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Caribbean Wealth and Investment Report 2015

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New Report: Caribbean UHNW Population Grows As Demand For Luxury Homes Rises

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Caribbean Wealth and Investment Report 2015

 STEPHANIE WARBURTON SENIOR GRAPHIC DESIGNER David S. Friedman President Mykolas D. Rambus Chief Executive Officer We at Wealth-X are pleased to present the Caribbean Wealth & Investment Report 2015. Our researchers and analysts in 10 offices across five continents have compiled and analysed data on the global ultra high net worth (UHNW) population, with a specific focus on the Caribbean. In the report, we identify key themes, trends, and motivations for investment among the ultra wealthy, and address opportunities for luxury real estate investment in the region. The report addresses the following questions: n What are the main motivations for UHNW real estate purchasing decisions in the Caribbean? n Real estate is one of the largest holdings for ultra-wealthy individuals. What percentage of UHNW wealth in the Caribbean is held in real estate? n How many ultra-wealthy individuals are residents of the Caribbean? n How many are from outside the Caribbean? n What are the primary drivers of demand for luxury real estate in the Caribbean? n What trends are emerging in the Caribbean luxury real estate market? n What best practices should Caribbean real estate investors follow? The UHNW Luxury Residential Real Estate Index, as reported in the Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report, shows the rise of four trends that will shape luxury real estate markets into the future; global demand for luxury real estate is rising; an increase of new UHNW luxury residence buyers; a growing need for wealth preservation; comprehensive luxury. The Caribbean, and Barbados in particular, offers tremendous value (business, practical and emotional) and appeal for many UHNW individuals, including those from other countries. This report showcases the strengths of the region and the opportunities it offers for those who are considering buying luxury real estate. We thank NFP who contributed to this report as our Knowledge Partner. A NOTE TO OUR READERS
  4. 4. TABLE OF CONTENTS INTRODUCTION .............................................................................. 1 EXECUTIVE SUMMARY.................................................................3 UHNW POPULATION & LUXURY REAL ESTATE ...............................................................4 WHY THEY BUY ............................................................................. 8 CARIBBEAN VALUE PROPOSITION......................................12 TODAY AND TOMORROW.......................................................16 Alistair Brown Palazzate, Barbados The world’s ultra high net worth (UHNW) population, which currently totals 211,275 individuals and holds $29.7 trillion in wealth*, is making a growing investment in real estate. Real estate holdings make up over 11% of the average UHNW individual’s portfolio. Over the past year, these holdings performed extremely well. Wealth-X’s Luxury Residential Real Estate Index was up 8% in 2014, outperforming the general real estate markets. These trends are being driven by several underlying factors. The rise of inherited wealth, which is disproportionately invested in real estate, will only continue to drive these markets. The growth of real estate demand in new UHNW populations, including Russia and China, is also fueling a globally diverse range of markets. The Caribbean has attracted a growing UHNW population, in part because its real estate markets present a unique value opportunity to global UHNW investors. Luxury real estate properties are still selling below their 2008 highs, but have grown in value over the past year, and look set to continue rising for the foreseeable future. Growth in the Caribbean economy, significant new government incentives to relocate to the region, rising tourism, and growing demand for luxury residential real estate all point to a bright future for the region. Within the Caribbean,Barbados in particular offers an excellent investment opportunity. As detailed in this report, property costs for luxury residences in Barbados compare favorably to other popular exclusive resort destinations around the world. It has also seen several stunning new developments, from the recently completed Port Ferdinand Marina & Luxury Residences and the eagerly awaited Palazzate. Palazzate brings a new sense of luxury to the island - and with that, a one-of-a-kind opportunity for the world’s wealthiest. Owning a home in Barbados provides a truly comprehensive luxury experience. It brings a connection to an exclusive social network of ultra wealthy residents and business interests. Excellent tax and regulatory structures allow for responsible oversight of personal and business wealth. Additionally the island offers world class recreational activities, fine dining and a culture that is admired all over the world. * Wealth-X data CARIBBEAN INSIGHTS
