Money Observer - August 2010

Heaven sent in St Lucia

A villa at Sugar Beach, the five star renovation of the Jalousie Plantation resort in St Lucia, could be an investor’s dream purchase. Ruth Emery reports

Lying on a beautiful white sandy beach and being gently hypnotised by the waves lapping the shore. Watching the sun set over the turquoise Caribbean Sea from your private plunge pool.

Welcome to Sugar Beach, a five-star $100million (£66 million) renovation of the former Jalousie Plantation resort in south-west St Lucia Built on a UNESCO World Heritage Site, Sugar Beach is nestled between the Pitons, a pair of magnificent volcanic mountains. The renovation project should be finished in December 2011, when the resort will reopen as The Tides Sugar beach.

The resort marries beautiful countryside (the plantation dates back to the 1700s and is home to 20 different types of mango tree as well as other lush vegetation and wildlife) with luxury facilities. These include 24-hour butler service, three restaurants, two sandy beaches and a rainforest spa.

But it’s not all just about sunbathing and pampering. There’s potential to make money here too. The resort boasts 64 one- and two-bedroom fully furnished hotel villas, of which 17 are still available for sale. Prices range from US$700,000 to a cool US$2.1million.

Owners are allowed to stay in their villa for four weeks a year. For the rest of the year the villas are rented out and income goes into a pool. Just over a third of the pool (37.5 per cent) is released and shared by the owners, depending on what price they paid for the villa. So even if your villa’s occupancy is low, if you paid the highest price, then you’ll get the most money. Lisa Basire, marketing Director at Sugar Beach Villas, says this is unique. “Nowhere has a revenue split like this,” she explains.

As the recession swirled around the world, the St Lucian property market was not immune. Property prices have fallen by around 15 per cent over the past year, according to David Farrin, Managing Director of St Lucia estate agent Doubloon Real Estate.

Business is slow for many estate agents. Farrin admits that his agency was selling about four properties a week five years ago and now it’s more like one a month.

Developers have been hit hard too. One resort was backed by Lehman Brothers, so that development stopped. And construction on hotel and golf club Le Paradis is on hold.

That said, the Caribbean island is generally becoming more upmarket with boutique houses and hotels now dotting its coastline.

Although critics say the development of Sugar Beach is slow, Basire says there is no chance of it being halted. “The development is not reliant on bank finance, so it doesn’t matter if occupancy or sales of villas drop. Development will continue.”

The owner in question is Roger Myers, founder of Punch Taverns and the man behind Cafe Rouge.

Sasha Cole, sales manager of Island Villas, part of the Savills group, thinks Sugar Beach is as good investment. “It offers a 5 per cent annum minimum rental guarantee, and not many developments are offering this anymore. The occupancy levels are high: almost 80 per cent now, and this is low season. Sales are very good this year too.”

Indeed, three villas and four private residences have been sold in the first half of this year. As well as the rental villas there are 46 private homes for sale, ranging in cost from US$2.4million to US$9million.

Farrin calls the Sugar Beach project a ‘protracted job, but a good job’. He adds: “It’s a big challenge to bring the standards up in the hotel. It’s going in the right direction though.”

There are sweeteners for investors to help offset the inconvenience of the whole complex closing for five months next year before the reopening. As Cole mentioned, there is a 5 per cent rental guarantee that lasts from the handover and for the first 12 months after the hotel reopens in 2011. After the guarantee has finished, the villas are expected to deliver a 5.98 per cent return in 2012, 6.98 per cent return in 2013 and 7.48 per cent return in 2014.

Sugar Beach has also been granted a 15-year income tax holiday by the government, as well as a 50 per cent reduction on annual property tax for five years, which brings it down to 2.5 per cent. There is not VAT, inheritance tax or capital gains tax for St Lucian residents.

However, as expected with a million-dollar villa in a five-star complex, there are a few fees. The annual charges include around US$5,000 for insurance and US$2,000 for maintenance.

If you buy the villa before building has started, stamp duty is charged (2 per cent value of the lot – a lot is worth roughly US$75,000). Foreigners must also stump up US$2,500 for an ‘aliens land holding license’, while lawyer’s conveyancing fees come in at US$7,500.

When it comes to selling the property, there is a 10 per cent vendor tax. Farrin says a popular way to get around this is to set up a company to buy the property.

“Selling the property will then only incur a 0.5 per cent share transfer tax, rather than the 10 per cent vendor tax. Setting up a company takes about six to eight weeks and costs around US$2,000.”

So what about financing your luxury villa? Banks on the island such as Royal Bank of Cana and First Caribbean offer mortgage rates as low as 3.5 per cent to foreigners if they open a US dollar bank account, according to Cole, for up to 75 per cent loan-to-value. How-ever, Farrin says getting a mortgage in St Lucia is a ‘long drawn out process’ for foreign buyers. Instead, he recommends that people use any collateral they have in their UK property.

So why should investors choose St Lucia? Well, it’s cheaper than St Barts, Mustique and Barbados. Basire reckons a comparable purchase in Barbados would be 30 to 40 per cent more expensive.

Farrin says that although house prices have stagnated this year, there are signs that they will pick up soon and ‘we’ve seen quite a few enquiries from developers.’ He adds that the rental market is holding up well and tourism figures are up this year.