Limited inventory of in-demand homes after spike in transactions during pandemic
BY JONATHAN KENT
The real estate market – particularly the residential luxury segment – is booming. But it is unlikely that this pace of activity can be sustained through 2022, because there is not enough supply to meet demand.
That is the view of one of the island’s top real estate professionals, Buddy Rego, of Rego Sotheby’s International Realty, who sees the pandemic as a significant factor in the resurgence of the higher end property market.
“In the luxury sector, we’ve seen an increase of almost 100 per cent over properties sold in 2020,” Mr Rego said. “I think the Bermuda real estate market has been significantly undervalued for a very long time and this year, there has been a significant absorption of inventory.” About 50 per cent of the luxury market buyers have been Bermudian-based.
Covid-19 has influenced the property market as the experience of lockdowns and working from home has led many to seek larger living spaces. Many have been cash buyers, Mr Rego said, in a time when consumers have been spending less on travelling and vacations.
“The average selling price of a home today is $1.6 million, as opposed to $1.2 million in 2020,” Mr Rego said. “It’s a huge increase, but don’t construe that as meaning property values have gone up more than 30 per cent in a year – that’s not the case. It means that the better properties are selling. If you want a modern home that’s ready to move into, you’ll be paying top dollar.”
Late in the year, he said the firm had seen a notable increase in properties in the $600,000- $800,000 range coming on the market – good news for first-time buyers.
While there is a months-long time lag in the reporting of officially registered real estate transactions, Rego SIR has seen overall 2021 transaction numbers rise 80 per cent from 2020, which was itself a strong year. “I know that will come as a shock to many people, because the Bermuda economy as a whole has its challenges, particularly with hospitality and retail struggling greatly,” Mr Rego said.
Looking at next year, Mr Rego believes the limited inventory will probably dampen activity from 2021’s elevated levels. “Now in the fourth quarter of 2021, we’re seeing qualified buyers who are not necessarily able to find the properties they want on the market,” he said. “Given that there has been so much demand this year and so many transactions, I expect that the horse has got out of the barn and unless something catastrophic – good or bad – happens in 2022, then I would expect demand to level off.”
In the condominium market, which saw a strong rebound in transaction numbers in 2020, buyers at the lower end have struggled to find the move-in ready properties they seek, with many of the units in that category “dated and in need of renovation”, Mr Rego said. “The middle and upper end of the condo market has seen an increase in average selling prices this year, because the better properties are selling,” he added. “However, with the new policy that non-Bermudians can now only buy hotel tourism properties – previously they could buy any condo with a minimum rental value of $25,800 – I expect overall turnover to fall off during 2022.”
Penny MacIntyre, a partner at Rego SIR, described the commercial real estate market situation as “a tale of two cities”. On the one hand, spaces previously occupied by retailers and restaurants are becoming vacant, while in contrast start-ups in the re/insurance industry have driven healthy demand for Class A and A+ office space – roughly defined as premises with waterfront views and a central location, plus services including a lobby concierge, security and parking.
“As you look at ground level on Front Street, from the Birdcage over to the eastern side of town, you have so many restaurants and retail shops boarded up,” Ms MacIntyre said. “That’s not good for tourism and it’s not good for the local market.
“Meanwhile, the Class A market is very tight. We’re used to seeing about 10 to 12 per cent of inventory being vacant – right now we’re probably seeing about 6 to 7 per cent. There are companies looking to convert commercial properties and make them into Class A offices. To fill the rest, you need more people in town.”
The demand for home and office renovations and reburbishments is generating work for architects and constructions firms. “I know of some architectural firms who say they can’t take any new business,” Ms MacIntyre said. “For a long time, architects and designers were struggling for business, but now it’s swung in their favour. It’s great to hear that the majority of them are busy – and the construction industry follows suit.”
Asked about the latest trends in demand, the Construction Association of Bermuda polled its members for opinions. A spokesman reported back: “There has been an uptick in demand in the residential sector. Many members report they are very busy with residential renovation projects.
“On the commercial side, the feedback is less positive. One member notes that tenant fit-out projects in Hamilton have slowed up, as there are few new tenants taking spaces and existing tenants are working from home. Restaurant projects have also dropped off as restaurant owners do not have the funds available for renovations.”
In terms of construction projects, the value of work put in place in the first half of this year totalled $95.2 million, according to government statistics, up from the lockdown-impacted corresponding period in 2020, but down sharply compared to the $136.5 million in the first half of pre-pandemic 2019. The stalled $180 million proposed overhaul for the Fairmont Southampton offers potential for a major new project.
“We truly hope the Fairmont Southampton project gets financing,” the CAOB spokesman said. “Not just for our industry but for the tourism and business sectors.” He added that news of the planned redevelopment of Ariel Sands was also “great news for construction and tourism”.
He added: “We doubt there will be much in the way of new commercial office buildings going up any time soon, but hope to see demand for renovating existing buildings pick up next year.”
CAOB members were mixed in their responses to whether the Government’s Economic Recovery Plan would help their industry. “Some are cautiously optimistic, while others want to see the Government open up the island fully for visitors and reduce the costs of doing business here,” the spokesman said. “Customs duties are a particular concern with one member saying government should be doing more to encourage local business by reducing import duties for contractors and retailers.”