently invested, the envy of those not yet invested, and the bane of those who once considered investing but didn’t do so.

 

Moratoriums and Things

The increased (and increasing) interest in real estate on Anguilla has induced Government to declare a moratorium on large foreign owned development projects—which is, I believe, a correct decision. The primary impetus behind this temporary freeze was the proposed hotel and golf course project in the east--the scale of which (at an estimated 2,000 rooms) set off quite a debate on island about Anguilla’s future…a healthy debate about Anguilla’s future.

While development is necessary, the over arching analytical concern must be to ensure the development is beneficial to the host society—not simply beneficial to the investors. With the foregoing in mind, Government decided that the existing strain on infrastructure was reaching the breaking point… hence the necessity of a “cooling off” period. However, when declaring the moratorium, in addition to referencing the strain on infrastructure, Government also referenced the objections of existing developers to new developments—insofar as that reference seemed to deflect focus from concerns relating to the good of society in favor of protecting existing investor interests, it produced quite a bit of debate in its own right… however, herein I’ll focus on the infrastructure issues.

Interestingly, in addition the most frequently discussed infrastructure concerns (i.e. labor availability, technical skills, medical facilities, educational resources, police and immigration staffing levels, etc) a key concern, but an issue not often mentioned, relates to the current condition of Anguilla’s only deepwater pier, located at Sandy Ground / Road Bay—which is, by all accounts, in terrible condition…and which is, undeniably, Anguilla’s life line to the world with regard to building and construction supplies. Whereas the runway extension provided a boost to the real estate market by making the island more attractive to the very high net worth individuals who travel in private jets, the runaway is not suitable for heavy cargo planes—as such, any catastrophic failure of the pier would essentially shut down the construction industry…as repeated shortages of cement have done recently. Whereas the pier at Blowing Point could provide some relief, and I’ve heard some folks talk about the possibility of roll on / roll off barges hitting the beaches with supplies in an emergency, neither option is particularly viable considering the current scale and pace of development on island.

In keeping with the island wide concern regarding the infrastructure issues that resulted in the moratorium, there is an increasing involvement of society at all levels in public discussions concerning Anguilla’s development. For example, there have been strong reactions to land legislation recently brought forward for consideration—reactions so strong as to result in the legislation being withdrawn from consideration in its initial form. In addition, there have been public meetings to discuss the proposed Altamer expansion at Shoal Bay West and the Viceroy proposal for the east end—whereby both developments are fairly ambitious in scope and include accommodation components and marina facilities.

Happily Anguillians are involved in the dialogue that will shape the future look, feel and character of the island. I’ve always found a deep well of common sense, pride and independence here—I truly believe those characteristics will stand us all in good stead as Anguilla moves forward. Somehow I believe de Tocqueville would be proud—the concept of “Self interest rightly understood” seems to have found fertile ground.

 

The More Things Change…

The overall economic activity on Anguilla is impressive—not only in the real estate sector (which is usually the most obvious area of change, as it impacts the immediately visible physical environment) but across all lines of economic activity. In addition to real estate, with regard to my areas of personal professional experience, the substantially increased economic activity ranges from financial services (company registrations and incorporations) to office services (document supplies and equipment sales) to courier services (with the number of pieces of outgoing express freight exponentially increasing to the point where that number is beginning to equal the ever increasing number of pieces of incoming express freight, which is truly quite amazing for an island that doesn’t have a manufacturing base). However, from simple daily general observations, the reality of increased economic activity is visible across all business lines—hotels, restaurants, stores, markets, car rentals, car sales, etc.

With reference to real estate in particular, in addition to coastal based growth (growth that primarily includes luxury expatriate villas, hotels and resorts) there has been a substantial amount of inland development recently—with new retail malls being built, a new medical facilities center nearing completion, and centrally located land being cleared on what seems to be a daily basis for the creation of additional office and retail space. Fortuitously, most of this inland development is Anguillian owned, as the special charm of Anguilla is a function (at least in part) of the fact that Anguillians are the backbone of the island’s entrepreneurial and professional sectors—however, what may be even more fortuitous is the fact that (perhaps for the first time) Anguillians are getting actively involved in the development of coastal property…the high end, high profit sector. In fact, I’ve had the good fortune to recently tour a number of Anguillian built luxury villas that rival anything the expatriate sector has developed—which is all to the good, as it shows that the expertise brought to the island by the outside investor is being assimilated, emulated and (in many cases) improved upon.

An interesting issue with regard to all of this increased development is one of absorption, vacancy rates and occupancy rates. Whereas the number of transitory high net worth individuals interested in investing on Anguilla to purchase or construct vacation homes shows no signs of abating as yet (with transitory referencing the fact that those investors only spend a few weeks or months of the year on island), it will be interesting to see if the ever increasing holiday inventory outstrips that demand. Concomitantly, it will be interesting to see if the number of indigenous businesses will increase (or if the existing indigenous business will expand) to the point where they can fill the space that Anguillian owned commercial development is creating—will there be a sufficient number of Anguillian owned businesses to absorb the square footage coming on line, or will Anguillian developers push to have Government approve business licensees for expatriate retailers and service providers so that their buildings hit occupancy levels that allow them to service debt and realize profit…keeping in mind that such retailers and service providers will not be transitory (in that, having businesses here, they will be here).

