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    Anguilla:
  Tranquillity
   Wrapped
         in
      Blue

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.

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