The Hidden Jewel: Real Estate Markets in Bay Islands Honduras

Global Perspectives in Real Estate

Fourth Quarter 2008

The Hidden Jewel: Real Estate Markets in Bay Islands Honduras
By Larry Schlesser

As U.S. Baby Boomers head for retirement, a look at the dreams of their parents bring back memories of the hundreds of thousands who retired to far off “promised lands” like Florida and Arizona. Pioneer developers like Walt Disney created fantasy worlds and helped shape an adventurous mindset for that generation and their children.They sought warm climates during winter months,low or no income taxes,golf, fishing, and numerous other benefits tailor-made for a budget-minded generation.

The Boomer Generation Retires
Where, now, does the retirement thinking process lead for the Boomers themselves? This is the generation that came of age in the ’70s—the generation that brought technology from an idea to a staple of everyday life. These are the people who colored outside the lines, forging new frontiers, substituting world travel—their ver­sion of the same adventure—for a trip to Florida and, in the process, shrinking the world.

Central America is steadily becoming “Florida” for retiring Boomers from around the world. Increasing num­bers of them are turning to this part of the world to explore their retirement adventure.The more they look, the more real evidence they find that this just may be their place to find the same dream as their parents in retirement—warm climates and economic advantages such as very large income tax advantages for those who choose residency, negligible property taxes, reasonable medical care and prescription medication costs, and affordable housing—all within a couple of flight hours from the U.S.

A New Place in the Sun
At the heart of Central America lies Honduras, a country that, today, is emerg­ing from the “Banana Republic” image it had in the 1950s and 1960s, and border wars with Nicaragua and Salvador in the 1970s and 1980s. Currently, it has caught the eye of many investors seeking commercial and resort opportunities for retirement and second home markets.Although most of the buyer traffic is from North America, buyers from Europe are becoming commonplace.The pre­mium value of the euro speaks for itself.

In 1991, the Honduran government, in an effort to attract foreign investment, passed laws allowing foreign nationals to own property in the country. This started a trickle of investors that has become a stream, and which many think with be a flood in just a few short years. In 2007, in an article entitled “The Next Place in the Sun,1” The Wall Street Journal called Roatan, Honduras “the next ‘it’ spot in the Caribbean.” While many countries, such as Mexico or China, begin the process of attracting foreign investment by permit­ting long term leases, Honduras allows real foreign ownership. Currently, title insurance is offered by Stewart Title and First American Title. Companies like Chicago Title are also testing the waters in Central America.

A Budding Democracy
As one of the five countries in Central America—the others are Belize, Costa Rico, Salvador, and Guatemala— Honduras has experienced the growing pains of a transformation from a dictatorship to a democratic form of government. It is now the longest tenured democracy in the region. Modeled after the U.S. system, the young democracy contains the checks and balances of three branches of government,and the promise of a secure future.

Previously ranking last, Honduras now enjoys the third highest amount of Foreign Direct Investment (FDI) as a percentage GDP of the Central American countries, reflecting the confidence of many world powers. Honduras is attracting a lot of attention, with 57 percent of its more than $816 million FDI coming from U.S. investors—much of it because of DR-CAFTA2, the regions free trade agreement with the United States. This, and the continual and growing acceptance of the U.S. dollar has many talking about the “dollarization3” of the country, as happened in other Central and South American countries like Ecuador and Salvador in the beginning of this decade. Costa Rica, Nicaragua and Guatemala also have it in their thought process.

Honduras, following pioneers like Costa Rica, Belize, and Panama in their attraction for foreign investment, retirement, and vacation homes, is drawing a significant amount of attention of its own. Although econom­ic agreements like DR-CAFTA will both stabilize and grow the industrial and commercial aspects of the country, some parts of the country are quickly becoming the focus of substantial growth and attention in the retirement and second home markets areas. These markets have centered on the north coast beaches of the mainland, but much of the focus has been on what Islanders like to call the “Jewels of the Caribbean,” geographically known as the Bay Islands.

There is an Island in the Bay
The Bay Islands are a group of 62 islands and cays, the largest of which are Roatan, Guanaja, and Utila.They are just off the coast of Honduras and have British roots. The people are generally English speaking, in contrast to their fellow countrymen whose primary culture and language is Spanish.With about 10-15 percent annual property increase in evalua­tion since the mid-’90s, many have been attracted to what International Living Magazine has called the “Last Caribbean Frontier.” Roatan has an international airport with service from both the U.S and Canada and charter flights from Milan, Italy. Although Roatan is currently the most developed of the three main islands, its economic growth and develop­ment is spreading to Utila and Guanaja as well.

Developing a Central American country as a resort or second home market becomes far easier when there is no language barrier.The English speaking Bay Islands have drawn the attention of two major cruise ship lines who have signed long term contracts to build and improve dock facilities.The luxury resort Hotelier,NIKKI Beach Hotels and Resorts has chosen Roatan for its first Central American location.4 NIKKI is sched­uled to open in 2010 and, according to the Minister of Tourism Ricardo Martinez,will invest $200 million in this project. A favorite of the “jet set” and rich and famous, NIKKI will have a large impact on the sleepy little island. In addition to NIKKI and various upscale communities, the new Pete Dye design golf course called “Black Pearl” will be located mid-island on Roatan in a community called Pristine Bay.5

Recently, there has been much in the news about U.S. mortgage markets. At the time of this writing, the industry in the Bay Islands has been little affected, due in part to few mortgages being available to foreign investors at this time.This is a market in which cash has always been king, and thus it has not experienced the irrational exuberance of speculation.This has produced a stable real estate market where the people who have cash still have cash. In this small niche market sales are steady, and lookers and researchers are plentiful.

Tourism Tax Free Islands
In December 2007, new legislation, ZOLITUR6, created a Free Tourist Zone for the Bay Islands of Honduras, “to promote national and foreign investment within its territory.” The new law has already created a stir and an influx of investor inquiries. Initially, potential investors wondered how that would be beneficial to an average buyer of a condo or home. They now realize that if they form a Honduran Corporation to hold title to the property, any rental income will be tax free in addition to other benefits. ZOLITUR is another piece of the puzzle that will spell development success for investors with a little vision and the desire for adventure.

The Beginning of the Boom
There is no doubt Honduras will attract, as have many other developing countries, a percentage of the Boomer retirees who are expanding their horizons to experience the world rather than simply going where everyone else is going as their parents did. One thing, however, is certain. As the world grows smaller, the innovators of the 1970s, the same generation that made “coloring outside the lines” an everyday occurrence, are journeying to new horizons across the globe. gp

1 www.online.wsj.com/public/article/SB119586538625102661.html 2 www.fas.usda.gov/itp/CAFTA/cafta.asp 3 www.imf.org/external/pubs/ft/fandd/2005/03/pdf/basics.pdf 4 www.reuters.com/article/pressRelease/idUS165095+13-May-2008+BW20080513 5 www.windsurfhonduras.com/ 6 www.century21roatan.com/freetradedoc.pdf

Larry Schlesser is a founding member of the Roatan Real Estate Association and Multiple Listing Service (RRA), and has played a pivotal role in the establishment of real estate industry standards in the Bay Islands. He is also a past president of the Roatan REALTOR® Board. Reach him at larry-schl@roatan-realestate.com, or meet him at the RRA Booth at the 2008 REALTORS® Conference & Expo in Orlando, Florida


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