Maldives real estate how to buy, is it a good investment, and what happens if the islands sink?

Like many other resort destinations, direct foreign ownership of land in the Maldives is restricted, which means you can own a home with land through leaseholds.

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Leasehold properties are owned by existing companies that already have land granted on 50-year leases by the Maldivian government. The foreign buyer has complete ownership rights for 50 years. At the end of the lease period, the foreign buyer or his descendants can renew the lease at market value.

While the property market for condominiums in the country’s capital, Malé, has slowly matured, the existence of leaseholds on the islands have yet to take off. At the moment the major player is Soneva which has two properties in Maldives.

The fun part about owning a villa at Soneva is that they allow for customisation and, as long as the exterior of the property adheres to the aesthetics of the resort, a lot could be done in terms of design. Slides from the property into the pool are common additions and if owners opt out of the rental programme, they may alter their villas as much as they like, as long as the alterations do not affect the external appearance.

A one-bedroom villa at Soneva Jani in the Noonu Atoll starts at US$3 million. Sonu Shivdasani, CEO and Joint Creative Director of Soneva explains.

“If one is spending less than 15% - 20% of one’s net worth on a villa at Soneva, it’s a nice compliment for their portfolio, as the combination of the return on life, the cash yield when they rent out the villa and the capital gains over time will achieve above average returns.

We have had a few sales to date, and generally the return on life (this is the owners’ enjoyment of their villa and what they would have had to have paid if they stayed in the villa if they did not own it); usually amounts to 5% - 8% of the historic purchase price.

The cash yield that our villa owners earn varies from between 2% - 7% of the history purchase price depending on the type of villa they have purchased.

Our experience is that the value of the properties over the last 5 years has increased by 5% per year.’’

What potential buyers should keep in mind is that the rental revenue will vary according to the time of year you as an owner might want to use it. If you book out Christmas, the peak high season in the Maldives, your return will be less.

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You are also responsible for taxes in your own country as well as the Maldives. Villa owners are primarily liable to two taxes – a one-off 12 per cent tourism goods and service tax payable on the gross invoice value at time of purchase, and an annual 15 per cent business profit tax on the net profit from rental revenues.

In addition, as with any visit to the Maldives, you would have to make your way there on a seaplane and all the meals are provided by the resort. On that front Soneva provides a 20 per cent discount to villa owners.

The only similar product on the market would be the Banyan Tree Residences where property owners can use their stay in the Maldives as part of their exchange programme of the rental scheme.

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However, with all the signs of climate change, weren’t the Maldives said to be sinking? The answer sadly, is yes. As the archipelago is one of the world’s lowest-lying group of islands – it stands only one metre above sea level – making it incredibly vulnerable to the rising sea levels at about an eighth of an inch a year, caused by climate change.

Many luxury purchases such as yachts and private jets are depreciating assets. While a resort property on the Maldives is a luxury purchase and with solid yield on investment, doesn’t that give it a bit more of an edge over a yacht?

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