Buying Property In Barbados

 

For many, owning property in Barbados is a lifetime dream or an investment opportunity that may have been under consideration for some time. Here we will outline some of the key considerations for buying property in Barbados.

There are no restrictions on the purchase of property in Barbados by persons who are non-nationals or permanent residents. Residents and non-residents are treated the same in terms of taxation and transaction costs in property transfer matters.

Most properties purchased in Barbados are done under a freehold agreement, whereby the title to that property extends for an unspecified period.
 

Property Investor Checklist

 

Any serious investor in property or property development in Barbados needs to take advice from the appropriate duly qualified persons to ensure he is advised sufficiently in relation to the intended development.

Matters to be considered and suggested areas of obtaining professional opinion are:

 

Legal Advice:

An attorney advising or representing a potential purchaser in Barbados should be asked to review the contract for sale and purchase focusing specifically on covenants contained in prior title deeds, which may hinder development of the property. Two common examples of such restrictions are, covenants that may restrict the construction of a dwelling to a single storey dwelling (this may have an effect on an investor who intends to construct townhouses or condominium units), and covenants that may restrict use of the dwelling for residential purposes.

 

Generally on retaining legal services, from contract to completion (i.e. the exchange of purchase price for title deeds) the average time for completion is 90 days; this may be extended depending on the circumstances that may hinder or delay completion. At the time of contract a minimum of 10 percent of the purchase price is paid to the attorney for the purchaser who holds same as a stakeholder. No interest on the deposit is payable while moneys are held by the stakeholder.

 

The Barbados system of conveyance is different from that of the United Kingdom in that it has for the most part an unregistered system of conveyance. An attorney acting for a purchaser has to trace title back 20 years to ensure the property purchased has a good and marketable title. This accounts in part for the length of time the matter takes between contract and completion. Requisitions on title and title searches are carried out after contract and the vendor is required only at this stage to answer the requisitions as to title. Prior to completion the vendor or his agent points out the line marks to the property. In experience this should be done as soon as possible after contract. Any difficulty in locating line marks or any incorrectly placed marks or encroachment on property will result in a delay in completion.

 

An insurance policy for the property pre-owned prior to purchase may be transferred to a new purchaser at the option of the purchaser. If the purchaser decides to open a new policy the purchaser may seek advice from a local insurance broker and insurance should be obtained at the date of completion if not sooner.

 

By legislation a vendor pays the property transfer tax (currently 2.5 percent) and the stamp duty (1 percent) calculated on the value of the transfer. A purchaser pays his attorney’s legal fees also calculated on a percentage basis on the value of the transfer. [Legal fees for the purchaser may also include the costs of applying for exchange control approval and registration of funds once remitted to Barbados].

 

The required minimum percentage calculations for legal fees are:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If the purchaser is obtaining financing in Barbados for the purchase the same attorney at law may act for the purchaser as mortgagor and in some cases as the attorney at law for the lender. The legal fees would be calculated in the manner stated above, plus an additional percentage calculated as a percentage on the financed amount. A non-national may obtain financing in Barbados, however this is at the discretion and approval of the Exchange Control Authority. It is advisable to obtain this approval simultaneously with the letter of commitment from the financing institution before entering into the contract for the sale and purchase.

 

Town Planning:

The Town Planning Act of Barbados requires planning permission for specific land use, building construction, building renovations and construction of property development or developmental projects. On purchasing land for the purposes of property development or construction it is prudent to enquire from the vendor/developer whether Town Planning has given approval for the use of the land for the purpose of which it is being bought or to enquire whether approval has been obtained for the construction of the property which is intended to be sold. A query should also be made into whether any existing approval is valid.

 

If the property is not newly constructed the purchaser or his attorney ought to ensure the vendor holds a certificate of compliance issued by the Town Planning Department for the construction of the dwelling house.

 

Where the purchaser is purchasing property with the sole intention to carry out a development, the sale/purchase contract ought to be made subject to the permission of the chief town planner being obtained for the development. An unconditional contract may very well leave a purchaser with property in hand without the regulatory permission and approval to develop it.

 

It is wise to take advice from a chartered town planner in Barbados to ensure planning considerations are addressed before entering into the contract to purchase or invest in property development.

 

Tax Advice:

There are numerous tax implications for consideration when a non-national purchaser is investing in or purchasing property in Barbados. The author of this article is not a tax advisor and recommends a prudent investor to obtain tax advice from a local tax advisor. (There are corporate tax advisors such as Ernst & Young and PriceWaterhouseCoopers, and there are individual tax advisors most of whom your attorney at law can recommend on request). Some suggested matters for discussions with your tax advisor would be: the existence of double taxation treaties between Barbados and the purchaser’s country of residence; whether there are any tax advantages on incorporation of a local or offshore company as an engine for the property holding; whether withholding tax on rental and other income on investment would be applicable in Barbados, the treatment of gain or profit on the investment and what other tax bracket would apply to a nonresident property holder.

 

Exchange Control Regulations:

The Exchange Control Act of Barbados requires a non-national whether in selling or buying property in Barbados to obtain the approval of the Exchange Control Authority for that purpose. Approval is given at the discretion of the authority, though this is usually granted. One prerequisite to obtaining approval for purchase is proof of the remittance of the purchase moneys into Barbados. This is done by the registration of the purchase money with The Central Bank of Barbados (a process which your attorney at law would carry out on your behalf).

