Column: It Will Never Lose Its Value?

March 10, 2017

[Opinion column written by Larry Burchall]

Samuel Clemens – better known as Mark Twain and one of Bermuda’s early tourists – once said: “Buy land, they’re not making it anymore.” For Bermudians, that statement and investor sentiment was Bermudian-ized to “Buy a piece of the rock, it’ll never lose its value.”

Until 2008, in Bermuda and for Bermudians, both statements held true. However, since 2008, neither has been correct.

Acknowledging the 1,300 acres that the USA added between 1941 and 1943, and accepting the nine acres currently being created in Dockyard for the 2017 America’s Cup; Bermuda’s land space will not grow materially after 2017. Bermuda’s practical land-creating phase is over.

But that’s not all. Eighty-eight years of steady growth in Bermuda’s overall resident population joined up with an economy that grew and grew and grew. Proof?

In 1920, then an agrarian society, Bermuda’s GDP per capita would probably have been about 25% of the USA’s GDP per capita. In 1983, at $48,000, Bermuda’s GDP per capita matched that of the USA. In 2008, at $95,000, Bermuda’s GDP per capita was almost twice that of the USA.

Now that is real, undeniable, huge, economic growth.

That growth was created by a combining of population growths and national business model [*] change. The Bermudian component grew from about 19,000 in 1920 to 50,000 in 2008. The non-Bermudian population grew from about 2,000 in 1920 to around 18,000 in 2008. [[*] From Tourist Playground {1920 – 1993} to Business Park {1994 – now}].

Now that is real, undeniable, huge, population growth.

But the critical growth was in the non-Bermudian component. All of that population growth created a huge sustaineddemand for residential units.

However, since 2008, Bermuda has experienced a population decline. From a calculated 2008 high around 68,800, Government reports[**] that Bermuda’s resident population was down to 61,695 in 2016. And that’s where Mark Twain’s 1900’s credo falls apart. [[**] October 2016 Bond Prospectus for the $665m.]

Within Bermuda’s population of Bermudians, three things have happened:

One – Bermuda’s Bermudian birthrate has fallen dramatically. In 2014 & 2015, Bermudians were dying faster than they were being born. Reflecting a long downtrend, in those two years, there were 878 Bermudians born, while 935 Bermudians died. This gave an abnormal two year ‘negative increase’ of 57. More Bermudians into coffins. Fewer new Bermudians into baby cots. This is not expected to change in 2016.

Two – Certainly since 2000, and probably before, Bermudians have been emigrating and Bermudian students not returning, in sufficient numbers that not even the creation of more Bermudians through Status grants has not created offsetting growth in the total number of Bermudians in Bermuda. Between 2000 and 2010, there were 1,818 grants of Bermuda Status. However, with 48,746 Bermudians in Census 2000 and 50,565 in Census 2010, there were only 1,819 more Bermudians in 2010 than in 2000. That means that in that decade, at least 1,819 Bermudians had to have been born AND then emigrated or failed to return from their studies overseas. Looking at the birth figures for that decade, it’s likely that over 2,100 Bermudians emigrated or failed to return. The mini-Census results should be out by September 2017. The population figures therein should give a better handle on this key matter of ‘disappearing’ Bermudians.

Three – The first two points combine to create the third point, which is that the demand for housing in Bermuda for Bermudians has already declined and will continue to decline or flat-line.

Getting a ‘piece of the rock’ may still provide many forms of satisfaction to Bermudians. However, that ninety year-old adage that ‘the price of land and houses’ will always increase, no longer holds true. Given the steadily declining population of Bermudians, the demand for residential units to house Bermudians must also decline.

Is there any evidence of this? Yes.

All three of Bermuda’s local-dealing banks have a number of ‘non-performing loans’ [many are mortgages]. A Standard & Poor’s report about three years ago suggested that the aggregate of their exposure was between $1.3bn – $1.6bn.

From 2009, Bermuda’s rental situation went from undersupply to oversupply. Bermuda experienced an explosion of ‘For Rent’ signs and ads. Something that Bermuda had never before seen.

House prices have fallen. Many residences have had a ‘Bermuda foreclosure’. Residences that have been up for auction have, in some cases, attracted no bidders at all. In other cases, when there was a bid, the bid price was well below the ‘reserve’ price.

In October 2016, a beachside two-bedroom South Shore Road residence, whose last known selling price – in 2008 – was $630,000, was put up for auction. The Auctioneer dropped his request for an opening bid of $375,000 to $350,000. He got one bid at that price. With no further interest among the half-dozen people who attended, the Auctioneer withdrew the property saying that it had not reached its ‘reserve’.

Clearly, since 2008, driven principally by a falling demographic, the value of a ‘piece of the rock’ has declined. That decline is unlikely to reverse.

The ninety-six year-old sacred idea that the price of Bermuda property would always increase is now dead as a doornail. Clearly, with the banks offering interest rates between 0.75% short-term and 5% if you lock your dollars up for at least five years, there is a need for a re-think and reset.

In 2017 and going forward, Bermudians need to sit, see, and think about how real estate values are likely to go in Bermuda’s near future. All Bermudians need to do a deep re-think and re-set on how and where they invest their savings.

- Larry Burchall

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Comments (7)

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  1. Justin says:
    March 10, 2017

    I’m not sure where you are going with this, Larry? You are crying that the res pop is declining and therefore housing prices are declining, but you were staunchly against the Pathways to Status Bill. You can’t have it both ways…

  2. jiggs bda says:
    March 10, 2017

    I only recall Larry being against the Airport deal, not the Pathways deal… he has been beating the shrinking population drum for at least 5 years, unless i missed something.

