Selling The Rock

I can’t quite decide what to make of the legislation introduced by the Government last week which bans Bermudians from selling property to non-Bermudians for the next five years.

I’ve always thought it odd that an Island with such limited space allows foreigners to purchase property here at all. Although only high-end properties are available to them, there seems something vaguely immoral about permitting the likes of Ross Perot, Michael Bloomberg and Silvio Berlusconi to own two or three acre holiday homes here when there’s such pressure on space. Shouldn’t Bermuda at least restrict property ownership to residents?

At the same time, if I’m honest, I have to wonder how much difference it makes. Rego Realtors only sold two such high-value properties to non-Bermudians last year, and for all I know they may even have been residents. Government's failure to consult more widely does also seem foolish.

And yet… the fact that one realtor did only sell two such properties to non-Bermudians last year makes claims that the Government’s action has devalued the entire property market overnight seem a little overblown. Besides, while devaluation may be a bad thing for sellers, to buyers it's surely good news.

So is this a big deal, or isn’t it? I honestly can’t make up my mind.

Comments

[Tiger Bay on 12.02.05 at 16:59]

Government only seems to have public consultation on mundane things they don't care about. Anything else just gets rammed through. Adequate consultation needs to be defined better -- another reason to get that website of theirs working! They should post proposed legislation and regulations for a set period of time with a consistent feedback mechanism to provide reasonable, timely public access and comment.

[loki on 12.02.05 at 17:59]

I'm surprised that there hasn't been more outrage expressed by my fellow Bermudians on this matter. Without a shadow of a doubt, this is the most blatantly discriminatory, moronic and nonsensical policy that I've EVER seen from the Bermuda Government during my adulthood. Overnight, they have systematically slashed the value of Bermudian-owned real estate whilst raising the value of real esate owned by non-Bermudians. And the best bit? The policy achieves exactly the opposite of what they claim they are trying to achieve. If I was trying to design a policy guaranteed to encourage more non-Bermudians to find Bermudians to front for them, I couldn't have come up with a better policy if I tried.

Each and every Bermudian should be OUTRAGED at what this Government has done. And the idea that they are doing it to discourage fronting? BS - anyone with a single brain cell can see that it does precisely the opposite. I'm not buying Government's explanation at all: this is nothing more than a blatant attempt to slash land values at the expense of existing Bermudian landowners and make more affordable housing available for purchase. Does this Government even care that thousands of Bermudian landowners have been plunged into negative equity overnight? I doubt it. And if you think I'm scaremongering, trying talking to a few realtors and real estate attorneys, as I have, and you'd be shocked at the sheer number of real estate deals that literally fell apart overnight after Government announced this ridiculous policy. This isn't a policy to reduce fronting, this is an exercise in social engineering, plain and simple. Do I sound outraged? I sure hope that more Bermudians figure out pretty quickly what this Government has just done.

[Fornicator on 12.02.05 at 18:05]

Anybody else catch Max Burgess compare the new housing regulations to one of Hitler's Nazi programs? Both him and Trevor Moniz spun dishonestly over that issue this week, but Burgess was just horrible. And then they wonder why people still vote PLP.

[Tiger Bay on 12.02.05 at 18:05]

Because Alex Scott and Ewart Brown are so much more sensible, eloquent, and honest?

LOL!!!!!

[Guilden M. Gilbert, Jr. on 12.02.05 at 18:06]

Limey,

On the one hand you say that you do not understand why Bermuda would allow foreigners to buy property on the island, then you say that Rego Realty only sold two such homes last year, so what's the big deal, then you are critical of the Government saying they failed to get wide consultation.

It seems to me that not matter what the PLP does the same people are going to complain. In all honesty I do not recall you ever making any positive statement about the PLP. Everything is negative. Your opinion clearly shows that you look to find fault with the PLP. Your article on Dr. Brown's announcement of his tourism plan was negative even though an effort is being made. Is there anything the PLP can do to get a compliment from you?

The people elect the Government to govern, therefore, I see no reason why the Government should have sought wide consultantion on this matter. The decision is only applicable to a small segment of the real estate market. Government decisions the world over are not going to benefit or please the entire population. The only people truly impacted by this decision are realtors.

Some may say that the seller is impacted, maybe but something needs to be done to slow the unreal rise in property prices in Bermuda. If foreigners are not permited to purchase and the seller wants to sell he/she will get closer to what the house should be valued at. Prices in Bermuda are artificially inflated.

Realtors have made a truck load of money in the Bermuda market with very little effort. Maybe it is time to review the way realtors earn money. Maybe it should be viewed similar to the way a insurance broker earns money. In many cases, for large commission earning accounts the broker is willing to negotiate the commission rate or agree to a fee for service.

With the high demand for real estate in Bermuda realtors can move homes very quickly. In fact, a homeowner could advertise his own house and probably sell it just as quickly. Why should there not be a daily fee for realtors as opposed to the current commission structure? If the house is on the market at $850,000 and assuming a commission rate of 6% the realtor earns $51,000 on the sale. Every other profession has fees attached for service rendered. I am all for fre enterprise and if you can earn that kind of money from one sale I say more power to you. Personally, if I were selling my property in Bermuda under the current market conditions I would handle the sale myself, especially if the property in the range of $850,000 to $1.5 million.

Just my thoughts.

