In times of economic turmoil, sales of high-end goods always plummet the first and take the hardest hit. It’s the discretionary luxuries- designer clothing, flashy cars, holiday villas- that inevitably wind up on the chopping block when the markets take a nosedive and even the most bullish investors are holding their breath. Yet arguably the most extravagant luxury that money can buy, privately-owned islands are seeing a surge in interest right in the midst of one of the biggest economic crisis of the last decades. Found anywhere from the snowy Great Lakes to exotic Fiji and Panama, these unique properties offer investment possibilities unlike any other kind of real estate… and now also at unheard-of prices.

 The CEO of leading islands firm Private Islands Inc, Chris Krolow, says that while his company has seen a huge number of price reductions in the Fall of 2008, in his experience it’s been a result of sellers needing a quick sale to make up for other losses, as opposed to an actual drop in the island’s value. “In my ten years in this business, I haven’t seen a better time for buyers to get some amazing deals on very desirable properties,” he says. “We’re seeing substantial cuts in prices- sometimes by half or more- by motivated sellers who’ve had their portfolios hit by the credit crisis. We’ve even added a section on our listing website, Private Islands Online, just for new price reductions.” And he says that since the private island market has such a strong history of appreciating faster than any other kind of real estate, those who make savvy purchases now may be in an excellent position to sell when the markets rebound.

So what should investors look for when adding a private island to their portfolio? When it comes to tropical islands, the best prospects for major future leaps in value are always in areas with high rates of tourism and a substantial infrastructure. A safe environment and the availability of amenities like hospitals, airports and shopping are important, as is a relative proximity to the Unites States, where the majority of island buyers reside. With the strongest tourism sector in Latin America and the fastest growing economy in the world, islands in Panama have become highly desirable for the construction of resorts and residential developments, ranging in price from several million down to just US $30K. Pricier but still always in high demand are properties in the Bahamas, where the market is fuelled by high tourism and the celebrity cache of local island owners like Johnny Depp, Nicholas Cage and Faith Hill. Closer to home, good buys can be found in areas like Maine and Canada’s Nova Scotia, where seasonal holiday properties are achieving a strong following among urbanites from East Coast cities like New York, Washington and Boston.

But the opportunities of this elite market have remained a secret to many investors. During the last months, Krolow says a main focus for his company has been simply spreading the word that his niche of luxury real estate even exists, and promoting the benefits of island purchase to both professional investors and the average client looking for a smart buy on a vacation property. He says that Private Islands Inc. has just started a variety of new projects, ranging from his new Private Islands Magazine to a unique series of commercials, to partnerships with other real estate firms in growth markets like Panama and the Bahamas.  “We’re actually very fortunate,” he says, “because unlike most sectors of real estate where there’ve been an excessive boom in construction over the last five years, ours is truly a finite market of maybe 800 properties up for grabs each year. When it comes to natural private islands, they just aren’t making any more of them.”

The first step in island development should take place prior even to purchase- ensuring that the desired level of development is possible on the island. In some regions, islands may have environmental restrictions that limit the types and sizes of buildings, the possibility of subdivision, or the ability to use the property for commercial ventures. A variety of factors, primarily isolation, location, and proximity to the water, mean that islands have relatively fragile ecosystems that lead to governments taking a close interest in their preservation. “Approvals and just about everything else takes a lot more time when developing in the islands,” according to top Bahamas island broker Kevin Cross. Development is generally possible to some level, but it is essential to research what will be permissible before making a financial commitment. Sources for information include your broker, local government land agencies, and if possible, the current island owner. Chris Krolow, CEO of Private Islands Inc., strongly recommends that any international island purchaser hire an experienced local law firm with attorneys who are fluent in the buyer’s native language. Engaging the services of a firm specializing in maritime law is also an excellent way to ensure that the environmental regulations of often-unfamiliar governments are navigated safely.

At some point in the development process, it’s quite likely that the owner will need to hire local labor or construction firms. Particularly for those who have purchased islands in tropical areas, this may be a daunting task. A native of California, Doug Ingersoll is not only the top island broker in Belize, but an island owner himself. The experience of purchasing and beginning development on his own island has given Ingersoll a unique understanding of the challenges foreign nationals face trying to get things done in tropical countries. His strongest piece of advice for neophytes? “Connections are everything. In these small countries, it’s no exaggeration to say that everybody knows everybody. The smartest move for new owners is to rely on the contacts their broker, lawyer and if possible, the island’s former owner, have developed in the area.” And “island time” isn’t just a catchy slogan, says Ingersoll. “Above all, don’t expect things to happen as they do at home. Island time is a reality. Be flexible and patient and your efforts will be rewarded with new friends along the way.”