Whereas Government is (quite correctly, I believe) interested in ensuring Anguilla develops for the benefit of Anguillians, it will be challenging to find that balance point as Anguillians developers put pressure on Government to issue licenses for expatriate businesses to fill the buildings they’ve built. Essentially, this is just another dimension of the many questions surrounding immigration (as, for example, Anguillian contractors are pushing Government to issue work permits for expatriate workers so that those Anguillian contractors can meet their construction obligations), it is an interesting new dimension to that question—as it becomes increasingly difficult to know how to ensure Anguilla develops for Anguillians…does Anguillian policy help the Anguillian developer with vacancy rates that are hurting him today, or does Anguillian policy help the future Anguillian businessman who might never have a chance to emerge if foreign owned business fill current real estate vacancies (keeping in mind businesses are not necessarily transitory the way vacationers are). With the foregoing in mind, these challenges will have to be addressed by a quickly changing group of prominent players, as the Governor, the Deputy Governor, the Attorney General and one of Anguilla’s longest serving and most influential Permanent Secretaries are already (or will soon be) en route to new positions.

 

Multiple Moratoriums

As Anguilla attempts to accommodate and adjust to the rapid pace of development that has occurred over the past few years, Government has (quite logically, in my opinion) resorted to development and sales moratoriums in an to attempt to moderate the growth of the economy—for while there are numerous benefits associated with economic progress, such progress poses social challenges which must be analyzed and mitigated…fortunately the Government is attempting to do just that.

The first moratorium Government enacted was the moratorium on major new foreign investment tourism related projects that went into effect November 2005—although that version of the moratorium is due to expire in Nov 2007 (with a construction delay until April 2008) common wisdom is that the moratorium will be extended…perhaps until 2010 or later. One reason for this extension on major foreign investment tourism related projects is that there have been a number of major local investment tourism related projects that have been announced—most significantly, those located at Rendezvous Bay, Conch Bay and Shoal Bay…all of which fits into Government’s desire to increase local ownership of the development process (not just local employment).

This desire for local ownership of what Karl Marx might call the “means of production” has been a clearly defined core principal of Anguilla political thought since August 14, 1967 when The Anguilla White Paper signed by Ronal Webster as Chairman of The Anguilla Island Council entitled “Is it ‘silly’ that Anguilla does not want to become a nation of bus boys?” was published in The New York Times—a copy of which has hung on my office wall for the last 20 years…inspired in part by the message and in part by the fact the signatory is my father in law.

The second moratorium relates to the submission of Alien Land Holding License Applications for any property (either developed or undeveloped) that is not currently alienated—i.e. that is not currently owned under an Alien Land Holding License. Thus far there have been two such moratoriums, each of six weeks that have run consecutively, whereby the first was enacted on February 1, 2007 and the second expired on May 1, 2007--however (as above) common wisdom is that this moratorium will also be extended as Government struggles to put in place new foreign ownership policies and guidelines…perhaps for another six week period, perhaps for several more six week periods.

Ultimately the second moratorium has more potential to be socially problematic and controversial than the first--restricting the sale of non-alienated property puts the Anguillian property owner at a distinct economic disadvantage vis-à-vis the foreigner property owner…a disadvantage which is clearly inconsistent with effect of the first moratorium that restricts new foreign investment projects as that moratorium clearly puts Anguillians in a better economic position by giving them (by giving us) the opportunity to establish development ownership. Thus far there hasn’t been discernable objection to the second moratorium based in part on the short duration of that moratorium (a short duration which is, of course, mitigated by repeated extensions) and by the fact that most Anguillians want a more cohesive real estate policy put in place to prevent over development.

With the above in mind, a couple of thoughts with reference to the moratoriums and their evolution:

With regard to the moratorium on major new foreign owned real estate projects, although there is general consensus on the acceptability of extending that moratorium, there would be value in clearly identifying the geographic areas impacted to take ambiguity out of the situation—in addition, some sort of policy could be put in place to ensure that the owners of prime large parcels that fall within the targeted geographic areas are not unfairly stripped of private wealth by Government’s pursuit of social public policy…for example a land bank could be established to enable Government to purchase (or lease) land it will not permit to be sold (or leased) to foreigners for major tourism projects.

With regard to the moratorium on the sale of locally owned property, although there hasn’t yet been substantial disagreement with that moratorium I believe such disagreement will evolve unless a more effective economic solution is put in place—for example (in an effort to shift demand from the purchase of locally owned undeveloped land, which remains the product type of choice for those not purchasing within managed communities) a policy could be established that allows for the sale of locally owned land but increases the stamp duty on the Alien Land Holding Licenses for such land purchases…concomitantly a decrease in the Alien Land Holding License stamp duty levied on the built structures that sit upon the underlying land would facilitate the sale of existing homes outside of managed communities (which continues to be the slowest segment of the real estate market on island). If a moratorium is deemed to be required in addition to the above suggestions, that moratorium might best be placed on the issuance of building permits--in Anguilla’s current economy there isn’t any contractor that can (legitimately) claim to need more work, but any individual land owner can (legitimately) claim to need the cash infusion that a property sale will bring…and legitimacy is always the bedrock of sustainable policy.