[Guilden M. Gilbert, Jr. on 12.02.05 at 18:10]

Let me just add that while I agree with what has been proposed I would rather see the dollar value on properties that foreigners can own increased by about 25% - 30%. This way fewer ermudians will be competing with foreigners for property.

[loki on 12.02.05 at 18:20]

With all due respect, Guilden, it's very easy for someone who doesn't even live here to think that it's just fine and dandy that those of us that own land have been plunged into negative equity overnight.

[loki on 12.02.05 at 18:28]

And, to be clear, Guilden - that's not meant as a cheap shot or an insult. I don't doubt the sincerity of your views, but a Bermudian who's just bought a $1.2M house with a 95% mortgage only to find that it's now worth $750,000.00 wouldn't agree with you, I daresay.

[Guilden M. Gilbert, Jr. on 12.02.05 at 18:35]

Loki,

I don't look at what you said as a cheap shot or an insult but just because I don't ive in Bermuda does not mean that i don't know and understand the current market environment.

Maybe I am missing something here and hopefully you can point it out to me. How does this legislation reduce the value of your house? It may prevent the market value of your house from increasing by 65% as it would have over the last 4 or 5 years but I fail to see how it reduces the value of your house.

Please help me to see what I am obviously missing.

[Tiger Bay on 12.02.05 at 18:46]

This is a rushed, ill considered bludgeon approach. This will not make more housing available (particularly at the midmarket) to Bermudians. It appears its really about Government being frustrated at not getting tax dollars due to Bermudians fronting. And that's fair. They should focus their efforts on stopping that practice, and prosecuting those who evaded the law, instead.

Guilden, it's fair to criticize Dr. Brown when he's way off the mark. It's not about compliments - it's about wanting our government to manage our resources wisely. Trips to Africa, to give one example, are a waste of our resources. The taxpayers are not a bottomless wallet to fund their fantasies and hobbies.

A large segment of Bermuda is worried by the unaccountable behaviour of this Government. In your refusal to acknowledge this, you are as partisan as Christian Dunleavy and others whom you disclaim.

[loki on 12.02.05 at 18:49]

Well, it starts at the top end of the market and the effect trickles down to lower end property - it's the opposite of what happens in a housing boom. If I have a $2M+ piece of property that I want to sell (Lighthouse Hill, swimming pool,three bedrooms - you get the idea), the reality is that there are very few Bermudians that can afford to pay that amount of money, and the vast majority of those that can afford to pay that kind of money already have their piece of the rock, so to speak. If I want to sell my property, realistically speaking, I'm going to have to sell it for no more than $1.5M, which is about the top end of what the average Bermudian can afford in terms of mortgage payments, etc. Now, if I own a two bedroom cottage that I bought six months ago for $950,000.00 (and that's a realistic figure in this market, by the way), how likely is it that I can get someone to buy it for $950,000.00 when they can now buy the property formerly valued at $2M+ for $1.5M? When the higher end of the market has prices slashed, this causes a trickle-down effect right down to the lower end of the market. I'm not kidding: I personally know people that bought property three months ago for $1.3M and, realistically, their property is probably worth in the region of $950,000.00. Their mortgage is $1.2M. Negative equity overnight.

[loki on 12.02.05 at 18:53]

Tiger - if you believe that this policy is designed to discourage fronting, please tell me how the policy achieves this. The policy is so unbelievable bizarre in terms of what Government says it's trying to achieve, as opposed to what they've actually achieved, that I'm just not buying it: this isn't about fronting, it's about social engineering.

[Guilden M. Gilbert, Jr. on 12.02.05 at 18:56]

Tiger,

Wait a second, I never said I had any distain for anyone. Christian and I have converseed quite a it over the last couple of months and while there are certain things we may not agree on, I do believe that there is a great deal of mutual respect between us.

Maybe the difference between Christian and I is that we see nothing wrong with the fact that we view things differently and we do not take that difference as a personal attack.

You have your views and are entitled to your views. Do I agree with everything the PLP has done or is doing? No, because I am an independent person who can and does think for himself. With regard to Dr. Brown, what he is doing may or may not be right, time will tell, but the point I was making is that he is at least making an effort to reignite tourism in Bermuda.

[Tiger Bay on 12.02.05 at 19:07]

Loki: I did not say this policy discourages fronting; it doesn't. But that's the major issue that angers them as they are missing out on all that juicy tax revenue.

This policy is very ill-considered and will harm more Bermudian homeowners than it helps. The PLP will lose even more friends over this.

[loki on 12.02.05 at 19:09]

The point I'm trying to make is that I think it's pretty naive of anyone to actually believe that the Government's motivation is to discourage fronting.

[Guilden M. Gilbert, Jr. on 12.02.05 at 19:16]

Loki,

I see the point you are making. But with al due respect we cannot sell every piece of property to a foreigner just because a Bermudian cannot afford it. By doing so we are effectively selling our country to the highest bidder.

If the statement by Buddy Rego is indeed most of these houses are still being sold mostly to Bermudians. It would appear that there are not a whole lot of foreigners currently buying property in Bermuda anyway. Please correct me if this is not the case.

Further, I very much doubt if an appraiser is going to reduce the value of the $1.3 million simply because of this legislation. At the end day the value of any property is what a seller wants to receive and what a buyer is willing to pay. If the seller can't get his price he probably won't selljust as a uyer wil not buy above his price. A house that is not for sale only has a potential resale value.

