The ultimate trophy asset
This is a small segment of the real estate market, behaving more like fine art or precious jewellery, which operates quite independently of the wider property world. Buying an island is a "purchase of passion" not driven by need or economics, and the best islands often stay within families for generations.
The private island market is a two tier one. According to Vladi Private Islands, just 5% can be classed as "quality islands", that is those in close proximity to the mainland, in regions of political stability, with development permits, the potential to add services and infrastructure and with security of tenure. The remainder "private islands" do not meet all these criteria and have limited potential for permanent habitation. This is particularly the case in developing nations.
In the quality island market, prices fell during the global financial crisis when discretionary purchases of all types were curbed. In core markets, such as the Bahamas, prices are still yet to recover from their pre-recessionary highs. Price falls have been most acute among secondary islands, where prices have fallen by as much as 90%. National governments and preservation organisations are taking advantage of this and buying up swathes of island real estate. At the other extreme, some European markets have performed strongly – notably the Mediterranean – underpinned by the extreme scarcity of quality islands with development rights.
There are two approaches to securing, managing and maintaining a private island. The first is transforming it into an income-generating asset by developing a resort and amenities suitable for letting. This ensures all the facilities and staff are operational and regularly utilised, while contributing to running costs. It is the approach taken by Richard Branson at Necker Island in the British Virgin Islands.
The second approach is to leave the island undeveloped, the owner instead visiting by yacht, which acts as residence during the stay. No staff are required on site, minimising costs, while the island remains open and unsecured (but without built assets to protect). Johnny Depp takes this approach at his island Little Hall’s Pond Cay in the Bahamas.
There are distinct trends among regional purchasers. Europeans are increasingly turning to the overseas market given the very restricted and expensive, European private island market. Comparatively affordable Caribbean and North American islands are popular with these buyers, particularly those islands with a climate suited to winter vacations.
The private island market in Asia is extremely small, partly because, in most countries, foreigners may only purchase leasehold (see Table 1). Asian buyers typically do not buy islands for leisure purposes, rather they seek an asset that will generate income, developing a resort or subdividing for onward sale. The private island model has been replicated in man-made form, most famously with Dubai’s "The World", an artificial archipelago of 300 small islands constructed in the shape of a world map. The majority of these islands are being developed for commercial use, with a mixture of resorts and retail.