Anguilla’s Real Estate Nuance:
Developing for the Future / Protecting the Past

As everyone who is familiar with Anguilla is aware, there was a substantial amount of real estate investment in marketing, construction and purchasing during the period from 1994 thru 1997—most notably in the arena of larger managed hotel residences featuring preconstruction sales efforts. The first two of these larger managed hotel residences (i.e. Viceroy at Barnes Bay and Flag at Rendezvous Bay) are both being built on sites that were marred by previous failed hotel efforts—in the case of Barnes Bay, Coccoloba; in the case of Rendezvous Bay, Sonesta. As such, Anguilla is in a much better position toady that she was in prior to the start of Viceroy and Flag as work in progress is much better than failed shells in ruin--one only has to look at decaying debris of Mullet Bay Resort in St. Maarten for confirmation of that grim fact. However, with the foregoing in mind, one must be concerned about the apparent troubles both Viceroy and Flag have encountered during their construction phases—and the pressure that has put on other managed residence communities that are being or have been planned… such as the projects at Rendezvous Bay, at Shoal Bay West, at Conch Bay, and at Shoal Bay East, et al. Interestingly enough, the construction issues facing Viceroy and Flag (along with the macro economic issues facing the global economy that are negatively impacting real estate investment and lending) might actually be seen to be having a positive impact on the pace of development on Anguilla as there are many who feel “too much too soon”—which is, of course, why Government put in place a moratorium on foreign owned large scale tourism investments…a moratorium which was at least partially offset by Anguillian owned projects that were approved after the moratorium was instituted (in particular: at Rendezvous Bay, Conch Bay and Shoal Bay East).

An interesting side effect to watch relating of the slow down in real estate investment and sales is the impact that such a slow down will have on corresponding real estate marketing and advertising—both locally and internationally. When things are going well, when the economy is thriving and sales are brisk, there is a tendency to minimize the expenses related to marketing and advertising as being unnecessary—however when things get slower, when the economy is lagging and sales are dormant, there may be a tendency to increase the expenses related to marketing and advertising as being essential in an effort to offset the damage of the downturn…especially in a market such as Anguilla’s where there has been a traditional and steadfast reluctance to lower prices (both on the part of the Anguillian as well as Expatriate owner).

A related side effect of the slow down that will be fascinating to consider relates to the political and educational component of the economic changes—those who felt the planned development was “too much too soon” may be pleased, while those who have invested for the spin off growth envisioned may find themselves struggling, while those who never fully understood the scope of the projects being proposed may simply be perplexed (whether that lack of full understanding encouraged them to feel that more or less was being built than was actually proposed and approved) …a group which most notably might include the younger generation (those currently in school or who have recently graduated).

With the issues facing Anguilla’s real estate market, current conventional wisdom suggests it would be best to be cautious and careful—however, as noted, for many people it is much too late to be cautious or careful as investments and commitments have already been made and they must move forward…hoping for the best, hoping for a turn around, hoping for forward motion. Yet if one has an underlying faith in Anguilla and an underlying understanding of the cyclical nature of real estate markets, one could argue that now is an appropriate time to be a true contrarian and invest—preferably not as a “bottom feeder” taking advantage of others misfortune, but as a proactive and prudent investor…whereby keeping true to Caribbean roots in terms of design and motif is commendable (as is being as green as possible with the development itself). One such project is the redevelopment of the historic Old Factory Complex across from the Catholic Church in the center of The Valley.

Given the economic importance of real estate in general and of the managed communities in particular, The Old Factory Complex is being redeveloped as a real estate gallery to provide a full service overview of the available real estate offerings on island—not only for the benefit of prospective purchasers, but also as an educational facility to ensure the general public (especially the younger portion of the community) is fully aware of and informed about the projects and developments being pursued. While this information is available in news print and at the various sales offices around island, to date there has not been a centralized facility showcasing the impressive array of projects being constructed or contemplated—by working with the developers themselves as well as with Government, the real estate gallery will help bridge an information gap amongst Anguillian and Expatriate alike…by being open to the general public, by facilitating school class trips, by being available for functions and social gatherings, the real estate gallery will assist in bringing real estate development into proper focus and profitability. Facilitating such focus is essential for the debate about real estate development to be meaningful and based on accurate information—facilitating profitability is essential for the entire community…for if new projects fail (whether they fail on new ground or on the grounds of projects that have previously failed) it will be disastrous for us all. As societies and communities grow and as their needs and commitments increase, there must be a concomitant growth in revenue, employment and education--even the Buddhist Kingdom of Bhutan has found it necessary to embrace change--a sobering reminder of its inevitability.

Back to the Future

With the worldwide economic recession upon us all, it will be interesting to see how Anguilla real estate fares—as a wonderful destination boasting world class natural amenities and deluxe resorts, restaurants, mega villas, private villas and managed branded communities for those seeking the quieter more sophisticated Caribbean experience, Anguilla remains very well positioned…but as a bargain hunters paradise it has yet to find its footing. Although prices have begun to decline, the declines have not yet reflected the stock market drop of approximately 40% nor have they returned to the range of prices last seen in 2004—the last year in which pricing could be considered “traditional”…pricing prior to the steep escalation that began in 2005.