I agree with you it does nothing to stop a Bermuda trust from fronting. It may stop an individual from fronting but not a trust.

[Guilden M. Gilbert, Jr. on 12.02.05 at 19:18]

Tiger,

You say "they" are losing out on the juicy tax revenue. Don't you mean "us" as in Bermuda?

[Guilden M. Gilbert, Jr. on 12.02.05 at 19:44]

Loki,

In addition, I believe your argument would be more valid if persons purchasing homes in Bermuda were doing so for investment purposes, that is, buying the house and selling it for quick profit.

I would hazard to guess that 99.99999% of homes are purchased to either create a home for the purchaser or for rental income as the purchaser has used everything they had to purchase the house and therefore, cannot afford to live in it at this point.

[jake on 12.02.05 at 20:33]

Saying that the market has jumped into negative equity demonstrates a lack of understanding of the effects. The market in Bermuda is not determined by the top end as loki suggests.

It is set by the revenue possible because of local rents paid by reinsurance company workers. They provide rental levels that increase the value of the property. There are often points where the rental value is out of line with the value, but normally they trail by about 12 months or whatever the lease period is.

It is a simple matter of a PMT function.

I blame those responsible for creating the situation: greedy real estate agents and conveyancing lawyers who have been defrauding the Bermudian people. Are you asking us to believe that 5 years ago $16m in tax revenue has become $5m today in an increasing market?

The policy can be better worded, but we are neither at armageddon or negative equity. The economy surrounding real estate rental levels prevents that.

[loki on 12.02.05 at 20:56]

Jake - you're wrong, plain and simple. If the top end of the market topples, it has a trickle-down effect. It's basic economics and commonsense, to boot. Plus, can you tell me how the new policy doesn't actively encourage fronting? It doesn't discourage it all- it has the opposite effect.

[jake on 12.02.05 at 22:04]

Trickle down effect has no bearing on valuation.
It is obviously not simple commonsense.

I will explain it for you.

There are three ways to value an asset in this circumstance.

1. Comparable Transactions. This is what you are trying to do by referring to the value of a property in the overseas category as 100 and thus assuming it sets the bar for every other property. Sales Comps only work when they are similar in nature - i.e. regulatory value. If a property is not in the same category - i.e. foreign and restricted - it cannot be used as a frame of reference for value.

2. Comparable market value. This does not apply in the Bermuda context because there is not derivative market which can be referred to as an active traded market for pieces of a building. THis would be the case for Real Estate Investment Trusts (REITS) in the US.

3. Discounted Cash Flow. This means taking accoun of the revenue given by rents and projecting them forward over a period of time. THose cash flows are then discounted by some factor since they are received in the future and we will not get them a later period. The value is simply the Present Value of those future cash flows.

In a circumstance where the revenue (cash flows) are set by the rental market, the value of the asset would not change because a higher category of asset had new restrictions on it. The cash flows are the same. The discount factor is the same. The value is the same.

FV = PV*(1+R)^t
Future Value = Present Value * (1 + Discount Factor) raised to the power of time.

It is simple finance.

As for fronting, the new policy will prevent the sale of real estate presently under the ownership of Bermudians. So fronting becomes a null issue. I am really still trying to figure out how to better fix the obvious theft of revenue from the people of Bermuda, so why don't you handle the cry baby real estate agents who caused the problem in the first place.

[H Reardon on 12.02.05 at 22:33]

Loki,

You are right on the money. I have spent some time over the last few days with a few Bermudian friends of mine and a prominent real estate agent. This policy is damaging for many reasons.

First, the most obvious is that it devalues the properties across Bermuda. My real estate agent friend believes that there will not be one property that changes hands over at least the next month--at least until the full effect of the market forces at work settle themselves out. Loki has already done a good job of illustrating the trickle down affect this will have.

Second, let's think about the Bermudian that owns a middle to higher middle range house. He's thinking about putting in a pool, or adding an addition. The resulting increase in value of his house will make it worth it in the long term. Do you think he is still going to do that? I have a Bermudian friend that was having an addition put on next month--he cancelled it on Friday. Who got hurt by that decision not to pursue the addition to his house? The contractor, the skilled labor he will be using, basically the whole economy. He won't be the only one. How many Bermudians sitting on a piece of land that they have been thinking about developing are going to change their mind now? This will have a major trickle down effect. Less housing starts, less renovations. This will have a devastating blow.

Third, what do you think this does to Bermuda's reputation as a stable economy? If the government can affect property prices this severely overnight, what else can they do? I know if I were advising a company looking to invest in Bermuda, this would seriously impact my decision. How can any company now trust this government if they now decide to go independent?

Fourth, and possibly most troubling is the only explanation I can come up for why the PLP would do this. It is either they are incredibly incompetent and couldn't see what any first year economics student could see immediately, or it was an attempt to "stick it to the man" and try to shore up support among their base of supporters amid the Premier's plummeting approval rating. This class warfare is horribly damaging immediately to Bermudians that it impacts now, but the trickle down affect it will have on the economy through fewer housing starts and renovations could be devastating. Wait until Gormans starts to lay off people and noone understands why. Why did the PLP do this---so they can call an election in the next few months and give us 5 more years of this incompetence.

I'm a guest worker here, so the short term affect on me is minimal, but I have a strong feeling that absent a reversal on this policy I will be drinking Guiness in the town it was born in in the not too distant future--and I'll be doing it with a lot of my colleagues from Bermuda.