 

Should the purchaser decide to sell the whole or part of the property purchased, the sale will be subject, once again, to the permission of the Exchange Control Authority. The Authority, on giving approval and on receiving a request from the seller to repatriate funds to his country of origin, will at its discretion allow a percentage of the funds obtained from the sale to be repatriated to the country of origin. This percentage is not published and is discretionary. As a general rule permission is given for the initial amount invested (i.e. the amount brought into Barbados and registered as the initial purchase price) to be repatriated in a lump sum with gains on the investment to be repatriated in stages over a period of time (the time period again discretionary, it is normally between two to three years).

 

Property Management:

After purchase, a non-resident property owner may require management of his property in Barbados. There are a number of functions provided by a property manager some of which include, obtaining rental, payment of land taxes and other regulatory charges on the property, payment of utilities, general maintenance, entering contracts for services on your behalf and management of income from the property. There are many reputable and established property managers in Barbados and your attorney at law may be able to provide contact information for a property manager on request.

 

General Advice:

The above checklist is advice given in a nutshell on investing and purchasing property in Barbados and is suggested to be used as a checklist only. There may be other considerations which may be unique to your investment and you are urged to discuss these with your advisors. Purchasers of property in Barbados may purchase in their individual names or in local, external or offshore companies. These purchases ought not to be made without the potential purchaser obtaining legal and tax advice. Legal and tax advice should be obtained in Barbados and in the purchaser’s country of residence.

 

Below is a guide to Buying, Selling and Owning property in Barbados:

 

Buying Property

Transaction costs include attorney fees ranging between 1.5% – 2% plus 15% VAT as well as a proportionate amount of land tax. Purchasers are not required to pay property transfer tax or stamp duty. These are both the responsibility of the vendor.

For non-nationals, US dollar mortgages are readily available from the offshore sector of the local banking industry under the following broad terms:

• 70% LTV up to US$2.5m

• 60% LTV – US$2.5m to US$5m

• 50% in excess of US$5m

• Terms – Up to 20 years

• Rate – LIBOR plus 3.5% (rate can change based on market forces)

• Attorney Fees – 1 % – 2.5% plus 15%VAT

Standard purchase procedures include a series of steps. First there is a verbal offer and acceptance (in some cases a reservation agreement may apply). Then the buyer must appoint an attorney-at-law. Contracts for sale and payment of a 10% deposit to the vendor’s attorney-at-law must be exchanged within two to four weeks. Following this is the conveyance and payment of 90% of the purchase price within three to six months (in the case of off-plan developments, stage payments based on construction progress may apply). Finally, foreign currency brought into the island as well as funds borrowed by non-nationals should be registered with the Central Bank of Barbados.

 

Selling Property

There are additional transaction costs involved with selling property in Barbados. Attorney fees follow a similar scale as those for purchasing property, of 1.5% – 2% plus 15% VAT. Other fees include those paid to the real estate agent of 4% – 5% plus 15% VAT (this typically includes marketing, viewing, signage etc.). Stamp duty of 1% and property transfer tax also apply.

 

Property Transfer Tax:

• Unimproved property – 2.5%

• Improved property – First US$75,000 exempt

• Improved property – Amounts over US$75,000 – 2.5%

As with buying a property there is a standard set of selling procedures that facilitate an efficient process. After the verbal offer and acceptance the seller should appoint an attorney-at-law and ensure an exchange of contracts within two to four weeks. The seller also needs to provide copies of prior title deeds. Once this is complete, a draft conveyance should be sent to the purchaser’s attorney for perusal and the final conveyance signed within three to six months. Land tax bills and water bills must be fully paid up.

 

Owning Property in Barbados

There are various annual costs attached to owning property in Barbados. These include:

• Property Insurance – US$2.50 to US$3.25 per US$500

• Contents Insurance – US$3.00 to US$3.00 per US$500

• Land Tax:

• Un-improved Residential Land – Site value – 0.6%

• Improved Value – Residential

• Initial US$95,000 – Zero tax

  • On the amount more than US$95,000 but less than US$250,000 – 0.1%

  • On the amount more than US$250,000 but less than US$625,000 – 0.45%

  • On the amount more than US$625,000 – 0.75%

• Improved Value for all other property (non-residential) – 0.5%

• Land Tax is capped at a maximum of US$30,000 on residences

Agricultural, Pensioner and Hotels will be calculated on 50% of the tax demanded and not on the site or improved values. Villas rented to the tourist market; and registered with the BTA – Barbados Tourism Authority will be calculated on 75% of the tax demanded.

 

Monthly costs can include basic utilities such as electricity, water, telephone and cable. There may be, where applicable, condo fees ranging from US$2.50 to US$6.50 per sq. ft. per annum. Pool and garden maintenance may also apply. Additionally property management fees, starting at a minimum of US$200 must also be considered.

 

Many owners opt to rent their property. Property managers securing long-term rentals (billed at a monthly rather than a nightly rate) charge a 10 % commission. While a 10% to 30% commission is payable on short term rentals.

 

However you approach the ownership of your property, whether as an investment or a home, keeping these things in mind will allow you to be better prepared to enter the Barbados real estate market.