With the closing of Flag’s golf course development at Rendezvous Bay and with the delay of the expansion plans of Altamer at Shoal Bay West and concomitant delay of Rendezvous Bay Hotel, with the postponement of Privee at Shoal Bay and of Fairmont at Forest Bay, with the absence of any visible progress at Shoal Bay East and with mystery still surrounding the development at Long Bay, Anguilla’s managed community and preconstruction mega villa experiment (which was fostered by Flag and Viceroy and is dependent on sales prior to construction completion) has hit some very hard bumps—some of which can be blamed on irrational exuberance locally and some of which can be blamed on the same irrationality internationally…sadly, however, at least for the time being the bloom is off the rose.

The Government’s commitment to and approval of projects that focused on the marketing and sale of built property prior to construction completion was quite logical at the time, especially as the initial two preconstruction sales developments came to our shores at a time of economic trauma and were both being built on the sites of failed hotels (which were, in turn, attempting to realize all of their income from hotel operations and not from real estate profits)—however even at that time there was a fear that preconstruction sales would foster the type of speculation that Anguilla had always shunned, previously opting to purse quality of life investors who would be happy to make a positive return on their real estate investment but were not driven by the vision of that positive return. With the foregoing in mind, and with sensitivity to the benefits of hindsight, one wonders what Anguilla would look like today if instead of varying the policy on real estate development to facilitate projects that were primarily corporate and speculative, it varied its policies to promote private individual ownership of larger parcels of land on which high net worth families could build personal manors and estates--even if those sites were beachfront.

Such a policy might have reduced the appeal of the larger managed communities as one of the main claims of those branded environments (in addition to their man made amenities) was the availability of beach front villas and direct beach access—which was unique insofar as Government policy had always been to maintain beach sites for tourism purposes as opposed to private home development. However with advent of the mega villa that blurred the lines between tourism facilities and private homes, a case can be made for the fact adopting an individualized mega villa beach development program (perhaps with caveats restricting how quickly the villa could be sold, perhaps with a beach frontage transfer tax and annual tax surcharge, etc) would have been less disruptive to society, would have enabled better phasing of the construction process and better control over imported labor, would have minimized dependence on a few large projects in favor of a more decentralized approach, and would have resulted in better public beach access (as it’s easier to mandate rights of way between private estates than it is to mandate rights of way between offerings in a managed branded community).

With the above in mind, such an individualized mega villa development program for sites both on and off the beach could still be implemented and could even be adopted by some of the projects that are now finding it so hard to secure funding—a large number of high net worth individuals still exist in the world who could finance their own mega villa even if they couldn’t (or wouldn’t) finance a managed community based on speculative preconstruction sales or buy a mega villa they did not design. However, while contemplating the adoption of a more aggressive and more sympathetic manor or estate development program, it is important that the managed communities and mega villas that have begun are successful—it is not in Anguilla’s interest nor in the interest of any of us fortunate enough to live here to see these projects fail, as they will introduce new and augment the existing stock of valuable manmade amenities when they are completed…but will hurt us all if they do not open as envisioned, even if they open later than envisioned. As a personal commitment to the managed communities and to the mega villas under development, I am in the final stages of opening a real estate gallery which will showcase those offerings as well as showcasing individual luxury villas and parcels of land—the real estate gallery itself is in The Historic Old Factory complex which has been artfully restored (if I may be so bold) to provide a viewing platform that is commensurate with the concepts and visions of our developers and island visionaries (both past and present)…I look forward to personally welcoming you.

Golf, Anyone?

As Anguilla heads into general elections (which will in all likelihood be held in early 2010) the issues concerning the golf course and resort development at Rendezvous Bay may well be a key component of the political discussions--regardless of whether or not the golf course is open or construction has recommenced by the time elections are held. Whereas one would imagine public concern over the issues would abate if deals are in place and progress can be seen, the terms of those deals will inevitably be fuel for political discourse--as well they should be in an open society with reference to such an important project.

In fact, the golf course and the concomitant resort development have been controversial from the start, with concerns over the concessions that were granted to the developers competing against claims that it was crucial to Anguilla's development for the old Sonesta site to be revitalized and for a golf course to be built--sadly whichever position was initially correct Anguilla now finds itself in a situation where more concessions may have to be granted if the golf course project is to proceed...and now that it has begun it is unmistakably crucial to Anguilla's development.

With the foregoing in mind, it's also important to keep Viceroy in sight as elections draw near, whereby Viceroy is scheduled to open over one third of their rooms along with corresponding support services this summer. Interestingly, with all the concerns over the past five years regarding Anguilla becoming over developed, the Viceroy rooms will be the first new hotel rooms to open during those five years--however numerous high end villas have opened during that time, which might appear to be yet another argument favoring a multitude of individual smaller investors as opposed to a handful of larger institutional developers.

If the golf course (and club house, etc) reopen and if construction of the corresponding resort restarts and if Viceroy successfully opens a significant portion of its rooms and facilities, the Anguilla economy will start to expand impressively once again, as that trifecta would have an immediate as well as a long term impact--for not only would such success bode well for those projects themselves it would inevitably increase occupancy rates island wide...for our luxurious high end hotels and villas, as well as for the numerous guest houses and apartments along with the abundance of retail and office spaces that have been built or renovated over the past number of years in anticipation of the influx of workers and support services that were envisioned (with a significant number of local mortgages and corresponding repayment schedules resting on those referenced occupancy rates improving).