  5. 5. 1CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH CHAPTER TITLE The Caribbean is an exciting and dynamic region that provides an attractive investment opportunity for ultra high net worth (UHNW) individuals. The region has long been a central hub of luxury living, and looking to the future the opportunities for investment are promising. The Caribbean luxury real estate market, and Barbados in particular, presents an excellent investment opportunity for the global UHNW population. UHNW real estate demand is rising globally, as shown by the 7% increase in the UHNW Luxury Residential Real Estate Index over the past 12 months. The rise in luxury real estate values is outpacing even the rise in the value of general real estate, which grew only 6% last year according to the Case-Shiller Index. Luxury residential properties in resort markets outside of global urban UHNW hubs have been particularly attractive properties, with sales in these markets rising 17% in 2014. Several factors are driving this demand, and will continue to do so over the next decade. First, the global UHNW population is aging, and will transfer over US$4.1 trillion to the next generation in the next ten years. This will lead to an increase in wealth from inheritance, which is disproportionately invested in real estate. Those UHNW individuals whose wealth is inherited hold 17.2% of their net worth in real estate, a higher total than any other UHNW subgroup. An aging UHNW population will also create a need for new wealth preservation strategies, as these ultra affluent individuals seek to protect wealth to be passed on to the next generation. Real estate investments in nations with favourable tax climates and residency or citizenship programs will figure prominently in these efforts. Finally, new and growing UHNW populations in China and other East Asian countries are displaying a desire for luxury real estate in resort markets, especially in globally diverse regions. While demand for luxury real estate and particularly for homes in resort destinations is rising, this demand is directed toward properties that offer comprehensive value. Truly attractive properties must be able to combine opportunities for luxurious living, privacy, and recreation, together with strong potential for investment growth and wealth preservation, as well as access to international business networks and family connections. INTRODUCTION PLACE IMAGE HERE (BLLEED ACROSS PAGES)
  6. 6. 2 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 3CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH TheCaribbeanmeetstheserequirementswithauniquecombinationofeconomic stability and sustainable growth, well-developed infrastructure and legal institutions, deep cultural integration with the cultures of UHNW individuals from North America and Europe, a wide range of recreational opportunities, and a favourable tax climate. The Caribbean also offers distinct investment value – luxury resort home prices in the Caribbean remain below their 2008 highs, but have climbed 9% in the past year, and are forecast to continue rising. As we detail in the report, the Caribbean currently provides better investment value than many other global resort destinations. It also offers unique means of wealth preservation for aging UHNW individuals, which can make it an even more appealing investment destination. Barbados, long known as the gem of the Caribbean, is an excellent example of this comprehensive value. The island has a stable and growing economy, low crime rates, access to excellent health and education services, and boasts world-class recreational opportunities including yachting, scuba diving, aviation, and fine dining. The island provides a range of investment opportunities that meet the unique needs of the global UHNW population. Our report analyses in greater detail the value of owning prime real estate in the Caribbean, and Barbados in particular, for the global UHNW population. We look in depth at the key drivers of demand for luxury real estate, and the primary needs of the ultra affluent population when purchasing luxury real estate, and then address the ways in which Caribbean residency can meet these needs. We then review the chief concerns for UHNW buyers to keep in mind as they look to invest in real estate in the region. EXECUTIVE SUMMARY n The world’s UHNW population is larger and wealthier than ever before: In 2014, the global UHNW population grew 6% to 211,275 individuals, and global UHNW wealth increased by 7% to US$29.7 trillion.1 n Real estate is one of the largest holdings for UHNW individuals: US$2.9 trillion, or 9.8%, of total UHNW wealth is held in real estate.2 n Luxury home value is rising: UHNW-owned residences increased in value by 8% in 2014, according to the UHNW Residential Real Estate Index. n Resort destination homes led global demand for luxury real estate, with sales of homes over US$1 million located outside of major metro hubs increasing by more than 11% in 2014. n Over US$4.1 trillion in UHNW wealth is expected to be transferred to the next generation in the coming decade. As UHNW individuals age and look to pass on their wealth, their need for wealth preservation will grow, increasing demand for residency in favourable tax climates. n UHNW populations in China and Russia, while younger and more likely to have self-made wealth, are turning their attention to buying luxury real estate for second homes, favouring economically and politically stable locations. n There are currently 1,155 UHNW individuals living in the Caribbean, more than 67% of whom have relocated from another country (primarily the US, UK and Canada). n Though Caribbean luxury real estate values remain 10-15% below their 2008 highs, prime sales have increased more than 10% in 2013 and 2014. n The Caribbean economy is performing strongly: It grew at 3.6% in 2014 and is forecast to grow at 4.5% throughout the rest of 2015, and annually at over 4.0% for the next three years.3 n Several Caribbean nations have begun offering programs incentivizing property buying, offering residency permits and citizenship. For example, Barbados introduced a special entry and reside permit in 2014, allowing foreign nationals who invest US$2 million into Barbados real estate to establish residency. 1 Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report 2015. 2 Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report 2015. 3 World Bank Report 2015.