[The Limey on 12.02.05 at 23:58]

Guilden,

You're entitled to your views, but please don't misrepresent mine.

On the one hand you say that you do not understand why Bermuda would allow foreigners to buy property on the island, then you say that Rego Realty only sold two such homes last year, so what's the big deal, then you are critical of the Government saying they failed to get wide consultation.

Self-contradictory statements? Yes. Exactly my point. As I thought I made quite clear in my post, I don't know how to feel about this announcement. I can see positive aspects. I can see negative aspects too. You, however, have selectively picked out my critical statements and ignored my supportive ones in an attempt to demonstrate your belief that I'm just interested in attacking the PLP.

Your article on Dr. Brown's announcement of his tourism plan was negative even though an effort is being made.

Really? This was my second paragraph: "On the whole, it was a good speech that suggested the Minister has thought seriously about the issue. It articulated several goals and detailed a number of initiatives that will be undertaken to achieve them. It would be nice to hear something similar from Randy Horton on crime or Ashfield DeVent on housing." Or how about my closing sentence: "Dr. Brown’s objectives will provide a decent measure of the Government’s success in turning tourism around when polling day comes".

That doesn't sound very negative to me. Again, you've just focused on the doubts I expressed and ignored my praise because you have this "anti-PLP" box you want to squeeze me into.

When intelligent people such as yourself stoop to that sort of tactic it makes me depressed. How can we have intelligent debate about anything if we're so determined to misrepresent what we say to each other?

[Guilden M. Gilbert, Jr. on 13.02.05 at 00:17]

Limey,

I just re-read both commentaries and I have realised that I misinterpreted your comments an intent.

I offer you my humble apologies for that and I retract the contents of my above post in reference to your commentaries.

[jake on 13.02.05 at 08:37]

Reardon,

You see doom under every PLP initiative. The economy is far more robust, and executives are far more isightful than you suggest. I grew up hearing that the world would come to an end under the PLP. Yet house prices have risen, the market has grown, and we have all survived.

They may have it wrong on this policy, but the market shifting effects that you and loki describe are the typical over reaction from your crowd and are wrong. Even you economic argument of trickle down can be disproven in this insance. Valuation is not determined by a single factor - in this instance comparables. You have not addresssed that point.

Nor have you conclusively proven that there has been a halt in the local construction industry. I suspect that developers are continuing with their plans being submitted to planning, but testing your version and my version of value to see if it is worthwhile. I suspect the cement company is doing just fine as well, and that SAL and Biermans have not closed the shop. In short, we have not hit a crisis point at all.

But if you are so inclined to go to Ireland, be my guest. THey have a thriving economy as well. We will continue to compete with you here, and you will be replaced. We don't need those who are not committed to getting it right here anyway. I tire of the threats. THis is a viable economy and for those who choose to come and make it happen - it does. Just remember, you did it.

[Tiger Bay on 13.02.05 at 08:54]

In the paper, Martin Brewer said this policy was the subject of intense consultation within Government. It does not look like that -- it appears to have been rushed out. Major policy changes like this that have an economic impact MUST have public consultation.

The PLP government have a reputation for forcing in policies unheeded and without thinking through the consequences - this makes people very nervous.

If this is the way that an independent PLP government would act - I don't think it's what the public wants. We want more public representation in our government, not less.

It was gutless to push this out as a routine Immigration action.

I somehow get the feeling that this is linked to the recent land valuation review - have a large number of properties recently been pushed over the ARV limit? Is it designed to "lock in" those Bermudians with valuable properties so that they cannot easily liquidate their assets?

Too many unanswered questions regarding the intent of this policy; what it hopes to achieve and why and how.

[Fornicator on 13.02.05 at 11:26]

"Does this Government even care that thousands of Bermudian landowners have been plunged into negative equity overnight? I doubt it. And if you think I'm scaremongering, trying talking to a few realtors and real estate attorneys, as I have, and you'd be shocked at the sheer number of real estate deals that literally fell apart overnight after Government announced this ridiculous policy."

This policy change is not just about fronting, but unlike you I approve of it, and want to see more done. Falling into negative equity will only affect Bermudian home owners [who are planning to sell or borrow against their property in the next five years.] And in the case of the latter, it will only impact those who probably shouldn't or won't be able to borrow against their property anyway. It is therefore entirely dishonest (disgusting, really)for the realtors and the UBP to make a generalized claim that the Government has enacted a policy to benfit foreigners and hurt Bermudians. It is a policy that stands to have a short term negative impact on a handful of people, and potentially benefit many more. Even one property of a few acres is too much given our current property challenges! It is just one part of necessary action to get home prices under control, and they need to do much more. Government REALLY has to deal with the condo market as a priority, because the ARV limitation on shared units is an absolute joke.

Tell me, Loki, where were the realtors' and real estate attorneys' voices as the price of property skyrocketed? Where was their concern for the well-being of Bermudians as they set up trusts? Why didn't they sound alaramed about the rapid increase in housing prices and Government's failure to raise the ARV to address foreign purchases of homes AND condos? DID ANY OF THEM SEEK CONSULTATION WITH GOVERNMENT OVER THE GROWTH OF THIS MAJOR SOCIAL PROBLEM??? Have ANY of them proposed changes to fix this artificially inflated property market? N-O. If you are going to make a credible argument on THIS issue, please leave the opinions of those SOB's out of it. While I do believe that Government should consult, this would be like asking inmates to recommend changes to Westgate's security system.