  3. Albie says:
    March 11, 2017

    Larry it’s going to get worse.

    Many property owners have been handed a lifeline as a result of hundreds of staff, competitors and in some cases whole families being here in support of the Americas Cup. Many more property owners will benefit from renting out rooms and in some cases their own homes to visitors who will be here specifically for that event.

    We should all pray for Team Oracle to be victorious as they have said that they would keep their base here and by extension would greatly assist in supporting the local rental market as well as the economy as a whole.

    Regarding emigration we all know of Bermudians who have found Bermuda to be too expensive to bring up a family or for a growing number, to retire. Then too there are those who are unable to persue their life goals in our lovely but quite limiting island home. Also do not forget those who choose to leave our shores because they find Bermuda intolerant of their sexual orientation. Finally we continue to also export gang members notably to the U.K. I believe that few of our emigrants will return to our shores and take up residence. They are in effect, lost.

    If real estate values are to return to previous levels there is no alternate save to increase Immigration. Those immigrants must see value in residing in Bermuda and if not they will not come.

  4. JUNK YARD DOG says:
    March 12, 2017

    REAL ESTATE VALUES.

    Let’s put commercial Real Estate aside for the time being.

    Would you believe that there are some overbuilt low budget properties built on a postage stamp in Bermuda which have priced them selves out of the Real estate market.

    I am not going to tell you how to value Bermuda residential Real estate only point out why “A” is worth more than “B”

    Let me start of by saying that Bermuda real estate values over the last 8 to 12 years for the ready built has declined not because our real estate is worth any less,because that is not so, it is all about the perceived value, yet we see the cost of new construction has increased with location and neighborhood having a lot to do with it.

    You may ask what is more valuable ?

    A cottage in a pretty garden or a mansion next to city dump ! it all about location.

    Do you want a warehouse or a home ?

    There is no shortage of ready builds every thing is for sale , there is a shortage of suitable vacant land which is our most valuable asset.

    Not every body is skilled in the art of determining current day market value as many rely on the experience others or go comparison shopping, that concept is not Acceptable ! hey ! we are not buying kitchens or bedrooms or bathrooms here! its the total package.

    May be if you are buying a new car that comparison exercise does and may apply, but is not the same as buying your first home.

    Our Bermuda homes are all unique in one way or another with the questionable common denominator being the roof construction and height.

    let me throw the first stone , it is not just recessions which come and goe,as there will be more,as we have had many recession over the years. the perceived shortage of cash and the availability of bank mortgages that affects value.

    However you can blame some of it on the manipulating inexperienced real estate agent who is looking at their bottom line, you guessed it,their commission.

    There are those people who will only get one shot at it, they will not get a second chance, as they loose their first time home owner qualifications.

    The heart break comes when there are others who have disposable income or house flippers who are skilled in the art of putty and paint
    Always think long term can you retire in that house, do you need later in life to down size, should you invest in a condo,demolish and rebuild.

    Remember one mans junk is another mans treasure , is it a fixer upper , do you have the money or experience for that project ?

    Many older homes of say 70 years plus will not function as those with all the latest conveniences.

    A prudent purchaser of Real estate will explore all 101 options and know what they require before making that critical phone call to the agents boiler room.

  5. rodney smith says:
    March 12, 2017

    This calls for a national conversation. We need more people . They will only be foreigners , not returning Bermudians. We must ask ourselves, ” Why are we prepared to pay foreigners more than Bermudians , in their own country ?” Yes you say ,”Skill set.’ but even Bermudians with equal qualifications are paid less .Land/Housing, Unless people find an alternative place to live, housing will be always in demand (Rodney Smith) . But we must answer the $64,000 dollar question, “Who For ?” Foreigners of cause. Now that I broke that to you easy, let’s talk about a few hard realities : 1). Resident population,2). the need for more Foreigners, 3). The sway the banks have over the government to ease up on work permits and PRC’s / Status in order to move the sale on properties or to clear bad mortgages. 4). the demand for housing by IB ,etc, etc. Additionally, the plight of the black male factors in here also, high imprisonment rates , matched with the high murder rates , acts to remove black people from the Bermudian society faster then ever. Chew on this for the rest of the week, ” Bermuda was not Colonialized ,but Colonized .The children of Great Britain have come to claim their island . We are just squatters on this land , until we are big enough to go independent . They smile ,knowing that we would never do that . Pack your bags Bermuda .

  6. Vincent Vega says:
    May 3, 2017

    Dear Larry,
    On the subject of housing, it would be interesting to compare the North American index of housing price versus Bermuda for the past 20 years. My speculation is that Bermuda housing prices peaked in 2008 was dramatically over valued versus the index. Additionally, I bet that housing prices in Bermuda have now come back down towards the North American average. Perchance, once Bermuda housing prices are properly valued, then we will see a re-emergence of this beaten sector.

    Bermudians have the advantage of arbitrage to be able to potentially purchase a home in North America. Why would a Bermudian pay $2 million BMD/USD for a fixer-upper 2 bedroom in Sandy’s, whereas instead they can buy a mansion in Toronto or Atlanta for that same price? Granted, there are always jobs to be considered however in the professional fields, one can move around.

    Regards,
    VV

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