There are a few criteria where one cannot accept compromises – one is the title. As an island buyer, you should insist on an unencumbered freehold title for the entire island against the purchase price. In a few cases, a small property owned by a third party might be acceptable – for example, the government may own a lighthouse on an island.
Freehold means that you own the property 100%.
Leasehold means that somebody else owns the property and you only have the right to use the island for, in some cases, specific purposes. A leasehold island has the following disadvantages:
You do not own the island.
You can only use the island for a specific time – meaning that the longer you have the leasehold on the island, the less the developments, for which you have paid, are worth. If the lease is for a specific use and you wish to change the use, you may lose your rights to the island.
Most importantly: You cannot insure your island against expropriation, as you do not own the island. Should an expropriation take place, you will not be compensated for the land. Expropriations happen rarely, but they do take place if properties and/or islands are declared to be either parks or used for strategic purposes for example.
In many cases, leasehold islands are being offered for freehold prices. Of course, this is ridiculous. A leasehold island is, on average (depending on its developments), only worth 20% of the freehold island.
To make sure that the island has a good unencumbered freehold title, a solicitor, whom you employ from the area where the island is located, will be of assistance. Make sure that the freehold title is also recorded in a public registry (seek solicitor’s advice). The solicitor will advise you on the following matters:
- Title – tenure, whether it is unencumbered
- Building permit availability or building permit issued for existing houses
- Environmental laws affecting the island or the area
Also, before you purchase an island, we recommend that you speak to a chartered accountant residing in the host country, to see what tax consequences you would have to face – for example:
- Deed Transfer Tax or Purchase Tax, Stamp Duty
- Obligation of purchaser should the vendor fail to pay his/her taxes on profits realised
- Wealth tax, inheritance tax, gift tax
- What kind of income tax you would be up for in the case of a resale
For a proper due diligence, you should also speak to an engineer/architect about the quality of the existing buildings and also regarding which laws apply if you build a wharf.
When choosing a solicitor, we suggest that you do not obtain the contact necessarily from the vendor and not from the agent. You should find a solicitor independently – perhaps through your local embassy. In certain countries, independent advice is extremely important.
We have gained a lot of experience and are more than happy to share this with you. If you have any questions, please do not hesitate to call us.