An Island Where Millions Aren't Enough
Published in The New York Times
September 10, 2006
The high price of Bermuda real estate
IN 2004, Robert Territo, a former schoolteacher and bar owner from Staten Island, moved to Bermuda with his wife, Myra, and daughter, Shea.
Mr. Territo, who had spent part of his childhood on Bermuda, said he thought the island would be a good place to raise a family. With the sale of his house on Staten Island, he had a nest egg, he said, of about $500,000.
But on Bermuda, $500,000 is considered a down payment. The Territos pay $3,350 a month to rent a two-bedroom cottage. They don’t expect to buy a home anytime soon. Under laws designed to keep most properties out of the hands of non-Bermudians, the least expensive dwelling they could buy is a $1.4 million condominium. Houses available to foreigners begin at about $3 million.
“They want to keep most of the housing for the locals,” Mr. Territo explained. “It’s a very small island.”
The restrictions that make things hard for foreign buyers have also left sellers in limbo. “We’ve got $15 million houses that we can’t sell to anyone,” said Buddy Rego, president of Rego Realtors, the local affiliate of Sotheby’s International Real Estate.
The problem with such houses is that locals can’t afford them, but foreigners aren’t allowed to buy them, because they can buy only from other foreigners. “That’s not good for Bermudians who own the properties, and it’s not good for the economy of Bermuda,” Mr. Rego said.
Bermuda, which is 600 miles east of South Carolina, shares a problem with many resort areas: real estate prices that are too high for most locals. The Bermuda government has moved aggressively to keep foreigners with deep pockets from making the situation worse.
The policies are working, though perhaps too well. Last year, only four houses were sold to non-Bermudians, according to The Royal Gazette, the island’s leading newspaper. Only about 150 houses on the island are available for foreign purchase, according to Martin S. Brewer, Bermuda’s chief immigration officer.
The Bermudian government categorizes homes according to their “annual rental value” — an approximation of what a tenant would pay for a 12-month lease. Only houses with an annual rental value over $153,000 a year can be sold to non-Bermudians. That translates into a minimum selling price of more than $3 million, Mr. Rego said.
But even those restrictions weren’t enough for the government. In 2005, it announced that Bermudians could no longer sell property to non-Bermudians. The rule is an attempt to enforce the Bermuda Immigration and Protection Act of 1956. The act limits the amount of land that foreigners can own, on the entire island, to 2,000 acres. But “it is certain that non-Bermudians already own over 2,000 acres of Bermuda’s land,” Mr. Brewer said.
The resulting policy took effect in time to stifle the plans of Alan and Vera Rosa Marshall, Bermudians who had built a 30,000-square-foot house on the island’s “billionaire’s row,” a section of Tuckers Town where New York Mayor Michael R. Bloomberg and Silvio Berlusconi, the former prime minister of Italy, are neighbors. The Marshalls say that the house, which they named Goldeneye, is worth about $45 million and that one prominent non-Bermudian had been considering buying it before the new rule took effect. (A spokesman for Oprah Winfrey — widely rumored to be the non-Bermudian in question — said she had not been to the house or made an offer.) Now the house stands empty, the Marshalls say, and costs them about $1 million a year in upkeep.
Last year, the Marshalls went to court to have the new policy overturned. In April, the Supreme Court ruled in their favor, but the Bermuda government appealed. During the appeal, “the policy is still in operation,” Mr. Brewer wrote in an e-mail message.
Saul M. Froomkin, a former attorney general of Bermuda, who represents the Marshalls, says the government may settle with them if they find a buyer. The house is now listed for $22 million with Coldwell Banker JW Bermuda Realty.
But even if the Marshalls are able to sell, other Bermudians are stuck. They have houses that cannot be sold to foreigners — but that locals cannot afford.
The restrictive policies are driving foreign buyers south, to Caribbean islands with fewer barriers to entry. “If you came to Bermuda to buy a house for, say, $4 million, you’d be lucky to find 10 or 12 properties to have a look at,” Mr. Rego said.
Other islands, he said, may have hundreds of luxury homes for sale.
Under the new rule, Bermuda-based real estate brokers maintain separate listings of houses available to foreign purchasers. On Mr. Rego’s Web site, the least expensive house available to non-Bermudians, a pink confection named Fairholme, is listed at $5.35 million. (The local currency, the Bermuda dollar, has the same value as the American dollar.) At Coldwell Banker JW Bermuda Realty, the least expensive house available to foreigners is listed at $4.5 million.
But buying that house, called Chan Mar, would cost much more than $4.5 million. Under Bermuda law, a buyer must obtain a license to buy the house — for 22 percent of the purchase price. That, and other fees, would put closing costs at more than $1 million.
And foreign buyers cannot simply earn it back by working. Bermuda’s rules about who can work on the island, which are at least as strict as the rules about who can buy property, make no exception for homeowners, according to Mr. Brewer, the government official.
Another law prevents foreigners from owning property on Bermuda for anything but personal enjoyment. Foreigners who own a house and want to rent it out need “the specific permission of the Minister of Labor, Home Affairs and Public Safety,” Mr. Brewer wrote in his e-mail message.
For the only-somewhat-wealthy, there are a handful of available condos, including the Villas at Ariel Sands, developed by the actor Michael Douglas, whose mother was born on the island. A condo has to have an annual rental value of at least $32,400 before a foreigner can buy it.
Rego Realty lists several condos starting at about $1.4 million. At Ariel Sands, prices start at $3.5 million. Closing costs will add at least $500,000.
There are plenty of reasons to want to live on Bermuda, starting with the pinkish sand and turquoise water that ring the island, which locals call “the rock.” But earlier this summer, several tourists had their bags snatched by motorcyclists; in one case, the victim was dragged for some distance. That led the police to issue “an urgent warning to visitors to be on their guard.”
Tourism, once Bermuda’s economic mainstay, is far below its peak levels of a quarter-century ago, and several of the island’s biggest hotels have closed.
Still, thanks to Bermuda’s role as a center of the reinsurance industry, the economy is flush. Hamilton, which is Bermuda’s capital and biggest city, is now packed with headquarters of companies like Ace and XL Capital. Their executives generally receive stipends from their companies to cover rents of more than $10,000 a month.
Mr. Territo runs a much smaller business, the island’s only Segway dealership. Someday, he hopes, a four-wheeled Segway will replace the cycles that tourists ride — and sometimes crash — on Bermuda’s tortuous roads. In the meantime, he gives Segway tours of the Dockyards area, a historic enclave at the west end of the island.
“Business is terrific,” Mr. Territo said. “We’re looking to expand to other parts of the island, and we’re looking for foreign investors.”
But those investors can’t expect to buy houses on Bermuda. Mr. Territo said, “They can come and stay with me.”