This page contains a Flash digital edition of a book.
Condominium Returns: A Comparative Analysis


Globally the residential markets continue to underwhelm with only a handful of markets demonstrating year on year price growth. A recent


Business Week article appropriately


characterized the sector as ‘limping into 2012.’ The Irish and Spanish markets continue to lead the underperforming category, while conversely the Canadian and French markets have experienced up to 5% inflation-adjusted YOY price growth. In addition to the obvious fundamentals, this growth is underpinned largely by a tighter supply and a considerably more sensible approach to underwriting residential mortgages.


As a sub-segment, the condo market has borne the brunt of the bad press with a drastic reduction in trading, prices plummeting, and an overall lack of confidence in the sector. Locally this segment is still smarting from three years of inertia, and although 2011 saw a 20% YOY increase in absorption, there is still considerable supply being carried by developers. The chart on page 104 illustrates the current supply of beachfront apartments on the island.


With no price growth and uncertainty about future appreciation, owners are now turning their focus to operations to ensure that their properties are


generating the maximum cash returns. In recent years, the condo market has benefited from the well-established global trend towards more flexible accommodation where families or groups can stay together rather than sharing multiple hotel keys. Recent metrics support this trend as a number of newer developments begin to demonstrate stabalised occupancy and reasonable cash returns.


The chart below (Figure A.) illustrates the actual cash returns generated from condos on the south and west coast beachfront over a representative twelve-month period. We have also included a villa, which perhaps serves only to illustrate the fact that generally speaking the villa product rarely produces much beyond operational expense coverage. While some of the west coast beachfront villas achieve up to US$15,000 nightly in season, the expenses tend to run disproportionally high against revenue. This is principally a function of two categories; the salary and wages expense related to staffing and secondly the electricity charges which are becoming increasingly onerous.


By and large metrics are harmonized across both condo units with occupancy at 60%, average commissions at 18% and operational expenses running at approximately 50% of revenue. Where


they differ is in the cash return. The south coast unit has a 48% increase in net cash return over the west unit and correspondingly a lower occupancy to breakeven threshold. This is due to the fact that the differential in average nightly rate is not paired with the differential in value between the two units. Whereas the west has a 75% higher purchase price/value, it only manages a 39% premium in average nightly rate.


Traditionally there has been no discernable difference in the rate of appreciation/price growth for beachfront condos on the south versus the west, so one could therefore reasonably conclude that the overall return (say over a 10-year horizon) from a condo on the south would be more favorable than one on the west. Of course the reality is that for most purchasers lifestyle choices and pride of ownership trump returns, but perhaps this illustration argues that a well-managed unit can and should produce a cash return in the 3-5% range.


Hayden Hutton - CCIM Director, Brokerage & Advisory Services Terra Caribbean


Figure A.


103


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124