Almost Paradise
by Bee Ong, Property Review, Singapore, July 1998
Just about anyone can afford to buy an island. After all, some cost only a few thousand dollars, affordable enough to charge to your credit card. However, the most comfortable ones cost much more, and islands are best suited to well-organised pcople who can also fund the upkeep. In other words, your very own island doesn't always offer a 100 percent escape from life's mundane demands.
BEE ONG, explains the practical side of owning paradise.
As brokers of private islands, Farhad Vladi and P. Arez of Vladi Private Islands are accustomed to unusual situations. But among the more unusual is the time a man called their Hamburg office and declared: "Finally, I've found you. I've been looking for your phone number for four years!" The man, a farmer and factory worker, had wanted to buy an island, and had searched years for the firm, believed to have the largest library on the world's private slands. Vladi and his team eventually found the German man a US$50,000 (S$82,000) island in Nova Scotia.
Indeed, one need not be a magnate to own an island. Some cost just a few thousand dollars—in May, Vladi had a Nova Scotia island for sale for $6,000.
The more habitable islands—large enough to build the basics like a septic system, not too far away from the infrastructure a mainland provides, in politically stable jurisdictions and with mild weather—usually cost more.
Laucala Island, which the late publishing baron Malcom Forbes bought in 1972 for $1 million, is on sale today at an asking price of $10 million. Forbes, though, had developed his property substantially during his lifetime. The 1,21 4 ha Fijian isle is now a resort with an airstrip, roads, a village and seven 'bures' or thatched-roof guest-houses that are rented out to vacationers.
INVESTMENT VALUE
Location is the most important factor affecting the value of an island, brokers say. As Arez puts it: "When you buy an island, you're not just buying an island. You're buying its surroundings." There should be a village nearby where one can get supplies and an airport close at hand, for instance. In other words, what makes an island feasible is the infrastructure that is available to it.
The potential for price appreciation, though, varies from island to island. "It depends very much on location and demand," Arez says. The value of an isiand also depends on various factors, including location, size, proximity to the mainland, accessibility, climate and topography, existing infrastructure like electricity and water supply, other developments, communities on the island, redevelopment potential, political stability of the mainland country and the legal and taxation implications of owning an island, says Gillian Tso, D rector of Sotheby's International Realty in Hong Kong.
Some islands, however, cannot be developed because the flora and fauna help to keep the area's ecological balance. And some islands may not be completely owned by you. Laucala Island is one where ownership is shared - only 10 per cent of the total land mass is freehold, while six per cent is crown or government land and 84 per cent is native land under communal tenure.
Demand is a so an important factor, brokers say. Indeed, the demand-supply balance is perhaps much more significant than for other real estate as one cannot just create another island. Vladi Private Islands has never counted the number of private islands available, a though the company's library contains files on more than 1,000, even those that aren't currently on the market. All Arez can say is: "There are not too many."
Sotheby's Tso estimates that the largest supply is "generally off the coasts of Canada, the coasts of New England, and to a lesser extent in the Caribbean, the South Pacific and Europe. Very few are available in South-east Asia."
"There's a psychological problem that when you buy an island, you want to own it. Even if it's on 90-year leasehold, with options to extend the lease by another 90 years, it can be hard to sell. A private person would not usually buy a leasehold island," he says. Which is why about 99.9 per cent of the isles sold by Vladi Private Islands are freehold, Arez adds.
Brokers note that the greatest demand comes from the US, Europe and the Caribbean. Asians, though, have yet to catch on to buying isles, says Arez. The firm has only sold to two individuals living in Asia so far, one of whom is a European. Asians, Arez explains, tend to wait for someone to start a trend before jumping in.
NOT ALL PARADISE
Buying an island can sometimes be slightly more tricky than buying other real estate. Governments, for example, can expropriate an island for strategic reasons. However, expropriation is not usual, notes Arez. "In over 20 years we've been in business, there has not been one expropriation except for part of one island in the Seychelles, and the owner was recompensated," he asserts. Still, wary buyers can ask Vladi Private Islands to arrange for expropriation risk insurance.
To attract investment, some governments are making purchase easier, Arez notes. In the Bahamas, state approval for islands larger than 36 ha is required, and used to take a year to come through. However, it's much easier and quicker to obtain approval now, he says. However, islands under the jurisdiction of countries like France, Germany and Great Britain do not require permission for purchase. Buyers need only register their property.