Raising the ARV, increasing the supply of housing and denying foreign ownership will all put downward pressure on prices - that is the reality. So are the UBP and realtors going to condemn the Government for the new Southside development? Is Maxwell Burgess advocating leaving the ARV limits where they are? I honestly want to know, because to me it sounds like the Hitler comment is a feat of someone talking out of his mouth and ass at the same time. C'mon you guys - the Hitler comment was ridiculous!!!!

In property you CQNNOT have your cake and eat it too. It is either a seller's market or a buyer's market. As long as real estate speculation is allowed to continue, it will be a sellers' market. And when that real estate bubble crashes, or enough people are pissed off that they can't afford land here, then we will see the errors of our way. Once again, here is proof that a lack of housing plan will result in a swift kick in the ass.

"If I want to sell my property, realistically speaking, I'm going to have to sell it for no more than $1.5M, which is about the top end of what the average Bermudian can afford in terms of mortgage payments, etc."

You're saying that 1.5m is the top end of what the AVERAGE BERMUDIAN can afford? Did you mean average lawyer, or average accountant? Surely you didn't mean the average Bermudian? Because if you are right, 95% of the Bermudians I know are well below that point. And I mean Bermudians of all manner of employment.

[tweenwalls on 13.02.05 at 11:33]

New policy always hurts somebody, and it's timing is never going to be good. and i'm sure it's going to hurt me because it will put limitations on the market, but i'll make changes and get on with it.
I always think i'm better off that many who cant find a place to live, cant afford to ever own anything, given it takes at least 100k and a huge mortgage that most could not sustain unless they rent it out.

The issue that we seem to be missing is that the economy is going great,... thank goodness, and the real estate market is in short supply of both houses and rental units.
There is now a whole genereation, and various other segments of the community that will never have property, or even bother hoping.
This is all because we are to successful.
What we really need is the compensating policies and action to help those who want to help themselves but cant.
Government has access to more land then anybody save a few. Wedco as an example, and i'm sure they will be horrified at the suggestion for fear of becoming low income landlords, own all the land from watfortd bridge to dockyard. Its a huge tract of land that is already mostly residential. So why can they not put several major development into place immediatly. Low and middle income. It's that shortage in the market that drives up rents, and property value. I just cant understand why it doesnt get done. RFP a project (s) and get private indusry involved, and get building decent attractive units, hundreds of them. Lets get back all those tradsmen that came in for the hurricaine fix and start building, Boaz island is but a dot in all the property that exists under Wedco.
If I had to compete with new units on the market i probably could't rent my one bedroom for $2500, it might get $1500. That in itself would reduce my property value, and yes it might hurt, but at least i would know that somebody has a decent place to live at a decent cost. and yes i'd have to put off that trip, or new car, or expensive dinner.

That would be social engineering.

[Guilden M. Gilbert, Jr. on 13.02.05 at 11:34]

I fully agree with Jake. This policy may piss some people off but it certainly will not cause the real estate market or the construction industry to collapse.

I very much doubt that it will have any real effect. The Royal Gazette article states, "...what he believes is a non-existent problem."

"Mr. Rego said: "What is the problem? That end of the market is becoming increasingly Bermudian."

Does this statement not counter the comments made by Loki and Reardon. Or is Reardon's real estate agent friend have a better grasp on the real estate market than Buddy Rego?

The thing about government policy is that some will find economic disavantage in every polcy the government makes and those who find economic disadvantage are (1) looking for it and will find any means to justify what they are looking for and (2) opposed to the current government and will find anything they can find to spread doom and gloom about the policies of the government.

Obviously there is still a great demand by Bermudians for homeownership so while this new policy may have some impact on the top end of the market the demand lower down is clearly still high and this will prevent the stated trickle down effect. Even at the top end, according to Budy Rego, Bermudians in this category are increasing, which indicates that this policy could possibly have little impact at the top.

As I stated earlier, most Bermudians buy a house to hold onto not to turn around for quick profit. Therefore, the majority of homes at the top of the market that will change hands are already foreign owned and these properties are not impacted by this policy.

Reardon, talks about economics but I do not sense he really has a grasp on being able to analyze economic factors. He seems to rely heavily on what he is told by others.

A part of my university degree is economics and was taught by someone who is considered one of the best economist minds in Canada. He also taught at the London School of Economics. One thing about economics is that for every "economist" there is a different economic opinion and when it comes to politics the opinion expressed by most "economists" will be based on political persuasion. If the "economist" is smart he will not only state his opinion but he will be able to logically explain how he derived at it. So far this hasn't been from the opposing "economists" on this thread.

As Limey said, "I’ve always thought it odd that an Island with such limited space allows foreigners to purchase property here at all." Is it not time that we take actions that are necessary to at least allow future generations to ow real estate in their own country? Are we truly will to sell our country to foreigners purely in the name of profit?

[Guilden M. Gilbert, Jr. on 13.02.05 at 12:20]

H. Reardon,

You and people like you are the very reason I take strong acception to work permit holding foreigners making public comment about Bermuda's political affairs.

You have clearly stated that if your predicted doom and gloom occurs you will be right back in Ireland. Clearly you are in Bermuda only for YOUR economic advantage, not to be an asset to our country. That being the case why wait until your predicted doom and gloom arrives pack your things and get your behind on a plane and leave now.

