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Demand outstrips supply in rental property market

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The real estate sector has been a hive of economic activity over the past two years, boosted by a range of factors induced by the pandemic. After period of healthy transaction volume, inventory in some parts of the market is unusually limited.

Renters are having particular problems finding a home. The dearth of inventory was highlighted by Pete Goodhall, managing director of real estate website Propertyskipper.com, who reported in November that rentals “remained near lows at 82”.

Adam Birch, sales and rental agent for Coldwell Banker Bermuda Realty, said lower-than-normal rental property availability was a global trend and Bermuda was no exception. “We used to have 30-plus listings at any given time, but those days are gone for now as demand continues to outstrip supply,” he said.

Factors behind the low inventory could include properties being listed as vacation rentals, an influx of returning Bermudians or newcomers, relationship breakups, property that is no longer tenantable, and landlords removing property from the rental market after negative experiences with tenants, he added.

The arrival of “digital nomads” on Work from Bermuda certificates has also had some positive impact, especially on western and eastern listings, Mr Birch said. The overseas remote workers are more focused on amenities than being close to Hamilton, he added.

Most sought after in the rental market are three-bedroom and one-bedroom properties. Workers coming to Bermuda to work for expanding startups in recent years have fuelled the market for the former, Mr Birch said.

“Much of the demand is from families in the three-bedroom range, looking at rentals anywhere from $6,000 to $15,000 a month,” he added. “The peak demand is for standalone three-bedroom homes in the $7,000 to $8,000 range.”

For employers bringing in staff from overseas, the lack of suitable housing options has become a significant issue, compared to pre-pandemic days. “Then, new families would fly in for a few days and we could line up tours of five or more properties for them to view — now I might have one property I can show them,” Mr Birch said.

Incoming international business workers must act fast on available properties, or face getting dragged into bidding wars. Making a quick decision is difficult for guest workers unfamiliar with Bermuda’s idiosyncrasies, such as the single-car rule, shared yards and the need for reverse air conditioning, he said, adding: “Looking for accommodations in advance is not an option because the listings are here today and gone tomorrow.”

Properly priced smaller properties are also being snapped up. “The lower end of the market has always been extremely active and competitive, but we are receiving a massive number of inquiries for property under $3,000 a month,” Mr Birch said. “Recently, we had a property that received 76 inquires in one day with 21 viewings.

“Affordable properties for Bermudians are extremely rare, especially two bedrooms, $2,000 or under — I would have no issue filling a block of 20 two-bedroom affordable housing units in about a day or so.”

While there is clearly demand for more residential inventory in Bermuda, the cost of newbuilds or renovations to achieve that has skyrocketed during the pandemic. Construction rates reflect the soaring prices of building materials and the strong demand for contractors.

For valuation professionals like Suzanne Stones and Steven Bowie of Bermuda Valuers & Appraisers Ltd, an independent consultancy, this makes for an unusual environment in which their services are especially valuable.

“The point we always try to get across is that cost doesn’t equal value,” Ms Stones said. “Just because something costs a million dollars to build, it doesn’t mean it’s worth a million dollars.

“A few years ago, we were seeing standard residential rebuild costs of about $375 per square foot. Now they seem to be going up almost monthly, to the point where we don’t like to give any indication on reinstatement costs, because they fluctuate so frequently.”

The appraisers advise prospective buyers of “fixer-uppers” to be fully aware of what intended renovations would cost before they commit to a purchase. And with any renovation, it’s better to call in the appraiser beforehand, they suggest.

Mr Bowie said: “As a profession, we’re pleased to see that more people are coming to us, saying ‘I want to do this, it will cost me x thousand dollars, what will the end value be?’”

Central banks around the world have raised interest rates in an attempt to curb inflation. Banks in Bermuda have in turn raised their lending rates, making it more expensive for borrowers to buy property.

As yet, Mr Bowie has seen little impact from rising mortgage rates on the market, particularly at the top end. “Our agency friends are seeing a slight slowing down, but in the run-up to the holiday season, that’s not unusual. At the higher end, many of the buyers we’ve seen over the past 18 months have been cash buyers — they will not be bothered whether interest rates go up or down.”

Higher-end demand is also being spurred by a number of residents acquiring British Overseas Territories Citizen (BOTC) status, and with it, the right to purchase property and reside on island.

“Some BOTCs have been used to paying north of $10,000 a month in rent and now they want to own their ‘piece of the rock’,” Ms Stones said. “They have confidence in the island and there’s an increasing pool of them and not an infinite supply of property.”

Mr Bowie said BOTCs tended to look for similar types of property — with a water view, swimming pool and well suited to entertaining. As more are granted BOTC status, demand for properties with these attributes is likely to stay strong, he said. On the supply side, more land has become available at Riddell’s Bay and White Crest Hill, locations where lots had been sold for seven-figure sums for buyers to build their own homes.

Whichever way the market moves in 2023, the real estate industry can be reassured that Bermuda is showing no signs of losing its appeal as a special place to live.

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