RUNNING COSTS
Buying an island does not end with selecting one - which may take several years - and paying for it. As with any other real estate transaction, a commission is due. Vladi Private Islands usually charges 8.5 per cent, usually to the seller.
Thereafter, you will also need an island manager, who either lives near the island or on the island. Firms like Vladi Private Islands can usually recommend a manager. Services include advice on a development plan for electricity, drinking water, construction and other essentials. Maintenance costs on an island can be high, but are again dependent upon the infrastructure on the island and its distance from the mainland. Arez cites the example of an $8.5 million island in the Bahamas which costs $200,000 a year to maintain. It has an aeroplane runway, villa, staff quarters, electricity and running water.
An island with buildings on it will usually need an on-site caretaker, who will water the plants and keep the houses clean. Depending on what the minimum wages are in the area, maintenance doesn't usually come cheap. In the French Polynesia, for instance, getting a local family on the island to maintain the island could cost $3,000 a month.
Building infrastructure on an island can also be more costly. In Canada, for instance, it costs five to 10 per cent more to build a house than on the mainland. And an island owner also pays property taxes, which vary across the jurisdictions.
FINANCING
One usually cannot just pick up a mortgage at the bank to buy an island, and in South-east Asia, where island ownership is almost non-existent, it can be difficult to find financing. One mortgage banker in Singapore, amused at the idea, says: "We don't offer such loans as there is no market here. Individuals who can buy islands are usually billionaires, and they have their own private bankers." Still, it is possible to get a bank loan. Sotheby's Tso says that some banks are willing to provide mortgages. However, she adds: "Obviously, they will be more stringent than for other types of real estate. Venture capital can be sought if there is development potential." Arez notes that to secure bank financing, an island must usually have an income stream.
At times, Vladi Private Islands helps with obtaining funds from the company's contacts. "Sometimes, we call private individuals to see whether they want to finance an island," Arez says. Some sellers are also willing to accept payments in installments, he adds. Recently, a buyer made an agreement with a seller to make monthly payments of C$1,000 at an interest rate of six per cent per annum and a C $3,000 downpayment for an island, Arez recalls.
There is higher demand for islands with development potential: Tiano Island (opposite) is a luxurious private enclave and Little Water Caye (above) is a holiday destination.
FOR THE ADVENTUROUS
Although many people dream of their own little paradise, island ownership is best suited to those with a particular set of traits. "It is good for people who are active and want to organise things themselves—you must take care of your own meals, for example. You must like boats and love the sea and water and you must like nature very much," Arez says.
The sense of isolation can be overwhelming. As Arez points out, once you're on the island, you're aware that there are only two ways you can leave— by boat or by air if there's a landing strip— or you can swim, and the mainland is usually too far away for that. Although technological advances, such as satellite and cellular phones, mean that you may keep in touch via telephone, fax and even e-mail, it's more expensive to use a cellular phone, and satellite phones may not work as well. This writer spent a few days trying to call the satellite telephone of Karl Kohlbecker, a German engineer-turned developer who is living on his island, Little Water Caye, off the coast of Belize. None of the many calls were successful.
Most individuals buy islands for their personal retreat, and many world renowned personalities like Diana Ross (whose Tiano Island is up for sale at $3.5 million) and the late Malcolm Forbes (whose Laucala Island in Fiji is on the market at $10 million) own an island. Some companies buy isles for corporate getaways and to hold seminars.
Some individuals have also developed their islands into resorts. Karl Kohlbecker, the German engineer who bought Little Water Caye from Vladi Private Islands, has been transforming the 40,000sqm island into a holiday destination since last year. The island is about 45-minute boat ride from Belize.
Kohlbecker has been living on the breezy island for a year to oversee the development of three cabanas, a seawater desalination plant, solar energy system, wind-powered generator, and other amenities. Today, Kohlbecker, like some of Vladi's other clients, is marketing his island through Vladi Island Travel, Vladi's vacation and island-rental service. Holidays on Little Water Caye are sold by packages of three days and two nights. Prices range from $300 for single occupancy—including all meals, transfers from Placencia and snorkelling equipment—to $1,350 for double occupancy in two cabanas.
Arez concedes that it's necessary for a potential buyer to vist an island before signing the cheque. The company usually arranges for such visits, at a cost.
The best way to discover whether you're an island person is to rent one for a while. Vladi Private Islands has several for rent. These range from isiands with luxurious resorts to undeveloped 'Robinson Crusoe' islands on which visitors need to pitch their own tents and organise their own meals.
