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International Real Estate - Barbados

posted 12 months ago

Author

Heather M Tull

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+1 (24*****
Heather M Tull
David King & Co

At the core of our existence is our “service first policy” which guarantees quality personal client service, while unraveling complexities such as modification of restrictive covenants and rectifying defects in title in a cost effective manner. Our practice model extends the full gamut of legal issues, and specializes in probate matters which allows for a seamless and sometimes adaptable transaction where estate administration and property matters intersect. This is particularly relevant where foreign probates are to be resealed by the Supreme Court of Barbados prior to the disposition of property located in Barbados and the dissemination of funds to foreign beneficiaries.

As a law firm, our real estate investment advice is limited to ensuring a seamless transaction for investors, which commences with the registration of purchase funds with the Central Bank of Barbados, and permission secured from the Exchange Control Authority for the sale or purchase by a non-resident. While the Government is committed towards the elimination of all foreign exchange controls, the Exchange Control Act of Barbados currently provides for (1) Registration and repatriation of foreign investment (2) Remittance of dividends, profits, interest, and rentals from real estate to non-residents and; (3) Transfer of land and buildings situated in Barbados.

The onset of the pandemic heralded a significant increase in unemployment with the dampening of tourism and airlines industries. The Government introduced the Remote Employment Act 2020 – 23 to give life to a Welcome Stamp program, which saw a wave of non-nationals from Canada, the UK, US arrive on the island to live and work remotely for up to 12 months as “digital nomads’. The big beneficiary of this initiative was the property sector as there was an immediate and sustained demand for accommodation and leasing arrangements, with over 2,800 applicants predominantly from the UK, US, Ireland and Canada submitted in the first few months of the initiative. The “Welcome Stamp changed the landscape of the real estate market with persons leasing for 12 months and opting for rental to ownership since the benefits of persons working remotely from Barbados were much greater than the transitory thrills of a beach vacation. Despite the increase in residential rental market fueled by demand under the welcome stamp program, the property market in general was hard hit by the pandemic, and the office sector contracted in Barbados, as it has globally. For the first half of the year residential sales were concentrated on the West and South Coasts, close to beaches and related amenities. St James and St Peter however, remain the more popular Parishes for foreign buyers.

Barbados has recently leveraged the power of emerging technologies by the creation of the world first Metaverse Embassy. Barbados will also become the first country in the world to legally recognize the sovereignty of digital real estate. The launch of the Metaverse Embassy comes in the aftermath of Covid 19, which has disrupted traditional diplomatic channels, and at a time when Barbados is reimagining itself as a world hub for digital transformation and technology innovation. This initiative, albeit innovative with concomitant risks can be a test bed for the legal fraternity to explore.

While our work has not been impacted directly, Barbados is on track to achieving the goal of 100% renewable energy generation with fossil fuel free electricity and transport by 2030. As it relates to real estate, the private sector has taken the lead on planned solar photovoltaics PV projects. Through the Electric Light and Power Act of 2013, property owners can secure licenses to supply electricity from their grid tied solar systems to the Public Utility. This initiative will not only save energy, the PV systems will add value to the properties on which they are installed thus creating added value for Purchasers since our year round climate is perfect for harvesting solar energy. At present, the government has developed a project called Home Ownership Providing Energy (H.O.P.E) which is 100 % owned by the government (www.hopebarbados.com). The homes are offered at prices below similar offers on the market, but instead of paying the Government for the land, the Homeowner must allow the H.O.P.E program to install PV systems on their roof rent free for 20 years, at which time the PV system’s will be given to the Homeowner who will receive the earnings from the electricity generated for the remaining years.

Going the distance for clients has always been the hallmark of our operations as a boutique law firm providing bespoke service to add value to our client’s experience. Since the advent of the pandemic, residential property sales have exceeded commercial transactions, and with limited airlift and related Covid 19 restrictions on travel we were called upon to fill gaps hitherto not anticipated in a legal practice. Our client based focus was tested in property transactions which traversed the varied Covid related lockdowns, when a client asked us to, on his behalf, view line marks on his property prior to completion of the transaction. While we did not hesitate, we ended up calf deep in volcanic ash from the 2021 eruption of the La Soufriere volcano in neighboring St Vincent, which blanketed Barbados, and the client’s property. Extremely cringe worthy. And similarly, a client’s google imaging of a beachfront property on the West coast and his insistence on the presence of a cliff like object, led to a precarious site visit to verify that the encroachment was indeed a cliff, and not a man-made encroachment.

Enhanced due diligence by the Financial Action Task Force (FATF) and the OECD has increased the costs of regulation and compliance from which the property sector has not been exempt. As a consequence the government of Barbados has been expending significant sums to facilitate compliance with the regulations set down by overseas financial regulators. In addition, as an island dependent on cross border transactions such as real estate investment by high net worth and other individuals, the blacklisting by some financial regulators has led in a very real risk of losing correspondent banking relationships in the Caribbean. If allowed to proliferate unchecked this process of “de-risking” will lead to loss of correspondent banking relationships which includes international wire transfers and conducting foreign currency denominated capital. This state of affairs will no doubt inhibit property acquisition in Barbados by foreign investors due to rising operational and financial risks linked to these transactions, led by increasing regulatory scrutiny and requirements. In addition, the FATF in 2022 issued a revised Risk Based Approach For The Real Estate Sector which it said “highlights the importance for the sector to increase its understanding of the money laundering and terrorist financing risks its takes”. The FATF went on to point out that the real estate sector needs to take appropriate measures to mitigate risks including effective customer due diligence, such as access to information about the true beneficial owner(s) of the real estate transaction. We therefore often warn potential clients of the rigorous due diligence and Source of Funds scrutiny, which is often robust and extensive, to ensure compliance to the FATF guidelines.

We are not particularly active in network events, but plans are afoot for a social media presence aimed at bridging the informational gap to keep local and overseas clients on any post pandemic prosperity in the real estate sector.

The enabling environment in Barbados has changed now that the island has liberalized its exchange control regime such that there is no restriction on exporting proceeds of property sales off island. This negates the need for a special purpose vehicle to own the home (such as an External company). For investors building properties (e.g. beach front villas) to rent, The Tourism Development Act provides duty free allowances for this purpose through duty and VAT procurement of building materials and furnishing of homes.

Economic growth post Covid is now the main target of our Government with commercial property development at the forefront of the economic thrust especially in the country’s tourism infrastructure. However while material international money laundering has not been unearthed or detected in Barbados, the FATF has listed the country as one that requires increased monitoring against money laundering despite vast majority of laundering being reported in the larger North American and European countries, none of whom are on the FATF list. Our Government faces a continuing uphill battle in demonstrating that Barbados poses no risk to the integrity of the global financial system.

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