After the island’s purchase has been made and the requisite permits and zoning have been obtained, the real work of island development begins. Often, the first step will be a general clean-up, particularly if the island has been entirely uninhabited, not maintained, or has recently been subjected to storms. Clearing brush to leave a clean canvas for your development can be labor-intensive, but will generally not be an expensive project. After the land has been cleared of fallen branches and other detritus, a clearer picture should be available of potential building sites, and any areas that may need to be filled in to even out the terrain and stabilize ground for construction. At this point in development, some basic landscaping such as creating sand beaches and planting trees can be started. Again, Ingersoll highly recommends using local connections to obtain materials at good prices. “A small palm tree can be purchased in at a nursery in Belize by a foreign developer for about US $60. However, a local may only pay around US $15. When you’re buying hundreds of trees for a windbreak or an encircling forest for privacy, the savings can really add up.” 

The next step for many, filling land essentially requires that materials such as dirt or silt be transported to any areas of the island that are uneven or waterlogged, leaving a stable, smooth terrain for construction. While also applicable to many temperate islands in marshy areas, it is quite common for low-lying tropical reef islands in regions like Belize to require a complete or partial fill prior to any sort of development. The fill can be moved from higher elevation parts of the island, purchased from a local construction materials supplier, or in some cases, dredged from the surrounding lake or ocean floor. The type of dirt most effective in use for fill is often subsoil, the layer of earth found below lighter, more organic topsoil. The heavy, clay-like consistency of subsoil ensures that it will stay in place and not be weakened by construction or erosion, and the lack of decaying organic components such as mulch and dead leaves means that the fill will be free of destabilizing air pockets. As a finishing touch, it is often recommended that completely filled islands be planted with deep-rooted trees, to prevent erosion and give the soil added stability.

Depending on the amount of land that needs to be filled, some outside labor may be needed. In Belize, Ingersoll says that to fill an island with three additional feet of elevation will cost about US $30K per acre, although most developers will not need to fill the island that high, and in some cases this cost can be extended to two acres. “This makes an island like the 13 acre, $800K Barbecue Caye a steal,” says Ingersoll. “After the island is filled and landscaped, the value will increase substantially relative to the amount invested in materials and labor.” In locating labor, many firms that supply fill dirt can also be contracted to fill the necessary areas, and if needed, pump and drain deeper pools of water. The amount charged will vary, and distance from the mainland is key in minimizing costs in the Bahamas, says Cross. “This is why a just-offshore property like the 55 acre Charles Island is advantageous, for labor force and access.”

Ridding the island of waterlogged or swampy areas has another very important benefit for owners- reducing still water also cuts down drastically on the number of flies, mosquitoes and other pests that use tepid pools as a breeding ground. While Ingersoll says that for the most part, island breezes will keep down bug populations, some maintenance will generally be required to keep the island liveable. He recommends using bug sprays as part of a routine property maintenance schedule, which will disrupt breeding cycles and help keep bugs away in the long term. However, the prevalence of stinging insects may be somewhat overblown, says Ingersoll. “The insect situation really is what you make it. I’ve stayed in several areas in the Caribbean and have found some just fine and others unbearable. The fact is though, that the people who take measures to control the pests have no problem- it’s just a maintenance issue in the same respect as weeds in your landscape.”

After an island has been cleaned and filled, it’s time to bring in the necessities of life such as sewage, potable water, and electricity. The difficulty involved in developing utilities on an island is largely dependent on how far the island is from an urban center, and what kind of infrastructure is available on the mainland. For example, the public water systems available in Maine will likely be far more advanced than what will be available in a Latin American country. Hence, even with lower labor costs and taxes, obtaining utilities in the developing world may be more expensive than in North America. While costs also vary widely depending on the extent of an island development, owners should expect to pay between US $150K-$500K to have all basic utilities imported from the mainland, a process which may take anywhere from about 4-12 months. However, time and expense may be greatly reduced by making use of some of the cutting-edge new “green” technologies to come on the market. Krolow, who has recently added an extensive section on his Private Islands Online website devoted to “Island Living”, strongly recommends that buyers research eco-friendly products such as solar power, portable water filters and self-contained wastewater treatment units. “Not only are these products better for the environment, but they are often far less expensive than bringing in conventional utilities.”

Once wild and untamed, the island is now ready to build on, and outfitted with virtually all of the necessities for survival. “Clearing, filling and bringing in utilities is often the most intimidating part of development,” says Krolow. “Many developers make a sizeable profit selling properties after completing this stage, leaving the actual construction to the new owner.” Having had extensive experience selling islands whose owners have primed the properties with pre-construction development, Ingersoll agrees. “It isn’t just that a large amount of work has already been completed- more than most types of real estate investment, island purchase can be very emotionally charged. A beautifully landscaped island, even without a residence, gives a much more compelling first impression. The profit potential in flipping semi-developed islands is huge.” And while some buyers prefer a blank canvas to a finished masterpiece, others dream of a private island ready for immediate enjoyment. Covered in the next instalment are the finishing touches for island development, including dockage, dwellings, and for those who want to get to their island in style, private airstrips and helipads.