[Pittsbay on 13.02.05 at 12:31]

The one point that has not been discussed much is the concept of "fronting". There are many interpretations of what is meant by this.

If a non Bermudian with Bermudian children wishes to establish a trust, the only effective beneficiaries of which are the Bermudian children, is that a front?

If a non-Bermudian gives a Bermudian a really good loan to buy a house. The non-Bermudian rents it from the Bermudian. The lease payments meet or exceed the the loan payments (thereby giving a bit more cash flow to the Bermudian) At the end of the day the Bermudian owns the house free and clear. Is that fronting?

If a non-Bermudian loans or gives money to a charitable trust (the charitable beneficiaries of which are Bermudian worthy charities), and the trustees of the charitable trust buy a property, which they then rent to that non-Bermudian. Lease payments either service debt or go to the charities (or a combination of the two). Is that fronting?

If a non-Bermudian loans or gives money to a Bermudian to buy a house. The Bermudian fixes up the house. It is now above the ARV threshold. He sells it to the non-Bermudian and makes some profit. The non-Bermudian pays the normal conveyancing stamp duty + the 22% Alien Licence Holder's Fee. Is that fronting?

If I, as a Bermudian, establish a trust to purchase a house, the beneficairies of which are myself, my non-Bermudian wife, and my children. Because my wife is currently non-Bermudian, is that fronting?

It should be noted that the Bermuda Immigration and Protection Act 1956 (at Section 80 I beleive) provides that any conveyance etc. which provides for the immediate occupation and enjoyment by a non-Bermudian of such property, without a licence, is void. The act also provides that a "restricted person" is not entitled to recieve the pecuniary proceeds or rent etc. from Bermuda property. There are a number of offences for assisting in this.

Any decent trust deed prepared for the last 30 years should have a provision that non-Bermudian's are resticted from benefiting from Bermuda real property (or other restricted property).

The legislation is there to enforce if they were so minded to. It will be very interesting to see what the proposed amendments to the Immigration Act are. I hope that there will be consultation with the private sector on that bit of legislation.

One final point. The granting of an Alien Licence is entirely discretionary on the part of the Minister. Similar to the absolute discretion granted to the minister in planning matters (as determined by the Privy Council). What the government has effectively done with this policy change is to say that they are going to exercise their discretion in a certain way. This is not so much different than their prior policy that they would only grant licences in respect of those properties with an ARV of greater than $126K per annum.

[Tiger Bay on 13.02.05 at 13:13]

Let's not forget commercial real estate -- all those nice new office buildings that are funded with exempt company cash in return for long term leases and payback of any differential in the value of the building after a set number of years. Is that fronting?

Or the 60/40 companies here where stock is given to Bermudians for little/nothing, or held in escrow until they can pay. Is that fronting? A lot of Bermudians implicated in that one (past and recent)!

[J Galt on 13.02.05 at 18:16]

"You and people like you are the very reason I take strong acception to work permit holding foreigners making public comment about Bermuda's political affairs."

What about free speech Guilden? Is there no Human right you won't trample on, when it doesn't suit your need.

[Tiger Bay on 13.02.05 at 18:19]

"get your behind on a plane and leave now."

kind of like you did, huh, Guilden?

:)

[Guilden M. Gilbert, Jr. on 13.02.05 at 18:40]

Tiger,

There is a specific reason I live in the Bahamas. I happen to be married to a Bahamian and we lived in Bermuda for 5 years after we got married. Not that it is any of your concern.

Galt,

I said I do not agree with him speaking on political issues in Bermuda, I did not say I was going to stop him, nor threaten him in any way, nor did I suggest that anyone do anything to stop him. How have I trampled onhis human rights?

[Guilden M. Gilbert, Jr. on 13.02.05 at 19:28]

Tiger,

Furthermore, my reasons for moving to the Bahamas had nothing whatsoever to do with economics, they were purely personal.

Even further, I live by my words, I have never said anything or given my opinion on Bahamian poltics in a public forum. It has been suggested that I get involved because I actually have a vested interest in that I have a wife and child, both of whom are Bahamian.

I have chosen not to get involved because unless I apply for and secure citizenship I cannot vote. No matter how long I live here I am a Bermudian and will never give that up. So I guess I will never be in a position to vote here.

I cannot deny that I have served in somewhat of a consulting basis or two (never paid) for the Office of the Registrar of Insurance Cos. and the Ministry responsible but I was invited because of my experience and expertise in the industry.

What is interesting is that neither you nor Galt chose to make any comment on or challenge to my economic opinions. Could it be that you are more capable of attempting to criticise me than you are of debating me on the economic issues related to this topic? Hmmmm, I wonder.

[H Reardon on 13.02.05 at 20:52]

Posted by: jake | February 13, 2005 08:37 AM

Reardon,

"You see doom under every PLP initiative. The economy is far more robust, and executives are far more isightful than you suggest. I grew up hearing that the world would come to an end under the PLP. Yet house prices have risen, the market has grown, and we have all survived."

Where it is true that I disagree with the PLP on many issues, I don't believe I have predicted doom under any other initiative. "The economiy is far more robust"--my translation, 'there are people making good money on there investments and they aren't me, so let's screw them.'

'Yet housing prices have risen and the market has grown,' yes, as the PLP has done a good job of staying out of our way. They have made their work permit threat, basically just to get through the election, but I highly doubt they have the guts to back it up.