  7. 7. 4 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 5CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH The world’s UHNW population currently totals 211,275 individuals. These individuals have a combined net worth of US$29.7 trillion, marking a 7% rise in total UHNW wealth since 2013, and the average UHNW individual has a net worth of US$141 million. Looking forward, we forecast that the UHNW population will grow to over 265,000 individuals and net UHNW wealth will rise to over US$39 trillion by 2020. Real estate is a key component of the UHNW wealth portfolio. US$2.9 trillion of the world’s UHNW net assets are held in owner-occupied residential real estate. These holdings are divided between primary residences and resort homes, with members of the UHNW population each owning, on average, 2.7 properties. 79% of the world’s UHNW individuals own two or more properties and just over half of them own three or more residences. Typically, UHNW individuals hold their primary properties for 15 years and their secondary properties for 10 years4 , indicating that these are long-term assets, and not bought to be shortly “flipped”. Travel and the rise of global citizenship have increasingly shaped the lives of UHNW individuals and their approach to property ownership. Over 6% of the world’s UHNW individuals have relocated to a different country and no longer reside in the country where they were born. Along with this relocation trend, globally diversified home-ownership is on the rise, and UHNW individuals are buying more properties outside their home countries. Within the broader UHNW population, there are two subgroups whose real estate holdings stand out. Real estate ownership comprises a particularly large share of total assets for those who inherited their wealth – 17.2% – a larger total than any other source of wealth. Female UHNW individuals also hold a larger than average share of their net wealth in real estate, holding 16%, while male UHNW individuals hold 10% on average5 . UHNW POPULATION & LUXURY REAL ESTATE GLOBAL UHNW POPULATION OVERVIEW 4 Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report 2015. 5 Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report 2015.
  8. 8. 6 7CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH UHNW POPULATION & LUXURY REAL ESTATE UHNW POPULATION & LUXURY REAL ESTATE GLOBAL UHNW TRENDS UHNW LUXURY RESIDENTIAL REAL ESTATE INDEX 6 The global UHNW population has seen the rise of four particularly important trends that will shape luxury real estate markets well into the future: GLOBAL DEMAND FOR LUXURY REAL ESTATE IS RISING Over the past twelve months, the UHNW Luxury Residential Real Estate Index (shown below), which measures the value of homes worth over US$1 million, rose 7%, outpacing broader real estate market indicators like the Case-Shiller Index by 2%. This demand has been driven by a number of general factors including rising UHNW wealth, the need for a safe means of wealth preservation, and the increasing globalization of the UHNW lifestyle. RISE OF NEW UHNW LUXURY RESIDENCE BUYERS While demand for real estate is typically highest among UHNW individuals who are older and who have inherited their wealth, several nations’ UHNW populations buck this trend – notably Russia and China. In those countries, younger and self-made UHNW individuals have displayed a marked appetite for vacation homes, often in far-flung locales, and particularly in Western nations, which have the appeal of a rich and novel cultural tradition. As the number of these buyers continues to increase, demand for Western resort residences will as well. RISING NEED FOR WEALTH PRESERVATION At the same time, because the global UHNW population is aging, wealth transfers are expected to increase, reaching US$4.1 trillion over the next decade, and leading to a rise in inherited wealth. Those with inherited wealth have a larger share – 17.2% – of their holdings in real estate than any other UHNW subgroup7 . Real estate will continue to present an attractive investment opportunity for those with inherited wealth, and we forecast that demand from this UHNW subgroup will continue to drive growth in luxury real estate markets over the next decade. COMPREHENSIVE LUXURY While demand for luxury real estate and particularly for homes in resort destinations is rising, this is primarily directed toward estates that offer comprehensive value. High value properties must be able to offer the complete package, providing opportunities for luxurious living and recreation, strong potential for investment growth and wealth preservation, and access to international business networks and family connections. 6 Wealth-X and Sotheby's International Realty Global Luxury Residential Real Estate Report 2015. 7 Wealth-X and Sotheby's International Realty Global Luxury Residential Real Estate Report 2015. CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH
  9. 9. 8 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 9CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH If we dig deeper, we discover several core motivations that underlie the global trends discussed in the previous section. UHNW individuals choose to invest in luxury real estate on the basis of business value, practical value, and emotional value. Gaining a greater understanding of these motivations will help to pinpoint thespecificvaluethattheCaribbeanandBarbadosprovidetotheglobalUHNW population. BUSINESS VALUE (e.g. Financial center; Industry cluster) UHNW individuals’ real estate decisions are often driven by business considerations, which can involve tax structures, business networks, and other market forces. High-end real estate investors also consider the broader economic outlook for the region, the stability of legal structures, and the region’s record of long-term real estate value appreciation. As suggested by the rising luxury residential real estate index, many UHNW individuals looking to purchase real estate find ultra high-end luxury properties a promising investment opportunity. Buyers of luxury properties are also interested in finding favourable tax structures. 61% of the global UHNW population’s primary businesses are privately held. UHNW individuals with private wealth can stand to gain further from having some or all of their assets registered in locations with favourable regulatory climates, but they can also benefit significantly from being in a country where services, and particularly, financial services account for a large share of labour force and GDP. WHY THEY BUY PRACTICAL VALUE (Proximity to social networks, institutional framework) Practical considerations also drive luxury real estate purchasing decisions. While UHNW individuals often make close proximity to business interests a priority when buying a luxury real estate, they also consider the proximity of the property to family members. Home buying can also be motivated by proximity to a primary residence or to a network hub of other UHNW individuals. Having easy access to regular flights to urban hubs and family residences is often a key factor in UHNW residential purchases. Proximity to family is increasingly playing a role in property selection. Many East Asian UHNW individuals are looking for residences in North America and Europe because their children are going to study in those locations. 6% of the world’s UHNW individuals have relocated to a new country for business, and these individuals often purchase residences in their home country to maintain ties to extended family members. Residential real estate, while it is known as a safe long-term investment, is almost always purchased because of a specific connection between a UHNW individual and a particular place. In addition to these practical considerations, aging UHNW individuals are increasingly turning to luxury real estate as a vehicle for wealth protection, especially when the property is located in a region of the world offering tax structures that compare favourably with those of their country of origin. A growingnumberofUHNWindividualsseekingtoprotecttheirwealtharetaking advantage of citizenship through investment programs that many governments are offering to wealthy individuals. Purchasing real estate is often a mandatory requirement of such programs. Nations offering such programs are in a position to meet a key and growing need within the global UHNW population.
  10. 10. 10 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 11CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH CHAPTER TITLEWHY THEY BUY EMOTIONAL VALUE (e.g. Lifestyle compatibility, Legacy preservation) Emotional value is often a crucial motivating factor in real estate purchases. The desiretohaveaprivatehavenforfamilyandfriendsthatfitslifestyleexpectations is a key driver in luxury real estate purchases. For example, outdoor and sporting activities are both hobbies shared by over 25% of the UHNW population, and properties that offer opportunities to engage in such activities may be appealing to these individuals. For many ultra wealthy individuals, owning an exclusive residential property provides the pinnacle of private luxury. As the global UHNW population ages, luxury homes in resort locations are ideally positioned to provide ideal retirement destinations. To do so, these residences must offer UHNW individuals unique recreational opportunities while enabling them to maintain connections to a variety of business and social interests. The experiences offered by these exclusive residential properties are key attractions for ultra affluent buyers. With the growing popularity of experiential luxury as opposed to mere material acquisition, location in a place that offers a range of unique and authentic opportunities is a crucial factor in choosing a luxury property. As well as finding a place that offers an all-encompassing and unique experience, the emotional value of a home that will be available to the family members to enjoy as a legacy is often a motivating factor in luxury home buying. UHNW individuals pursuing investment in ultra high end real estate want to target properties that combine all of these assets: homes must offer extraordinary personal luxury as well as practical convenience, and they must also be excellent investment vehicles with business and tax benefits to provide ultimate appeal.
