Minister: Reduction Of ARV Levels For Purchases

April 27, 2016

Government plans to lower the minimum Annual Rental Value at which non-Bermudians and non-permanent residents may purchase residential property from $153,000 to $126,000, as well as reduce the minimum ARV threshold of $32,400 for condos to $25,800, Minister of Home Affairs Michael Fahy announced today.

The Minister said, “Such action will help stimulate economic activity at the higher end of the property market in Bermuda, thus helping with Bermuda’s overall balance of payments in future sales.

“The motivating factor behind this decision is the reduction of the value of the property sector in recent years and the corresponding reduction of Annual Rental Values, or ‘ARVs’, across the board in Bermuda. This reduction came about during the preparation of the 2015 draft valuation list, which reflects an analysis of rental information across Bermuda.

“The draft list confirms the widely held opinion of many in the property sector, and in the community, that rental values in the open market generally have fallen between the valuation date of December 31, 2009, for the previous 2009 valuation list and July 1, 2014, which is the valuation date for the valuation units in the current 2015 draft valuation list.

Minister Fahy added, “I wish to remind the public that Part VI of the Bermuda Immigration and Protection Act 1956 contains provisions aimed at protecting land in Bermuda for Bermudians. That Part also contains robust anti-fronting provisions which prevent individuals from using trust arrangements to circumvent the protections of the Act.

“Let me emphasize that these protections will remain unaffected – Restricted Persons will continue to require the permission of the Minister to purchase and hold land in Bermuda and the total acreage of land which may be held by Restricted Persons will not change and will remain at 2,500 acres.

“As I stated last year, liberalising real estate for PRCs and other non-Bermudians can be a sensitive topic for some Bermudians. But let me stress that our motivation in bringing this legislation forward is to stimulate a waning real estate market. Many of us know of at least one property that remains empty. Some of us may even be in the unfortunate position of being unable to sell such property ourselves.

“It is clear to the Ministry that it is Bermudians who are primarily hurt by a real estate market which is not as robust as it can be. There are many Bermudians with property to sell but no one to buy. As a result, many of these Bermudians have seen the value of their investments plummet as a result of the status quo. Government is dedicated to helping these individuals.

“This legislative change will continue our efforts to ease their burden a bit by maintaining our property market in a bid to attract more foreign investment to these shores.

“By welcoming foreign investors and by attracting more people to our shores, we can achieve the kind of recovery that grows jobs and incomes for Bermudians.”

The Minister’s full remarks are below:

Good morning,

Today I am here to announce that Government will be enacting regulations that will lower the minimum Annual Rental Value at which non-Bermudians and non-permanent residents, referred to as ‘Restricted Persons’ may purchase residential property from $153,000 to $126,000. Additionally, we will be reducing the minimum ARV threshold of $32,400 for condos to $25,800.

Such action will help stimulate economic activity at the higher end of the property market in Bermuda, thus helping with Bermuda’s overall balance of payments in future sales.

This follows on from the November 2013 ‘Speech From the Throne’ whereby the Ministry of Economic Development committed to working with the Ministry of Home Affairs to move forward with proposals to improve property market conditions.

The motivating factor behind this decision is the reduction of the value of the property sector in recent years and the corresponding reduction of Annual Rental Values, or ‘ARVs’, across the board in Bermuda. This reduction came about during the preparation of the 2015 draft valuation list, which reflects an analysis of rental information across Bermuda.

The draft list confirms the widely held opinion of many in the property sector, and in the community, that rental values in the open market generally have fallen between the valuation date of December 31, 2009, for the previous 2009 valuation list and July 1, 2014, which is the valuation date for the valuation units in the current 2015 draft valuation list.

Now that the Department of Land Valuation has finalised the new valuation list, which takes effect [retroactively] from January 1, 2016, the new list has lowered ARVs, which will require an adjustment to the ARV threshold for residential property for Restricted Persons.

As you may recall, the ARV at which Restricted Persons may purchase residential property was reduced last year to $153,000. With the fall in housing prices leading to a fall in ARVs being announced as I have just outlined, the minimum needs to be adjusted in order to capture the same group of properties which were previously available to Restricted Persons.