"They may have it wrong on this policy, but the market shifting effects that you and loki describe are the typical over reaction from your crowd and are wrong. Even you economic argument of trickle down can be disproven in this insance. Valuation is not determined by a single factor - in this instance comparables. You have not addresssed that point. "

Fine, disprove it. Let's start from the top--Paget Hall owned by Brian Duperault. I'm guessing it was worth 10-15 million. If Mr. Duperault ever wanted to sell, there are hundreds of thousands of people that could afford to pay him a reasonable price. Now, I can only think of one--Michael Douglas. I'm sure there might be a couple more, but they would probably have to sell some of their land to afford it, so maybe not. But screw him right, he is worth a lot of money, and we aren't so he can afford it, right? So lets say Paget Hall is now worth $5 million. That puts enough Bermudians in the game if Mr. Duperault wants to sell.

So, now that 4 bedroom 3,500 square foot place on Harrington sound that a different Bermudian owns that was worth $5 million has to be worth something less, as for $5 million, a buyer could just go buy Paget Hall.

I hope that you are intuitive enough to understand that this does filter on down to the bottom.

"Nor have you conclusively proven that there has been a halt in the local construction industry. I suspect that developers are continuing with their plans being submitted to planning, but testing your version and my version of value to see if it is worthwhile. I suspect the cement company is doing just fine as well, and that SAL and Biermans have not closed the shop. In short, we have not hit a crisis point at all."

It has been 3 days. All I have to offer you as "proof" is 1) the Bermudian I spoke to that was going to add an addition has changed his mind, 2) logic. If adding that addition or putting in a pool does not lead to a commensurate increase in value, construction will slow considerably. Tell you what, go to Butterfield or Bank of Bermuda and ask for a loan to put on an addition or build a house on a piece of land you own. I'm willing to bet it is more difficult to get your cash today that it was last Monday.

"But if you are so inclined to go to Ireland, be my guest. THey have a thriving economy as well. We will continue to compete with you here, and you will be replaced. We don't need those who are not committed to getting it right here anyway. I tire of the threats. THis is a viable economy and for those who choose to come and make it happen - it does. Just remember, you did it."

You miss my point. If I leave, it won't be just me that goes. It will be many of us in the same situation. You tire of the threats, huh. Well I tire of Bermudians telling me I don't belong here or government trying to legislate against me (work permit term limits) when I have done nothing but help grow this economy and pay my taxes (without representation, I might add).

[H Reardon on 13.02.05 at 21:22]

Posted by: Guilden M. Gilbert, Jr. | February 13, 2005 12:20 PM

"Does this statement not counter the comments made by Loki and Reardon. Or is Reardon's real estate agent friend have a better grasp on the real estate market than Buddy Rego?"

I would venture to guess, that yes, my friend has a better grasp on the market than Mr. Rego if what he is saying is that this won't have an affect. I took his quote to mean "more Bermudians are buying the higher value homes, why change this policy now?"

"As I stated earlier, most Bermudians buy a house to hold onto not to turn around for quick profit."

Not true for the Belmont development in which Bermudians have been speculating there since the beginning. (I know 2 of them). It will be interesting to see if money quickly flows away from the project. Guilden, I think you underestimate the entrepenurial spirit of the Bermudian people.

"Reardon, talks about economics but I do not sense he really has a grasp on being able to analyze economic factors. He seems to rely heavily on what he is told by others."

I find this quite humorous, as if you knew who I was, you would definately not make that statement, Guilden. I offered up a few examples from people I know and discussed this with on Friday night to help prove my point and offer some evidence for this discussion. Maybe I should make claims like "this will have no impact, and I know cause the government hired me once and I was so good they didn't even pay me."

Posted by: Guilden M. Gilbert, Jr. | February 13, 2005 11:34 AM

H. Reardon,

"You and people like you are the very reason I take strong acception to work permit holding foreigners making public comment about Bermuda's political affairs."

I pay taxes in Bermuda, Guilden. Do you? i can't believe I'm taking academic smack from someone who wrote "acception."

"Clearly you are in Bermuda only for YOUR economic advantage, not to be an asset to our country."

Something we can definately agree on. The difference though, is I see it as a virtue, and you do not.

[Guilden M. Gilbert, Jr. on 13.02.05 at 22:04]

Reardon,

If youhad read my post I never said no Bermudian speculated on houses, what I said was most Bermudians buy a house to hold onto. Is that not a true statement? I also never said that the policy would have no effect, did I?

Whether I pay taxes or not in Bermuda is not something I wish to disclose except to say that I am a Bermudian, born and bred and I have a vested interest in my country.

Oh, by the way, I am not perfect and do not profess to be, therefore, I made a mistake, the word is "exception".

You say if I knew who you were I would not make the statement about your knowledge of economics. Well, it really does not matter who you are, you could be Alan Greenspan, but wait he is not from Ireland, I would make the same comment because you have shown nothing to support your agrument that this is going to cause an economic collapse in Bermuda. Further, even Alan Greenspan is not always correct, as I said earlier for every economist there are different conclusions some may be similar but no two are exactly alike.

Obviously from your comment it could be ascertained that you have a sound economic background. If this is the case, you know as well as I that any economic prediction that is going to be accepted as credible should be supported by evidence as to how you arrived at your prediction. At this point you have not done that. Do so and my rebuttal, if any, could be much different because maybe there is something I am misssing in my analysis of the likely economic outcome of this policy.