On the other hand, if that trifecta does not hit, depending on which or how many of those three legs are missing, Anguilla might find itself in difficult straits for the remainder of this year at a minimum--certainly until the beginning of the next tourism season and the launching of the annual jazz festival in November...for if the economy is cold, happily the music will be hot and woes will abate at least for that one long weekend.

The Trifecta Revisited

In a recent article I wrote for Anguilla Life Magazine I discussed the Trifecta I envisioned on the real estate horizon, whereby a Trifecta (for those who don’t gamble on horses) relates to picking the first, second and third place winners in a race—not an easy trick. At the time the trio of events I focused upon included the reopening of the recreational component of the Temenos project at Rendezvous Bay, the recommencement of construction of the residential component of that project, and the opening of the Viceroy Resort on Barnes Bay--all by the end of 2009.

Interestingly enough two of my three predictions were borne out: Cap Juluca has (albeit temporarily) taken on responsibility for managing and operating the recreational component of the Temenos project at Rendezvous Bay so that the golf course is now open and tee times are being purchased with golf bags being carried and shipped into and out of the island; the Viceroy Resort has opened (albeit with a surfeit of rain) so that guests are now enjoying its sleekly urbane atmosphere which features a diversity of restaurants, eclectic furnishings, and impressive views.

However, a Trifecta isn’t won with two out of three—the ticket can’t be redeemed for two thirds of the winning value…it’s an all or nothing proposition. As such, rather than admit and gracefully accept defeat, allow me to change the length of the race ever so slightly in an effort to let my third prediction (the recommencement of construction of the residential component of the Temenos project at Rendezvous Bay) come to pass, as follows:

With elections due to be constitutionally held no later than early March 2010 and with most prognosticators predicting they will be held by the middle February, I expect that there will be an announcement prior to those elections that will pave the way for the recommencement of construction—whereby that announcement will either confirm a voluntary sale and purchase of the assets (to a purchaser such as the Salamander Group, who have been the most visible suitors thus far) or a compulsory acquisition of those assets (by the Government currently in office).

Anguilla is facing a very interesting election cycle in that Obama’s victory has (I believe) emboldened both voters and candidates with regard to ignoring the traditional power of incumbency (with more candidates expected to pay their deposits on nomination day than ever before) and with three of the current members of the legislature resigning from office (with all three being members part of the ruling coalition). As such there is a guarantee that there will be at least three new representatives in the legislative assembly in 2010, whereby prior to this year only three new legislators have been elected in the twenty five years since 1984—and in each case when an incumbent has not run. Given the combustible mixture of a loss of incumbency inevitability and fewer incumbents running, the possibly for political change is increased—although with just seven elected representatives, there has been a surprising degree of meaningful political change since 1984 as the few times seats have changed hands those changes have often led to changes in the ruling coalition.

As the current construction dormancy of the Temenos project is a fundamental political liability for today’s Government, and as today’s Government would like to be tomorrow’s Government, and as elections put increased focus and pressure on making tough political and economic decisions, it will be interesting to see if the third component of my Trifecta is realized prior to the upcoming elections and if hitting the Trifecta is the current Government’s winning ticket in its electoral efforts—whereby a resolution to the ongoing indecision surrounding the Temenos project will have a very positive impact on the real estate market throughout the island…which has already begun to show signs of substantial rejuvenation.

With purchasers reentering the market and with sellers adopting a more realistic view of post 2008 values, transactions are beginning to close once again—however there is in fact a substantial inventory of unsold homes on Anguilla even though the Government has taken the proactive step of discounting the stamp duty payable on Alien Land Holding Licenses to 5% (for villas valued over US$5,000,000) or 6.25% (for villas valued under US$5,000,000) making the total stamp duty payable on a villa transfer either 10% or 11.25% respectively (instead of the previous amount of 17.5%). It will be intriguing to see the impact on villa inventory that a resolution to the Temenos project might have, as both Cap Juluca and Viceroy have done their part in making my predictions come true and have concomitantly done their part in helping move the real estate market forward, which in turn helps us all.

RESURRECTION

The building sat empty and abandoned, surely feeling forlorn if she could feel—the Grande Dame of Anguillian architecture, society, history and commerce had lost her premier position on island…lost in the rush toward concrete office buildings, small malls and beach front services. But after the fall from grace comes the opportunity for resurrection and salvation whereby the Old Factory has indeed been returned to its position of glory—once again proudly creating a sense of center in the heart of The Valley…once again inviting one and all to enjoy her splendid spaces.

Historically the Old Factory served as the island’s only cotton processing facility and as Anguilla’s first general store—in fact it was (according to eminent historian Colville Petty) “once the center of gravity of Anguilla’s commercial life, which opened for business in the first decade of the 1900’s”. However the Old Factory’s most recent uses over the past decade were much less dramatic, much less pivotal, operating as a furniture store, a warehouse, a paint store and a fried chicken joint--with all those businesses and services gradually moving or dissolving so that the building fell into complete disuse…whereby it remained abandoned throughout the Anguilla boom years of 2004 thru 2007. Enter 2008.