There are currently 425 designated condo units in the 2009 Valuation list with a current minimum ARV threshold of $32,400. In order for these designated units to remain available to restricted persons, the ARV must be reduced to $25,800 per the 2015 Draft Valuation List. If this threshold is not adjusted, 61 designated condos would fall below the minimum threshold of $32,400. As relating to residential units other than condos, there are currently 424 valuation units in the 2009 Valuation List with a minimum ARV of $153,000. To achieve relatively the same number of properties in the 2015 Draft Valuation List, the threshold must be reduced to $126,000 [equating to 426 valuation units] if the threshold is not adjusted, 198 valuation units would fall below the minimum threshold of $153,000.

If the Ministry does not act, then the economic stimulus provided by the reduction from last year will be reversed. This change will ensure that we are able to maintain efforts to save the floundering real estate market in Bermuda.

I wish to remind the public that Part VI of the Bermuda Immigration and Protection Act 1956 contains provisions aimed at protecting land in Bermuda for Bermudians. That Part also contains robust anti-fronting provisions which prevent individuals from using trust arrangements to circumvent the protections of the Act. Let me emphasize that these protections will remain unaffected – Restricted Persons will continue to require the permission of the Minister to purchase and hold land in Bermuda and the total acreage of land which may be held by Restricted Persons will not change and will remain at 2,500 acres.

The Act allows only the most expensive properties in Bermuda to be bought by Restricted Persons. The ARV is the threshold for these properties.

As I stated last year, liberalising real estate for PRCs and other non-Bermudians can be a sensitive topic for some Bermudians. But let me stress that our motivation in bringing this legislation forward is to stimulate a waning real estate market. Many of us know of at least one property that remains empty. Some of us may even be in the unfortunate position of being unable to sell such property ourselves.

It is clear to the Ministry that it is Bermudians who are primarily hurt by a real estate market which is not as robust as it can be. There are many Bermudians with property to sell but no one to buy. As a result, many of these Bermudians have seen the value of their investments plummet as a result of the status quo. Government is dedicated to helping these individuals.

This legislative change will continue our efforts to ease their burden a bit by maintaining our property market in a bid to attract more foreign investment to these shores.

By welcoming foreign investors and by attracting more people to our shores, we can achieve the kind of recovery that grows jobs and incomes for Bermudians.

I do not need to explain how in recent years, Bermuda had become less attractive for foreign investment, and how we paid the price in jobs, business closures, lost rents and lost confidence. The current Government has been hard at work to change that, to make Bermuda a more attractive place to do business, with less red tape and more red carpet. This set of regulations is a part of Government’s multi-pronged strategy to put in place conditions that lead to job creation.

Each transaction involving the sale of a property to a non-Bermudian leads to government revenue: stamp duty of the purchase, the land-holding charge on the property and the licence application fee. Such a transaction involves a net improvement to our balance of payments as funds are transferred from a non-Bermudian to a Bermudian seller, to Government and to various support services [such as banking and legal].

Based on detailed submissions received by industry stakeholders, I can report that when high net worth non-Bermudian purchasers acquire property in Bermuda, they almost always then expend considerable funds in the renovation of the property in order to have it suit their requirements. In certain cases, the renovation costs have almost matched or exceeded the initial purchase price itself.

This contributes to an economic multiplier effect and feeds back into our economy through increased Government revenue by way of import duties and payroll tax on construction, landscaping and housekeeping workers. All of this is in aid of Government’s efforts to foster job creation. This is and will continue to be the singular focus of this Government.

Thank you.

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Comments (19)

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  1. LiarLiar says:

    Completely understand the rationale for doing so in light of the recent ARV reductions.

    A house with a $126,000 ARV equates to an annual land tax bill of over $14k. Not many Bermudians can afford such houses, myself included.

    Despite the number of available properties, for these categories, will stay the same will fall on deaf ears for many.

    *Grabs popcorn*

  2. Rhonda says:

    So the Bermuda govt is keen on making it easier to purchase the homes of struggling homeowners. When they “oba”"show you who they are believe them.

    • Zevon says:

      So you’re cncerned because a Bermudian who wants to sell a house might be able to do that?

  3. M says:

    From Coldwell Bank last July:

    Coldwell Banker Bermuda Realty has some new data that shows the real estate market is starting to mimic the summer weather conditions…. Hot! It is exciting to see the renewed interest and confidence in real estate with a cautious return to stable prices; multiple offers; and in some cases buyers looking to purchase for investment.