You have said you spoke to one real estate agent and you know of one person who has stopped a planned project. That, to me, does not allow one to reach the conclusion you have reached with any credibility. Would you not agree with that?

[H Reardon on 13.02.05 at 22:18]

Guilden,

I have offered the evidence I have--it is too early to show data, if that is what you are asking for. Let's see what happens in the next few weeks. I'm confident that house sales and new home starts will virtually stand still for a few weeks at least.

BTW, I'm not from Ireland, I said I would be drinking Guiness in the town IT was born in. I am American.

[Guilden M. Gilbert, Jr. on 13.02.05 at 22:39]

Reardon,

I agree, let's wait a few weeks and see what transpires then we can revisit this topic. Agreed?

As I ma not see the actual numbers, I trust you will advise me.

Don't worry, there will be no "I told you so" if you are incorrect in your analysis, I think I'm a little bigger than that. Just a little bigger though LOL.

[J Galt on 13.02.05 at 22:53]

Guliden,

I'm sorry, I misunderstood your post, the wording did make it seem that you didn't think foreigners should be making public comments about Bermuda's political affairs. Which I thought meant that you believed that they shouldn't be allowed the right of free speech.

Glad to see I was wrong, but you really should take care in what you post, see how you sent me down a totally different path that what this thread is about. Come to think of it why would you say such a thing? Seems a little xenophobic to me. Let me guess what your answer will be.

Galt, I'm not a xenophobe, why some of my best friends are foreigners.

[Guilden M. Gilbert, Jr. on 13.02.05 at 23:17]

Galt,

Not a problem, we all make mistakes and misunderstand things. That is one of the problems with expressing thought in writing. You actaully have write more words to get your point across than you do speaking, otherwise you can be severly misunderstood. I guess that's why my letters to the editor are always so damn long.

Nice to see that you are man enough to admit when you are wrong. Not many people have that ability.

Regarding the last sentence, are you know telling me you are a mind reader? Cause that's exactly what I was going to say. LOL

[Fornicator on 14.02.05 at 07:51]

Tiger Bay,

What do you think of the UBP response to this issue, particularly claim that the Government is putting the needs of foreigners first and Max Burgess' the Hitler comment?

Loki,

Can you provide more comment on why Government should have consulted the lawyers/realtors? Can you also comment further on $1.5M being the upper end of what the average Bermudian can afford?

[Tiger Bay on 14.02.05 at 08:41]

Max Burgess' hitler comment is ridiculous. This is bad governance, not a holocaust. But his poor choice of words does not compare with the wrongheadedness of government's moves here.

Randy Horton's comments on the radio this morning - despite him saying social agenda every other phrase - confirm that government is more worried about the missing taxes than the actual sales to non Bermudians. They should enforce the existing laws and regulations rather than put in new ones.

[H Reardon on 14.02.05 at 08:57]

Tiger Bay,

I agree the governments official position is that they are worried about the missing taxes. That being the case, why wouldn't they just go to the law firms and say "If you are discovered setting up a sham trust so that a non-Bermudian can avoid the transfer tax, then your license will be revoked and you will be fined $100,000."

Without the lawyers to set up the trusts, I would assume this "problem" goes away--at least until smart people figure another way around it.

Cynical as I am, I believe they have another agenda.

[Tiger Bay on 14.02.05 at 09:12]

Another effect is that this would make it harder for the "land rich" Bermudians who own high end properties to liquidate their assets and leave should the shit really hit the fan.

Maybe that's not their intent - but the way this was implemented makes many locals worried.

[Denning on 14.02.05 at 09:17]

I for one had to laugh out loud at the Hitler comment (and I'm Roma, so that whole holocaust thing is a bit of a sore spot). Someone needs to remind all of Bermuda's politicians, but particularly the UBP, of Tyrell's insight: "Some groups score off the exaggeration of their critics. Accuse them of killing three men and a dog, and they will triumphantly produce the dog alive." Ridiculous Hitler comments reduce the opposition to a laughing stock, and we can all be expected to roll our eyes, sigh, and forget about the real issue.

[Guilden M. Gilbert, Jr. on 14.02.05 at 09:52]

Reardon,

As an aside, you said that if I knew who you were I would not make comments regarding your economic knowledge. Do people really feel so threatened that they are unwilling to make comment under their own name? If so what is the threat?

Under the UBP there were situations where a persons mortgage wold be called if he made public statements against the party. Are there things that the PLP is doing in an effort to "shut" pople up?

I am very interested in this because Bermuda is supposed to be a democratic and open society no one should have any fears for expressing their views except maybe because of some criticism from those that disagree with statements made.

Maybe I am naive but I could never understand how someone could feel strong enough to make a public statement and then hide behind a pen name.

If there is a real fear that something will be done to them such as a work permit not renewed or a loss of job, etc. than this is a matter that needs to be discussed and society needs to stand up and put an end to the foolishness.

I do not agree with foreigners geting involved with Bermudian politics but I also do not feel any harm, economic or otherwise, should come to someone who decides to make his opinion known.

Please enlighten me, I would really like to see this matter addressed because we are adults and we should be able to discuss and disagree with transparency.

[Denning on 14.02.05 at 10:48]

Mr. Gilbert,

I can't speak for all of the posters on this site, but I can confess that I use a pen name mainly because I'm supposed to be working at the moment.... ;-)