Buying Land & Building vs Buying a Resale Property
Belize shares many parallels to the US and Canadian markets, but also has a lot of unique characteristics as well. In Belize, and especially on Ambergris Caye, the buy and build over buying
It is important to note why there has not been a lot of new inventory added. In Belize, traditional bank financing is hard to come by and there are not a lot of hard money lenders (especially for foreigners). Since the accessibility of capital is low, the rate of development does not meet the demand, this creates a unique market opportunity for investors coming in and building new inventory. Since the bank financing is undesirable or difficult to navigate, most of the real estate here is owned outright. These unique market conditions mean there are very few bank foreclosures, this leads to there rarely being fire sales or properties listed below market value.
Below is a brief breakdown of the tourism/nightly rental market. I use BTB (Belize Tourism Board) data to show occupancy rates for Ambergris Caye month-to-month. There will be variance in 2020 with the change in travel, and I don’t want to speculate too much on when tourism numbers will return to what they were, but at the start of 2020, the nightly rental market was booming.
Below is a graphic showing year-over-year growth in tourism;
As you can see, there has been double-digit year over year growth in tourism from 2010 to 2019. We will obviously show a dip in 2020, but over the first few months of the year, we were seeing a great trajectory.
There was also an announcement of direct flights from New York (JFK) to BZE via American Airlines and a plan for British Airways to start flying from the UK to BZE towards the end of the year opening up the European market. We will have to wait and see what happens when flight resumes, but the fact additional flights were planned shows the confidence the airline industry has in Belize.
The other thing I wanted to show is even though there has been year-over-year growth in tourism, that has not correlated to an increase in the available rental pool;
Few things to note in the chart above.
- Overnight tourists are all of Belize and total rooms are just inventory on Ambergris Caye.
- That being said, 46% of tourists to Belize make Ambergris Caye their primary destination while 70% visit the island at some point on their trip.
- The reason there is a decrease in total rooms in some years is the fact that every year there are numerous ex-pats (mostly baby boomers) that move here full time and take private residence removing a unit from the rental pool.
Another great link to refer to is the BTB (Belize Tourism Board). They provide annual reports on tourism that are quite in-depth and unbias. Using the data provided by the BTB you can see where tourists are coming from, the nightly rental rate by area, occupancy rate, where tourists are going, etc. If you want I can highlight a few key points from the report, but I try and remain unbias and let you make your own opinions on the data/information.
Ultimately the key takeaway is that there has been year-over-year double-digit tourism growth, but there has not been a significant increase in rental inventory, and in some cases, there has been a decrease in the available rentals in a year. This is basic economics, you have an increase in demand with scarcity in supply, which in turn drives rental rates up and overall property income/revenue up. When an investment property that cost $250,000 to build generates $50,000 to $80,000 a year in revenue, that property is now worth $500,000 to $800,000 based on the 10-year income. Because of this, a lot of the resale properties are overvalued, and if they are not overvalued, they are mismanaged. This is why I usually suggest my clients look at acquiring land to build or look at turn-key buy and build options like Mahogany Bay Village with professional and proven management in place.
On Ambergris Caye, resale properties sell for 40% to 80% above replacement cost. Replacement cost is the amount that an entity would have to pay to replace an asset at the present time. This gives buyers/investors immediate appreciation in a completed build.
Taking the growth in tourism, the available inventory, and appreciation/value in new builds into consideration you are able to see the reasons so many savvy investors chose to buy land and build.