In Naples, Florida, while waiting in line to buy a Diet Coke at 7-11, a real estate agent gave me her card and offered to help me buy a house there. The Out Islands of the Bahamas are almost as flush with realtors as Florida. Let’s look at the economics.
Over the last 80 years or so, the Bahamas have been subject to a cycle of real estate booms and busts. One of these little “out islands” becomes fashionable with rich people or celebrities, a resort is built, some fancy houses are built. After a few decades and a few hurricanes, “shabby chic” has turned to “just shabby” and that particular corner of the Bahamas are abandoned for a few decades.
Eleuthera and Cat Island are the two places that we visited on this trip. Together the two islands are more than 150 miles long, with shoreline on both sides. That is a lot of beachfront property. Most of the beachfront property is undeveloped, and due to the poor soil, unused for agriculture. There are “for sale” signs everywhere and asking prices are quite high, as much as $4 million for a reasonable sized oceanfront lot.
What generates demand? The Bahamas has no industry, unless you count real estate development, so anyone buying a fancy house here will need to be retiring from elsewhere. He or she is not going to find a job on the islands. Most retired folks are fairly old and require frequent visits to doctors and hospitals. When it comes to education and infrastructure, the Bahamas are just crawling out of the Third World camp, which means that anyone with money who needs to see a doctor or visit a hospital is going to be booking a flight to Miami or Fort Lauderdale. Assuming a couple retires at age 55 and one becomes chronically ill at age 75, thus requiring a move closer to medical facilities, the maximum amount of time that any fancy house can be occupied is approximately twenty years.
What if you want to rent a nice house on an Out Island? We didn’t meet anyone who paid more than $2000 per week even for the nicest houses in the most desirable locations. That’s a lot cheaper than paying 1% property tax on a $4.5 million house.
What do Bahamians do? Most of them flee the out islands for the career and social opportunities of Nassau and Freeport. What about the handful who remain in these quiet corners of the country? Only a few blocks from where old white guys have paid $4 million, they live in ramshackle concrete places with chickens running in the yard. Mostly they probably laugh at the Americans who are keeping their economy and government running. When an expat-priced house changes hands, approximately 20 percent of the price is paid in “stamp tax”, legal fees, title fees, and real estate commission. When the expat gets too old and sick to stray from the hospitals in Fort Lauderdale, the Bahamians will make another 20 percent from the next owner.
[Astute readers may notice that I myself am an old, fat, white guy. Have I been tempted to put down roots here on a Bahamas out island? The answer is “no”. People are friendly, the beach is lovely, the snorkeling is interesting, and Internet service seems to be fast, reliable, and widely available. On the other hand, it is hot and humid for most of the year and fresh fruit and vegetables are pretty much unavailable at any price.]