  11. 11. 12 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 13CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH Looking at members of the UHNW population who currently have a primary business address in the Caribbean provides insight into the value of owning luxury real estate in the region. There are over 1,150 UHNW individuals with a primary business address located in the Caribbean. CARIBBEAN VALUE PROPOSITION The Caribbean’s UHNW population is large and growing, rooted in native wealth as well as streams of UHNW immigration from other countries. In fact, over two thirds of the region’s UHNW population was born outside the country in which they now have a primary business residence, and outside of the region itself. Individuals from the United States and the United Kingdom are the most common foreign-born nationals who have moved to the region. Foreign-born UHNW individuals from over 31 countries have relocated to the Caribbean. The fact that the UHNW population in the Caribbean has continued to grow, while attracting new residents and homeowners from a globally diverse range of home countries, underscores the attraction the region holds for many UHNW individuals. This appeal is rooted in the fact that both the Caribbean generally and Barbados in particular are extremely well positioned to provide value for UHNW individuals looking to invest in luxury real estate. The region presents a unique opportunity to satisfy the desire for comprehensive value sought by UHNW investors. It offers unique business opportunities together with an unsurpassed recreational lifestyle, all with easy access to global UHNW social and business networks. From an investment perspective, luxury real estate in the Caribbean offers an attractive opportunity. Though Caribbean luxury properties remain below their 2008 highs, they rose in value in 2014. Along with other prime resort locations globally, Caribbean luxury property values are forecast to rise over the next decade, and currently present a great opportunity to buy below market highs. Caribbean properties – and Barbados properties in particular – offer greater value than other popular UHNW resort destinations. Average luxury residence cost per square foot in Barbados is US$875, while in St. Tropez it is US$925, in Honolulu it is US$933, and in St. Barts it is US$950. Bal Harbor is US$1,400, and Aspen is US$1,900. 8 Others include Antigua & Barbuda, St. KItts & Nevis, Dominica, St. Barthelemy, Guadeloupe, Anguilla, Netherlands Antilles, Jamaica, Curacao, Martinique, Turk & Caicos, St. Vincent & the Grenadines, St. Lucia, St. Martin, St. Marteen, Mont Serrat and Trinidad & Tobago. 2014 2013 2014-2013 UHNW POPULATION UHNW WEALTH (US$ billion) UHNW POPULATION UHNW WEALTH (US$ billion) UHNW POPULATION CHANGE % UHNW WEALTH CHANGE % CARIBBEAN 1,155 190 1,140 186 2.1% 2.2% DOMINICAN REPUBLIC 265 30 250 30 6.0% 0.0% PUERTO RICO 110 16 105 15 5.0% 7.1% BERMUDA 102 31 100 30 1.5% 1.3% BARBADOS 66 15 65 15 2.4% 2.0% BAHAMAS 45 10 45 10 1.3% 1.5% BRITISH VIRGIN ISLANDS 46 9 45 9 1.0% 0.3% CAYMAN ISLAND 41 10 40 10 -3.4% 0.0% ARUBA 41 7 40 8 -0.5% -0.4% OTHERS8 449 32 439 31 2.1% 2.2%
  12. 12. 14 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 15CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH CHAPTER TITLECARIBBEAN VALUE PROPOSITION Adding to the Caribbean’s attractiveness for UHNW investors is the positive forecast for the broader economy in the region. The overall Caribbean economy grew at 3.6% in 2014 and is forecast to grow at 3.5% throughout the rest 2015, and annually at over 3.0% for the next three years.9 In addition to these market considerations, many Caribbean islands are known for their favourable tax regulations. Barbados offers competitive tax rates, and also has beneficial dual tax treaties with countries such as Canada and the UK, as well as with new emerging market countries such as Singapore, Ghana, and China. These treaties make Barbados an attractive and convenient relocation destination for individuals who do not want to re-register their business in the Caribbean, but still want to benefit from favourable tax conditions. Since 2014, Barbados has offered a special residency permit available for high net worth individuals (those with US$5 million or more in net assets), who are willing to invest US$2 million in the country in real estate or certain government bonds. The real estate aspect has attracted many UHNW individuals who are looking to invest in luxury property in the region. Barbados’ proximity to the rest of the Caribbean, the United States and Latin America makes it an ideal resort getaway destination. It is also well within range of a wide network of global business and social hubs. The island is only a five-hour flight away from nearly 40% of the global UHNW population. PROPERTY PHOTO 9 According to a 2015 World Bank report on the region. Barbados Turks and Caicos St. Barts Honolulu Bal Harbor St. Tropez Aspen $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 CURRENT PRICES FOR UHNW RESORT DESTINATIONS (price per square foot)
