Foreclosures is happening a frightening pace in many markets in the United States. Some people wonder how the real estate market in Aruba is doing and if it suffers from the same problems as the US market.
Before I tackle above question lets define the term foreclosure.
Foreclosure is the legal process in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property.
The most common problem people seem to have when foreclosure is upon them is that the interest rate isn’t fixed therefore rises when the rate on the markets rises. Typically Subprime loans tend to be very risky for both borrowers and lenders.
Aruba Real Estate Market
How is the market in Aruba doing? The real estate market has been dominated by steady and relatively slow growth during the years. The growth has been peaking since the 90’s, with some years of slower growth in between.
Aruba lacks some fundamental data on the local real estate market for anyone to make decent analysis and conclusions. Several real estate brokers handle their own data, consequently they have an indication of what’s happening, but don’t have a complete overview on the market.
I use official data from Aruba’s Central Bank and Bureau of Statistics when writing these kind of posts, however nothing significant is mentioned about the core real estate market such as average home prices, average rent prices, amount of objects available, amount of time an object is on the market before it’s sold, market share by the several brokers, average square meter price for ground etc. etc.
The vast majority of mortgages in Aruba are given in the form of an annuity mortgage. This type of mortgage has the characteristic that the interest rate is fixed (average 8%), consequently throughout the duration of the mortgage, payments are fixed. At the beginning the interest part if higher, while payment of the initial is lower. Later on in the life span of the loan, the opposite occurs.
This type of mortgage has made sure some sort of a stable mortgage market in Aruba. Together with the fact that the interest is 100% deductible from the income of the citizens, it guaranteed some sort of stability on the market.
When lenders approve a mortgage request they generally investigate the background of the borrower. Despite the small scale of this island, there isn’t an automated or centralized way for banks to check the credit history of potential customers. Therefore many banks take some time to check credit histories of their customers manually and over the phone.
Foreclosures in Aruba
Despite the lacking automated methods for banks to screen borrowers, banks still manage to do a decent job anyway. Therefore many foreclosures don’t occur due to the bank being guilty of faulty screening, rather it tend to happen due to personal matters by the borrowers, such as lack of income (job loss) of partners separating.
When a home is repossessed many times it will be set for auction. These auctions are done by local notaries. Notaries publish the list of properties to be auctioned in local newspapers (in Dutch) and anyone is free to auction on the properties.
Could there be anything interesting for foreign investors? Sure, not in abundance however. If you are lucky there will a jewel that fits your requirements. Indeed with some luck and having someone going through the lists rigorously for you in the local papers you might find a jewel.