I needed more space to accommodate growing business demands—my Xerox distributorship was expanding, my FedEx center was handling an ever increasing number of packages, my business center was copying and printing and laminating a multitude of documents and building plans, my corporate management section needed additional staff to handle an increasing volume of offshore company incorporations and trademark registrations, whereby my real estate office couldn’t accommodate more than two clients at any one time so that I had to steal chairs from my staff to squeeze a third or fourth real estate client into my real estate office. Enter the Old Factory.

As Anguilla’s economy expanded in the boom years with the explosion of interest in real estate leading the charge, I affiliated with Sotheby’s International Realty to market property on island—and although my offices at the time were deemed adequate, I realized that adequacy was temporary at best…as such, I began to look for a suitable facility to expand. Insofar as I knew the fellow who held the master lease on the Old Factory and insofar as I was very friendly with the owner of the building, negotiations began for me to assume the lease and begin to bring the building back from the brink.

Negotiations took about one month to complete, giving me control of the site in August of 2008—whereby work began the first week of August…amazing but true, construction work was undertaken during Carnival. The initial work focused on the exteriors of the two separate buildings I now controlled—with the first phase of exterior work being to lay a new galvanized roof over the rusted and leaking galvanized roof of the small Stand Alone Building that had most recently housed the paint store, with the second phase of exterior work being to build a new galvanized hip roof over the Concrete Addition that was added to the Old Factory years after its original construction so that the Concrete Addition took on a West Indian design sympathetic to the adjacent historic structure…happily the roof over the main section of the Old Factory itself was in fine condition and didn’t need replacing. Once my new roofs were in place, the buildings were painted in soft Caribbean pastels. Enter the Main Hall.

Having improved the exteriors so that the buildings presented a viable face to the public, the next move was to improve the interiors to ensure the new façade was more than cosmetic—to that end, the Main Hall was the first area of focus. Grease laden tiles were ripped from the walls and floors, caked dirt was scrubbed from the ceilings, dysfunctional restaurant and kitchen equipment was dismantled and trucked away, exposed wiring was pulled off rafters and beams—then floors were repaired and carpet laid, walls were rebuilt in their original wooden context, the ceilings were repainted and renovated, furniture was delivered with all office desks being hand made on island, new wiring and air conditioning systems were installed…the result being a comfortable executive office with a mahogany conference table and flat screen monitor for private real estate showings, an administrative assistant’s station with bamboo furniture to create a sense of privacy for the executive office, four realtor stations divided by mahogany and glass partitions creating separate areas within a sense of openness, and a partially partitioned viewing area featuring a second flat screen monitor where the realtors on duty can review offerings with interested clients. Enter the Stone Cellar.

Having conquered the main hall the next step was to make the Stone Cellar (a very unique structure on Anguilla) usable--from the inception it was my vision to add an art gallery to my real estate offices to maximize the synergy between art and real estate, as embodied in the Sotheby’s concept of developing their real estate services in alignment with their the art expertise. The main challenge of the Stone Cellar appeared to be getting rid of the two inches of muddy water on the floor—however getting rid of that water was in fact quite easy… keeping the cellar dry was another matter all together. After failed attempts at sealing the cellar by changing door and window configurations, I ensured I was down there whenever it rained hoping to see where the water was seeping in—during one exceptionally heavy rain, I saw water actually coming though the walls…not an encouraging sign for an art gallery. Happily the cure wasn’t nearly as traumatic as one might imagine as I was able to isolate the above ground seepage points and cover them with concrete (yes, that grey sludge does have some value, even in historic renovations) whereby the Stone Cellar is now perfectly dry and a perfect Anguilla home for artist in residence, Sir Roland Richardson—the Caribbean’s premier impressionist. Enter the Concrete Addition.

Having put the Main Hall and Stone Cellar into usable condition, the next challenge was to integrate the Concrete Addition that was added to the Old Factory some years ago. Prior to the economic turmoil of 2008, there were numerous large scale developments being marketed on island--as such, the idea evolved to create marketing spaces for those developers so that potential purchasers could get an overview of each offering in one central location. With that concept in mind I subdivided the space to create ten marketing suites—each one defined by handsome solid wood walls to integrate the look of the Concrete Addition to the adjoining Main Hall. However, by the time I finished the marketing suites all of the large scale managed communities had stopped marketing and had become comatose—thankfully the marketing suites themselves were attractive enough and spaced appropriately for me to convert them into an Art Annex…whereby each suite now features the work of a single artist, both local and international. Enter the Stand Alone Building.

From the beginning, I envisioned the Stand Alone Building being developed into a coffee house or café—however I have never made money (in fact I have always lost money) in the food and beverage business…as such I partnered with a successful local restaurateur and his French chef whereby they created The Valley Bistro, a successful breakfast / lunch / tapas eatery catering to both on island residents and tourists. Creatively, the open deck space between the small Stand Alone Building and the Old Factory has been roofed over to establish a West Indian dining atmosphere with beautiful views of the Catholic Church in the near distance. Experience the Resurrection.

The Old Factory Complex is now once again a center of importance in the heart of The Valley. With beautiful real estate offices showcasing the island’s finest real estate offerings, with fine art displayed in an historic Stone Cellar and a lovely Art Annex, with a Caribbean themed dining environment serving throughout the day, the Old Factory Complex has proven that old can be beautiful—and useful…and worthy of respect.

