An island of prosperity as storms ravage world housing

The credit crunch has put paid to property booms around the globe, right? No, not quite. While the US, UK and European property markets are in price freefall, the Caribbean, and in particular the holiday island of St Lucia, seems to be holding its own – for the time being at least.

"Property prices have remained robust throughout the financial crisis," says Allen Chastanet, St Lucia's minister for tourism. "The key is we didn't have a boom to begin with, so building levels were at sustainable levels. Therefore, we're not having a bust.

"The only price softening that has taken place has been reflective of the pound weakening against the dollar," he adds, with reference to the fact that St Lucian property is priced in dollars. "Sellers have been willing to bend prices a bit for British buyers to reflect this currency shift."

The sales are still coming. At the island's Cotton Bay resort, for example, stage two of a building programme has just been completed, with 22 two-bed villas priced between $360,000 (around £260,000) and $450,000 all sold in rapid time. Some one-bed flats priced at $290,000 were also sold.

St Lucia's profile is high at the moment, with singer Amy Winehouse pictured holidaying there. The island is small, no bigger than a medium-sized English county and with a similar population to Peterborough. It is mountainous, with dense rainforest vegetation and lots of inlets and sandy beaches. And property, while not as affordable as hotspots such as Spain or Florida, ranges in price from around $300,000 right up to $4m. Most developments tend to be gated, with on-site shops, boutiques and restaurants. Access to a beach and pool area is normally a given.

Some homes are sold as owner-occupier, perhaps to people looking to retire to a hot climate, with direct flights from the UK through Virgin and BA. However, most of the properties on the island are pitched as an investment.

"What generally happens is that the buyer has the right to use the property for a calendar month each year, say, and the rest of the time it is rented out to holidaymakers," says Naomi Cambridge from the Sugar Beach resort, a 190-acre development. "The rent then provides an income for the owner."

Ms Cambridge reckons that investors can expect an annual return of 7 to 8 per cent. However, the Sugar Beach resort is top-end, reflecting its location in the middle of a world heritage site. Prices start at $705,000 for a one-bed villa with a pool, but in high season tourists fork out up to $1,200 a night to stay there.

Even in these recession-haunted times, it seems that visitors from America, Canada and the UK are willing to pay such prices. Ms Cambridge says average occupancy rates at Sugar Beach are 80 per cent over the past two years, and similar statistics are claimed by The Landings resort for the high season, which runs from January to April.

Properties at The Landings can be either owner-occupied or rented out. Prices start at $550,000 for a one-bed home and $750,000 for two bedrooms and direct access to the beach and boat moorings, as well as other resort facilities such as a spa, gym and restaurant. "We find that our owners want to stay here for a while and then rent out the rest of the time," says Oliver Gobat, director of sales. "What we do is put the profits made across the resort into a big pot and then the owners get paid an income according to their square footage and how many nights it's available to rent."

In the case of The Landings therefore, investor income relies on the resort as a whole making a profit. At some other resorts, investors receive a cut of the total revenue instead.

"It's important to check the terms of the income you receive," says Miranda John, international manager at mortgage broker Savills Private Finance. "Do your homework and ensure you visit the property. If the resort seems dead then it may not be making a profit, in which case you're unlikely to get much of a regular income. You'd have to rely on capital growth instead."

Ms John adds that it's harder than it once was to fund a purchase in the Caribbean, but far from impossible. "The number of UK banks willing to lend on a property there has shrunk to some four or five big names, but that still represents a choice. There is also the option of a local bank like First Caribbean, although that can be time consuming due to bureaucracy."

Crucially, unlike other holiday-home hotspots, St Lucia hasn't suffered from the blight of poorly conducted valuations. "Generally, those assessing the value of property on the ground have been robust in the way they have gone about things, and this helps in getting a mortgage as banks can have confidence in the figures," adds Ms John.

As a result, mortgage rates have not risen as much as they have done elsewhere, with borrowers generally being charged around 2.75 per cent above US Libor – the rate at which American banks lend to each other. The maximum loan to value varies between 60 and 70 per cent, and income multiples of three to four times are also achievable. However, purchasers looking to borrow against potential earnings from letting may struggle. "If you're doing this as a buy-to-let then the banks are still going to want you to be able to make your repayments from your own income, rather than any rental money the property brings in," says Ms John.

The property-buying process is similar to in the UK, except you have to obtain the rather ominous-sounding "aliens landholding licence", arranged through a local lawyer at a cost of $1,500. If the property is part of a resort development, and the overwhelming majority are, then service charges may apply, based on square footage. If the home is rented out, expect service charges to be higher as regular cleaning has to take place.

The biggest bugbear, though for Britons looking to buy in the Caribbean or America is the collapse in the value of sterling. A year ago, the pound was worth two dollars; now it buys around one dollar forty cents, and it may sink further. Against this backdrop, Britons looking to purchase property in dollars could consider taking out what is in effect a futures option contract. Put simply, you purchase an option to buy a set amount of dollars at a specific date in the future at a set price, so insuring yourself against any adverse currency moves between making an offer on a home and having to find the cash to pay for it.

Regardless of currency fluctuations, Ms John says buying in the Caribbean is only for those with deep pockets: "This is not a cheap undertaking as it's a top-end holiday destination. But that makes it a little less sensitive to the world economic downturn."