The worlds financial markets have all over recent months seen increasing volatility, due to a serious weakness in the sub prime lending sector. This has happened because financial institutions lent heavily to people with poor credit ratings over recent years, when money was in good supply and interest rates were low. It did not require a crystal ball to see that when interest rates finally rose from their all time lows, that there would be a high level of defaults from borrowers who could not repay their mortgages.
In America, the results of this financial crisis have been building for some time, with many areas of the housing market suffering a decline in real estate values and new house starts falling dramatically.
In the UK, the effects on the housing market have been far milder, partly due to more conservative lending policies and traditionally higher interest rates. In September, UK house prices were still climbing at 8.5% annually, with some areas seeing a significant rise in prices and other areas where prices have fallen slightly.
Several clients have asked me if the financial instability in the worlds mortgage markets will lead to a decline in Caribbean real estate values similar to America ? The simple answer is no, and anyone hoping that they can buy a Caribbean property cheaper next year than they can now, is unfortunately only likely to be deluding themselves.
The Caribbean real estate market is an international market driven for the most part by well healed foreign investors looking for second homes, investment and vacation properties. The number of people choosing to enter the second home market is continuing to grow, and last year more people in the UK chose to relocate abroad and buy a house in the sun, than ever before.
Mortgages have traditionally been difficult for ex patriots to obtain in the Caribbean and therefore Caribbean lending institutions are not exposed to any serious risk. Additionally, since Caribbean real estate prices are continuing to climb, properties repossessed by lenders can usually be sold quickly.
The final factor that helps underpin the continuing growth in the value of Caribbean real estate , is the limited physical land mass of the Caribbean islands. Land in the Caribbean, is very much a finite commodity.
For the above reasons, and unless there is a total meltdown of the worlds financial institutions, it is likely that real estate on the majority of Caribbean islands, will continue to show a year on year rise in property values for the foreseeable future.
