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When private island is not a bad investment

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Although buying a private island may seem to be exclusively for rich and famous, it may not necessarily be so. The market that involves trading with islands is in fact quite diverse. Let’s look at some most relevant insights that are normally considered in the context of purchasing decisions and valuations.

Private island - Necker island - Richard Brandson - Virgin

The “old” view from Virgin’s Sir Richard Branson’s Necker island, that was bought for $180k.

Private islands are not quite as inaccessible as they may first appear. It is true that most people view them as the grandest of luxury purchases, but the reality may in fact be also very different. Prices of private islands vary hugely depending on location, size and a number of other factors. If only interested, anyone can find something for himself/herself. Buying a personal tropical paradise may indeed be realistic after all. Purchasing a private island, however, is not an easy decision. The attention is especially given to the local regulations and logistics of owning an island.

The price you pay for a paradise

The private island market in Europe, the Caribbean and North America, the Indian Ocean and elsewhere is taking off, reflecting the growing trend for this type of vacations. Private islands may thus have a significant moneymaking potential. Generally speaking, its a matter of “luxury”, which is a fast growing segment. Although not many attractive private islands can be today described as cheap, they still have the potential to appreciate in value over time and provide a variety of commercial opportunities.

Private island are unique in many views, so pricing is often a challenging task. Although we might be reading about top end private islands costing millions of euros, it is difficult to talk about average prices. In fact, the cheapest private islands can also be bought for as little as €8,200 – expensive, but not out of reach. Meaning, investing in private islands is far from being preserved for billionaires only.

There are few relevant intermediaries, specialized in private islands. Based on their offer and past transactions, we may notice that prices of private islands in fact vary depending on a multitude of factors, not just location. These are: the current state of development, the potential for new development, topography, accessibility etc.

In Europe, the market that everyone assumes is the big one is the Mediterranean. Unfortunately, there is a lot of bureaucracy linked to it and can be a difficult one to get involved in. Than there is for example the Scandinavian market, where islands are primarily purchased by locals. It is also very much seasonal.

Many agents point out that private islands can’t really be classified as typical investment properties, since emotional value plays a significant value and should indeed be taken into account. They’re often considered as lifestyle objects – places to escape the pressures of the professional world, to enjoy time with families and friends and to unwind and reconnect with nature. Every prospective buyer has its own reasons for the purchase, but they all seem to value privacy, tranquility and unspoiled nature.

Private island

Luxury beach resort – Kandolhu, Maldives

Vladi Private Islands, a specialized Germany-based agency dealing with private islands, currently advertises investment opportunities ranging from approximately €8k (Christopher Lake & Russell Lake, Canada) to €86m (Pumpkin Key, US). Islands offered by other vendors show similar levels of variation and, for off-market islands and resort properties, prices can climb higher still.

In total, there are approximately one million islands out there. Most expensive islands tend to be found in places like the Mediterranean and the Caribbean, due to the good accessibility and weather. The demand for these private islands outstrips the supply. Then there is other type of investors that seek “safe havens” and they often prefer to look for private islands closer to New Zealand. In regions like Asia and Oceania, the majority of islands are larger and only available leasehold, which in fact attracts development firms. We also need to understand that for some parts of the world, the climate makes a significant difference to how much an island can be used.

Another major factor affecting the private island price, regardless of where it is located, is how developed it is. Some are ready to be lived on almost immediately after purchase; others will need some work. As the best-quality private islands are considered those with all the essential amenities already in place, but the fact is that they rarely come up for sale and when they do, they fetch a high price. It is indeed important that prospective buyers are aware of challenges concerning further development, but in the majority of cases, these things are not really as crucial as they used to be. The process of developing a private island is a lot more straightforward than it was 15 years ago. Technological advancements have made things like producing electricity and water easier and more environmentally friendly. Access is also a lot simpler.

Not even all celebrities and businessmen spent millions for their own private islands. For example, Virgin’s Sir Richard Branson owns 74-acre Necker island in the British Virgin Islands that was bought in 1978 for $180k, while starting price for a room per night is around $5k. Over a number of years, the entrepreneur has more than made his money back by constructing a luxurious resort that attracts visitors eager to enjoy a slice of paradise.

Sky is not always the limit

Although the prospect of owning an island might seem attractive, the reality may be a bit different. Many private island buyers want to add a personal touch to their new home or getaway, but are often limited. Problems may arise when thinking about extending the existing property, building an entirely new one or constructing new amenities and other development projects. Why so?

Private islands are often environmentally sensitive locations, sometimes containing a diversity of natural species that must be protected. This costs money, takes time and, crucially, must be completed before any building work can begin. For anyone looking to develop a private island, this is indeed something that has to be considered. Note that many owners already have the environmental assessments done, since they know that these are some of the key critical factors that turn the prospective buyers away from a potential transaction.

Another very important issue to be considered is climate and climate change. Most islands are low-lying, which leaves properties highly susceptible to changes in sea levels. There is also a growing body of evidence that rising temperatures are leading to an increased intensity of natural disasters. For islands located in high-risk areas, this is a major concern. Private islands are often also very exposed to the threat of natural disasters. Hurricane Irma – the strongest storm to exist in the open Atlantic – in September 2017, destroyed most of the buildings and vegetation on Branson’s Necker Island.

The approach to private island development needs to be complete in its nature. Obtaining a permission from the regulator very much varies from country to country. Estimating it right and planning the activities properly is a must to successfully address the remoteness of private islands – mind the cost of getting the materials to the private island to complete a project or the fact that very often there are no support services nearby.

Good private island offer attracts clients

Private islands are often used as a mix of private and commercial use. In this way one can cover maintenance costs and earns a target return on the investment. Sir Richard Branson is considered as the pioneer of this approach and many investors take him as a reference nowadays.

Perhaps the key topics to point out are also connectivity and ease of access. If guests have to take an intercontinental flight, spend a few hours on the road and then take a lengthy boat trip, they may just opt for a more convenient holiday destination instead … This is why it is important to seek a private island in relative relative proximity to an international airport and think about options of onward transports. In this way you open yourself to international clients.

Last but not least, sourcing reliable and experienced caretakers to keep an eye on things and make sure guests are well taken care of is also important. Experienced business partners can ensure that you target and attract the right kind of clients to the private island.

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