THE REAL ANGUILLA?

Over the last few months I’ve found myself intrigued by the notion of the “Real Anguilla”—not with regard to politics, society or culture (which are outside the scope of my real estate oriented articles) but with regard to development and architecture…so let’s have some fun.

Prior to Hurricane Donna in 1960 the Real Anguilla consisted primarily of wood and galvanized homes with occasional stone clad structures—most of these buildings have hip roves and brightly painted hurricane shutters and embody what one might wistfully call a traditional West Indian look…while there are not many of these buildings still standing due to Hurricane Donna, they do exist. The road to Crocus Bay is a notable stretch with the Wardens Place (a component of Koal Keel restaurant) being significant; The Valley has a handful of notable older buildings such as Wallblake House (on the Catholic Church grounds) and The Old Factory (home to my real estate office and art gallery); and on George Hill there’s a charming old building (which once was my Xerox office) to name a few--whereby the Anguilla Archeological and Historical Society is organizing a Heritage Trail to identify many of these structure for our guests…a wonderful plan.

Post Hurricane Donna construction shifted to a more durable model—one that focused on concrete and block as opposed to wood, galvanized and stone…it was this era that saw the rise of a number of prominent Anguillan businessmen, with Albert Lake being preeminent with regard to the importation of cement. The architectural style of these homes were primarily rectangular with flat roofs—often with steel bars projecting above the roof line to pick up columns for envisioned second stories…while seldom dramatic in appearance they were safe and sensible structures.

As such, thus far the Real Anguilla as defined by Anguillans was either of a traditional West Indian design or of basic buildings built for security and family expansion—enter the developer and the beginning of new definitions.

My father and my family were the first of the Post Revolution investors on Anguilla—we designed, built, managed and owned Cinnamon Reef Hotel from 1975 thru 2001…an absolutely wonderful experience. While I don’t want to over state the significance of what we did, I’d rather not minimize it, for we introduced the individual upscale villa model of hotel development and design to Anguilla--a design motif which became the Real Anguilla for a number of years and (I dare say) remains the model for measurement. While using concrete and block as the primary building material of the Post Hurricane Donna years, we introduced an interesting and eclectic architecture to the mix while maintaining a low density to the overall project—an eclectic that evolved into a Mediterranean / Moorish / Modern motif.

Larger more sophisticated resorts were built subsequent to Cinnamon Reef, but there was a similarity of approach—whether one looks at Malliouhana or Cuisinart or Cap Juluca or Cove Castles or Carimar or Altamer, there is an interesting and eclectic concrete architecture with a villa focus to the development and a reliance on open space to help define their elegance… although both Malliouhana and Cuisinart have central facilities buildings with guest rooms, their fundamental identity comes from (I believe) their villas.

Correspondingly, the individual homes built by the majority of land purchasers from overseas followed the model whereby Anguillans themselves began to follow suit--large and ornate villas of concrete and block leading to larger and more ornate villas of concrete, granite and marble…the old style West Indian motif defined in part by brightly painted wooden shutters, seemed to disappear from the architectural vernacular (sadly).

Now, to the modern era of design, defined (I’d suggest) by condo hotels which focus on real estate presales within a resort environment—although there were numerous such developments on the horizon prior to September 2008, just a handful began or survived…for the moment I’ll focus on Temenos at Rendezvous Bay, Viceroy at Barnes Bay and Shoal Bay Resort & Spa at Madeariman.

Whereby Temenos at Rendezvous Bay is Anguilla’s most glaring development failure, its architecture and design is fairly compatible with the Real Anguilla as defined by the grand hotels noted above—villa based, concrete and ornate in design with a Mediterranean / Moorish feel. On the other hand, Viceroy is regularly chided for not being part of the “Real Anguilla” insofar as it feels more monolithic--and although the project does contain of a number of villas the central buildings seem to dominate the resort’s atmosphere…whereby the architecture is the most radical departure from the Mediterranean / Moorish model referenced above. As for Shoal Bay Resort & Spa at Madeariman, which actually advertises itself as the “Real Anguilla” while I truly like its large glass walls and gull wing roof lines it too is a significant departure from what has been designed for Anguilla thus far—although it is a villa based project, its represents a significant (but welcome) departure from previous design types on island…one without an immediate design connection anything that has gone before (hence why “real” architecturally?).

As such, let me be so bold as to put forth a definition for the “Real Anguilla” to welcome both Viceroy and Madeariman into the fold: The Real Anguilla encompasses design that is well done, even if different; design that is defined by an up market approach to the built experience, is not rigidly defined by what has gone before but is open to architectural evolution provided it is upscale and (hopefully) a bit eclectic. Such an open definition has both social and economic value as well as enables and facilitates an inclusive architectural diversity--for I remember when I was told Cinnamon Reef was not the Real Anguilla and that we were ruining the island by building fourteen one bedroom villas on eleven acres…an accusation that didn’t run deep and was mainly voiced by a contented expatriate community, but one which I vividly recall with amusement in hindsight.