  13. 13. 16 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH 17CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH As with any real estate acquisition, prospective investors need to understand the institutional framework for their purchase. When buying real estate within the Caribbean, it is important to consider the social, political and economic context of making such a purchase. ECONOMIC OUTLOOK As noted above, the Caribbean economy grew at a rate of 3.6% in 2014 and Barbados is forecast to maintain close to 4% growth rates over the next several years. These rates will closely track those of the region’s main trading partners. Along with the global economy, the Caribbean economy continued its steady recovery in 2014 and Q1 of 2015, and seems poised to continue growing over the next several years. Real GDP growth, the inflation rate, unemployment rate, and the Commodity Price Index all moved in a positive direction in 2014 for the Caribbean as a whole. Growth continued to accelerate in tourism-dependent economies (the economies of St Kitts and Nevis, Turks and Caicos grew at just over 4% on the year, and nearly all others grew between 1 and 3%). This tourism growth was reflected by increases in overnight arrivals and cruise passenger arrivals in nearly every Caribbean nation in 2014. Visitor growth will continue to have a positive impact on tourism and real estate-related construction. The long-term economic trend line in regional property values has been positive, and will continue to be so. BUYING IN THE CARIBBEAN When making a decision to invest in Caribbean luxury real estate, potential buyers should keep a variety of best practices in mind. As with any investment, the long-term planning needs associatedwithowningpropertyabroadshouldbecarefullyconsidered.Everypotentialbuyer’s scenario is different and each should consult with attorneys, accountants, and tax authorities, to ensure the needs and goals of the property purchaser are protected. TODAY AND TOMORROW First, buyers should consider the tax implications – both in terms of the purchasing process and longer- term impact on personal and business tax rates. Rates vary across the region, and should be compared to country of origin as well as other possible residence locations. Savvy buyers should also plan for the estate and inheritance tax implications of a purchase. While concern about these taxes is common in the United States and the United Kingdom, such taxation exists in one form or another in over 77 countries around the globe. With proper planning, investors can avoid significant intergenerational tax liabilities that may lead to loss of the property. United States10 United Kingdom11 Canada12 France13 - Taxes Global Wealth for those Domiciled in Canada - Deemed Disposition = As high as 43%; 50% of gain - Deemed Disposition Deduction = CAD $400,000 - Taxes Global Wealth - Estate Tax Rate = 40% - Estate Tax Exemption = USD$ 5,430,000 - Taxes Global Wealth for those Domiciled in UK - Inheritance Tax Rate = 40% - Nil-band Rate = £325,000 - Taxes the Beneficiary of Property Received - Tax Rate: 5 to 45% depending on relationship - Rebate of up to €100,000 for each child 10 2014 Worldwide Estate and Inheritance Tax Guide, Ernst & Young. 11 Taxation and Investment in United Kingdom 2014, Deloitte. 12 Managing Your Personal Taxes 2013-14, Ernst & Young. 13 Taxation and Investment in France 2014, Deloitte.
  14. 14. 18 CARIBBEAN WEALTH & INVESTMENT REPORT 2015 | WEALTH-X INSTITUTE CUSTOM RESEARCH CHAPTER TITLETODAY AND TOMORROW Potential investors should also explore what citizenship or immigration options are available and get an understanding of what steps are required to gain citizenship or resident status. The minimum net worth and minimum local investment requirements vary by country and should each be taken into account when evaluating the overall impact of a significant real estate investment. Buyers should also consider how they will access their property and keep it secured.ThenumberofflightstoairportsthroughouttheCaribbeanisincreasing, and many of these airports are being remodeled or rebuilt. Boating and marina options should also be considered. The legal and security climate of the desired location should also be taken into account when considering the purchase of a new property. To ensure a smooth transition to owning their own piece of paradise, buyers shouldalsoconsiderpropertymanagementandupkeepaswellasinsuranceneeds. Potential buyers should thoroughly research and scout each potential island to find the most suitable location for them. Finding ideal locations on a given island is often best done with the assistance of a local real estate agent. In planning for the purchase of foreign property, it’s important to consider not just the property itself, but to evaluate and determine the most meaningful and economic way to plan for long-term ownership and the legacy implications for the next generation. Working with an experienced team of advisors is paramount to ensuring that plans to achieve the future goals of one’s estate are put in place. Following these best practices will enable potential investors to find a residence that will provide a secure financial investment, easy access to a world-renowned range of recreational activities, a treasured home away from home, and a legacy for future generations to enjoy. PROPERTY PHOTO?
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