Development of private islands to varying degrees is of course very common, but local ecologies are important considerations. Because of the fragile beauty and cultural significance of some islands, local indigenous populations may have a significant vested interest in their protection. The culture, religion and folklore of many aboriginal populations worldwide are deeply affected by the same beauty that draws other visitors in a more commercial context. In the South Pacific, for example, islands are the focus of divine creation myths, describing how the gods summoned the coral and rock to protect the people from the ravaging sea. And these unique properties can have a similar effect on those more accustomed to an urban way of life. “Islands can make you feel profoundly spiritual,” says Chris Krolow, CEO of Private Islands Inc. “When you’re in the middle of the wilderness on an island, you feel incredibly in tune with the natural world.”

Today, as ecological concerns generate high degrees of public attention, many enterprising individuals are recognizing the considerable profit to be made while still protecting both the ecology of islands and the local culture of their populations. Drawn to them for their character and isolation, people are finding even greater wonder in the unique species and stories that inhabit the smallest places on earth.

Chumbe Island in Tanzania is the site of both a protected reef and forest reserve, the product of many years’ campaigning to advocate its preservation. Since 1994, the island has been marked as a protected marine reserve, administered by the nonprofit island preservation group Seacology. Because of the wide variety of bird and marine life that inhabits Chumbe Island, steps were taken to ensure that marine traffic near the reef was prohibited and that development, while resulting in an innovative eco-resort, would be done in such a way as to minimize the potential “footprint”of human development. Using local materials to harvest the elements rather than drawing on potentially harmful artificial means of power generation, a balance was struck between development and meeting the environmental restrictions needed to maintain Chumbe’s ecology.

In British Columbia, Canada, a long history of aboriginal culture has permeated the forestry and real estate industry to the point that, today, new projects have been undertaken to promote the preservation of Nuu’chah’nulth culture on Vancouver Island’s western coast. While much of it is protected as a UNESCO biosphere reserve, the Long Beach area between Tofino and Ucluelet is a prime area for real estate development, including that of private islands. Frank Island, located between Cox Bay and Chesterman Beach, is one such island listed for sale. Having lived in Vancouver for more than 10 years, Private Islands Inc. Director of Operations Alexis Pappas can attest to the beauty of the region. “When you look out at the ocean from Vancouver Island’s coast and take in the sweeping views of the small forested islands, it takes your breath away. It’s easy to see why they have so much significance for the indigenous populations.”

The traditional ecological practices of one of the local tribes, the Nuu’chah’nulth, teach that “everything is one”. In short, the all-encompasing philosophy suggests that no living being, human or otherwise, is separate from the natural whole. Because of this, there is a strong need to maintain a sense of equilibrium, or balance, when creating dwellings or using the abundant natural resources found in the region. Many developers are now learning to work within these environmentally conscious guidelines, and in the process, creating amazing developments far more in sync with the majesty and beauty of the Canadian wilderness than possible in more unrestrained urban settings.

In the private islands industry, of course, all manner of development can be affected by the type of environmental restrictions imposed by the host country, although most developing nations are highly interested in foreign investment and reflect that in their policies. Depending upon the ecology, size and location of the island, as well as the intent that development may have, there may be requirements to preserve a portion of the island or limit construction for personal use, or restrict the size and capacity of proposed resorts. Technology, however, is increasingly helping developers work within these laws. Modular housing using recycled or ecologically friendly materials not only is far easier than traditional building and cuts down on costs, but reduces the impact of dwellings on the island. Power generating systems making use of natural sources like the sun, wind and water are both relatively inexpensive and cuts down on waste and the need for construction.    

Latin America, one of the most attractive markets for island development, is also a part of the world whose history has shown the wisdom of more thoughtful development guidelines. European empires such as those of Spain, France and Britain maintained colonies in Central and South America that often over-exploited the rich local resources of wood, minerals and stones. Indigenous peoples also felt the effects of the Colonial period, and were in some cases restricted from using land that had been open for their use for centuries. This history has resulted in development policies that are very sensitive to the effects that over-use may have on local environments and peoples, and in the case of Costa Rica, ensures that all of the country’s beautiful beaches and waterfront be open for public use. The awakening of a social and environmental consciousness on the part of many island developers is also a strong competitive advantage in the global market. The branding and positive connotations of “eco-friendly” developments, even when required by local laws, are often highly attractive to investors, resort guests, and potential purchasers of vacation properties. With many prominent individuals including actor Leonardo DiCaprio, owner of Blackadore Caye in Belize, showing how environmentally sustainable and responsible development can benefit everyone, this earth-friendly trend is certain to continue.