Tuesday, February 21, 2017

Island Checklist - Island Values

Each purchase is an investment, regardless if the island is used for holiday purposes or not. Purchasers want to be able to sell their island at a later date, therefore the prerequisites of the island market need to be understood.

There are two aspects of the island market:

(1) An island market which is only locally driven:

In this case, the island buyers are mainly locals – either because of the applicable laws controlling foreign investments or because of climate and other circumstances. In those cases, it is important to know that even if a foreigner buys an island and wants to sell it at a later date, the demand may be very limited and the buying power may only come from locals. Because of this, it is detrimental to investments to buy at prices only foreigners can afford.

We have seen countries, where islands could be bought for US $50,000 to US $100,000 among locals and then offered on the international market for US $4,000,000 or US $5,000,000. These advertisements can be seen everywhere. Needless to say, the seller will not find a buyer.

(2) There are also island markets, which are only foreign driven:

Here, foreigners are allowed to buy with/without a permit in an area of moderate climate, etc. However, where locals are not wealthy enough, only foreigners are able to determine the property values and prices. The risk here is, that at some point, there may be laws restricting purchases by foreigners and the island owners will not be able to get back what they paid for the property. In such cases, only a local can buy. In the past thirty years, we have seen this happen again and again and are surprised how unaware of this some investors are.

(3) Then there is the open and free market, such as in Western Europe and North America, where both locals and foreigners purchase islands:

In the past 30 – 40 years, there have been no drastic changes in any laws. This is the best basis for a reliable investment with best growth potential.

So we advise island buyers to look around and see how well the islands are accepted in the immediate neighborhood. There are areas, where each rock jutting out of the ocean has been developed with a home, indicating a high demand. There are also areas in the world, where islands are left untouched for decades- this has its reasons.

As with all commodities, smart purchasers have a checklist, to which they should adhere. An island purchase is as delicate as flying a plane.