    From Coldwell Bank last July:

    Coldwell Banker Bermuda Realty has some new data that shows the real estate market is starting to mimic the summer weather conditions…. Hot! It is exciting to see the renewed interest and confidence in real estate with a cautious return to stable prices; multiple offers; and in some cases buyers looking to purchase for investment.

    So tell me why the local real estate market needs more help when it appears to be correcting itself.

    • Rada Gast says:

      You are placing a large amount of faith on a press release issued by a real estate agent – such documents being long on vague generalities and short on actual facts.

    • Toodle-oo says:

      Coldwell , and any other real estate company for that matter , will say anything to make it look like the market is rebounding so they can increase asking prices and up their commissions .

      What’s really going on in the local real estate world is not promising whatsoever . A fire sale here or there or a foreigner who has no idea of what an unstable mess this place is in buying a multi million dollar property hardly represents a healthy and rebounding marketplace.

      • Onion says:

        They have no power over the market. The market is driven by buyers and sellers, they choose the prices.

  4. Why not make it easier for Bermudians to hold on to their properties, as we are loosing jobs and being overlooked to cater to de non-Bermudian. What makes you think MOST Bermudians want to sell instead of trying to hold on to it and pass it down to their kin, knowing that the non-Bermudian have a higher % of employment and pay scale compared to the Bermudian.
    Total Bull S!@# !!!!!!!!!!!!!!!!!!!!!!!!!!!!
    No one respect de old cedar tree, everyone seems to come before we.

  5. Onion says:

    Another stupid own goal. What the hell are the OBA thinking.

  6. youSerz!? says:

    This plan is all the bad names under the sun! Im a mom who is still unable to get a job and whats worst the only place to call home is the bushes!!!! Cant afford rent or to buy! Wtf!

    • Truthhertz says:

      You have Internet access in the bushes?

    • inna says:

      Unable to get a job, but you have money for internet access??

  7. campervan. says:

    Half the Island has a “For Sale” sign at the front gate.
    Places are becoming dilapidated.
    Bermuda real estate has stagnated and dropped for 8 years. (elsewhere it has risen dramatically)
    There are swathes of bank repos hidden on the books.
    Bermudians and expats are leaving or planning to retire abroad, so the res pop is drifting down.
    A sizeable section of the Bermudian population is fervently against any kind of naturalization of LTR’s
    Birth rate is dropping.

    RENT and RUN.

  8. Notsofast says:

    When Government reduced the licensing fee for non-Bermudians to acquire property it was hoped that this would stimulate buying in the high end residential sector. I’m afraid that even with that initiative there wasn’t a run on real estate in Bermuda. Sales remained flat.

    If ever I see a long line of international buyers wanting to buy Bermuda real estate I will think what a wonderful, wonderful problem to have; people wanting to invest in Bermuda!

  9. Support common sense policies says:

    As a PRC and “affluent” individual I have totally ruled out any future property investment in Bermuda since it became clear to me recently that this country is close to total anarchy. Why the hell would I buy into a “falling knife” in a “country” whose population lives in a bubble of total ignorance, arrogance, decades of engrained entitlement mentality and common sense politics is impossible due to racist stigmatism!?…

  10. Honestly says:

    This Govt. needs to start supporting Bermudians!!! I’m sick of them making life easier for non-Bermudians, lowering cost, changing an act or policy to support more to come n live here. First things first! Doing too much changing of laws and policies for my liking!

  11. Average Bermudian says:

    fey ?

  12. santi says:

    Were not the license fees % of purchase price reduced dramatically for condo and single family homes only a few years ago (25% 27% to 12.5% or something for houses) under the similar guise to ‘stimulate the real estate’ market?! So then this is another ‘stimulate the market mechanism’ inferring the previous one did not work as planned.

    I note a re-emphasis on the change of: it used to be ~ 200 single home properties available (under former ARV rules) (excl tourism dev. condos) — now it is 2500 acres across the island with no limit on parish. Even with all those 126K to 153k ARV non Bermudian owned homes?

    I must say the inventory in high-end is much more (listings) than I ever recall. And Rego mostly has a lot of the listings and Coldwell Banker has almost nothing listed on their own in that space.

    I recall 126K was the ARV prior to 2005, 2006-2009 was 153k and in 2012 it went to 177k, if I recall correctly.

    So there is some historical formula to the # picking.

    Not many tools left to “stimulate the real estate economy”.

    Sharing opinions – though I may be wrong on some facts.