ANGUILLA’S PRICING PARADOX

Somewhat akin to the chicken or egg trauma that has plagued mankind for centuries (as in “Which came first?”) Anguilla now suffers from a similar time line dilemma—over priced properties or an underperforming market (again, “Which came first?”)…personally I believe the chronological question is ultimately immaterial in both scenarios. Chickens and eggs are similarly quite tasty and readily available, so which is antecedent is ultimately moot (unless, perhaps, you’re a Fundamentalist Darwinian)--on the other hand, over priced properties and an underperforming market both result in real estate illiquidity (a scenario which has been fundamentally true on island for the past two years) so, once again, which is antecedent is ultimately moot…however we can address and hopefully correct the illiquidity issue by recognizing it and addressing the problem creatively.

In the 10 year period from 1994 thru 2004, an average of 20 Alien Land Holding Licenses were issued each year; in the 4 year period from 2004 to 2008 an average of 20 Alien Land Holding Licenses were (seemingly) issued each month; during the 2 year period from 2008 thru 2010, less than 10 Alien Land Holding Licenses were issued in that 24 month stretch (excepting residual Viceroy applications)—when those bleak expatriate numbers are added to the fact that Anguillan purchases of real estate have followed the same basic pattern you have a market that went from steady but slow, to spectacular yet unsustainable, to stagnant and virtually illiquid…a progression that isn’t in anyone’s interest.

With fear and trepidation, another question for the ages: “If a tree falls in the forest and neither man nor beast hear it, does it make noise?”—my belief: of course it makes noise. I raise the conundrum because I am frequently (nay, always) asked by sellers if it makes sense to lower their property prices given the fact the market itself is so slow--my belief: of course it makes sense. Simply put: Price Does Matter. Anguilla is special, it is unique, it has been my home for nearly 35 years—but at a certain point it is not immune from the laws of nature nor from the economics of real estate reality…so whichever came first (slow market or over pricing) to expeditiously move things forward prices must come down.

The market for luxury holiday homes has been among the most negatively impacted segments of the real estate market worldwide since the autumn of 2008—with appreciation no longer assumed but doubted and with depreciation no longer ignored but feared, pricing must reflect those new realities if proprietors truly want to sell their properties. Of course if finances and optimism allow an owner to hold the asset while the property ages and while maintenance expenses increase in the hope that the market will turn around sufficiently to offset those inevitable costs, so be it—but if one wants to move forward, if one wants to acknowledge that price recovery in the luxury discretionary vacation home market will be very slow in coming, one should reconsider their property pricing…whereby on Anguilla a key to that reconsideration is the revaluing of “sweat equity”.

By “sweat equity” I mean the angst and frustration of building a home on island—while high quality construction on Anguilla is certainly and demonstrably possible, it is neither easy nor inexpensive…as such owners have (in my opinion) put unrealistic premiums on their efforts with reference to what a purchaser would be willing to pay for that efforts. Just because it took three years to build a home instead of eighteen months, just because frustration may have replaced rapture during the construction process, just because easy going had to give way to hard edge to ensure the property was finally completed, does not mean one can double or triple the cost base of the home when trying to sell it—essentially, given the current market, that sweat equity premium gets eaten by the 12.5% stamp duty on the Alien Land Holding License…which when added to the 5% stamp duty on the title transfer of the property itself yields a 17.5% tax hit at closing (tough).

Reverting back to the time lines noted above, during the 10 year period from 1994 thru 2004 appreciation was negligible and seldom a major factor in purchasers’ minds—prices were relatively low and purchasers focused on quality of life rather than rate of return. In the 4 year period from 2004 to 2008, appreciation was astronomical whereby both quality of life and rate of return purchases were in play—during that stretch closing prices for undeveloped coastal rocky foreshore (a very good base line) increased by nearly 400%...from approximately US$250,000 per acre to approximately US$1,000,000 per acre. During the 2 year period from 2008 thru 2010, stagnation and deflation have become the norm whereby closing prices on such undeveloped land during that period decreased by about 50% from their 2008 peaks—to approximately US$500,000 per acre…which means that prices are still 200% above their pre 2004 levels, so all gains were not lost. However that base line discount should be reflective of general pricing trends and should give home owners pause with regard to their villa pricing—what one might have thought their asset would realize in 2008, it will realize 50% of that amount now in 2010 / 2011…as such, Price Does Matter.

With the foregoing in mind, it’s not surprising that today’s purchasers are once again (in my opinion) primarily quality of life oriented and as such will not accept having their quality of life negatively impacted by excessive pricing—whereby if the purchaser happens to be rate of return oriented, they will also refuse to buy into excessive pricing…as such, in either case, Price Does Matter.


Scott Hauser was born in the United States and moved to Anguilla in 1976, having been involved in numerous development and business ventures since his arrival on island. In 1989, Mr. Hauser left Anguilla for two years to pursue and earn a Pre-professional Degree in Architecture from the Harvard Graduate School of Design and a Masters Degree in Real Estate Development from MIT, both universities being in Cambridge, Massachusetts. Since returning to Anguilla in 1991, Mr. Hauser’s primary area of interest has been in the marketing and sale of luxury residential real estate, whereby he has represented Sotheby’s International Realty since 1995—initially as an unaffiliated associate and currently as a fully affiliated associate being the Director and Principal Realtor of “Anguilla Properties – Sotheby’s International Realty”. Mr. Hauser can be reached at scott.hauser@sothebysrealty.com. Phone: 264.498.0123 / Fax: 264.497.2820 / Skype: Director.AXA.SIR

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