Is Isle of Man property the one true safe haven?

As the worldwide economy continues to fall, property prices around the world come under yet more pressure and financial liquidity shrinks to record lows are there any true safe havens in the world of property investment or do we all need to sit back and wait for the recovery? Could Isle of Man property be one of the few safe havens left?

Rather bizarrely it would appear that the Isle of Man, located in the Irish Sea just off the Scottish coastline may be the one and only true property safe haven in the world. But what do you know about the Isle of Man? How has the property market performed? Is it really open to outsiders?

The Isle of Man

The Isle of Man is a tiny island of 221 mi.² and a population of just over 80,000 people. The island is not actually part of the United Kingdom although Queen Elizabeth II is the head and holds the title of Lord of Mann. Even though the island is not part of the United Kingdom the British government have total control over foreign relations, defence and the “good governance” of the Isle of Man. However, the island does have its own parliament and total control over all domestic affairs, taxes, residential issues and other vital elements of local rule.

The country is not part of the European Union although there is an agreement in place via the United Kingdom which allows the island to trade within Europe. The island itself has changed ownership on a number of occasions between England and Scotland but in 1764 it revested into the British Crown and maintains the current status of a self-governing jurisdiction.

Tax on the Isle of Man

The Isle of Man has become something of a tax haven amongst the rich and famous with no capital gains tax, no wealth tax, no stamp duty, no corporation tax (although bank profits are taxed at 10%) and no inheritance tax. The top rate of income tax on the island is just 18% and the local government enforce a tax cap which means that no one individual can pay in excess of £100,000 in tax a year or £200,000 for couples. The £100,000 cap equates to approximately £570,000 in income per annum which reflects the high net worth of the islands inhabitants.

However, it must be noted that personal income is assessed and taxed on a worldwide basis something which many people would need to consider before moving to the island. The island has become something of a hideaway for the rich and famous and fairly slack residency rules mean that residents are only liable for a minimum of 60 days residency per annum in order to maintain their status.

The Isle of Man property market

As you might have guessed, with a population of only 80,000 people the property market on the island is miniscule. However it is interesting to see how this very private island has fared over the last few months as the worldwide economy has collapsed and property prices around the world continue to fall. A report by Chrystals estate agency confirms that the Isle of Man property market has fared better than any other market in the region.

In general, house prices increased by 4% during 2008 and the average property is now worth in the region of £281,000, a significant improvement on the UK average which continues to fall. When you compare the 4% rise during 2008 against a 10% fall in Britain as a whole this reflects the very tight nature of the Isle of Man property market. However, the figures are even better when you strip them down into the various categories with detached bungalow prices increasing by 7% and terraced homes by 3.5% and if you strip out the value of flats on the island the average property is valued in the region of £292,000.

Why has the Isle of Man property market performed so well?

Even though you would normally have expected some kind of pull back in property prices on the Isle of Man bearing in mind the worldwide situation, this has just happened. The local government has been very successful in balancing the supply and demand of property in the region and the market is most definitely slanted to the benefit of sellers.

While there are some lower cost properties on the island, the property market is really dominated by the medium and the higher price range. This is an area of the market were very few homes are actually up for sale at any given time which has therefore allowed the local authorities to maintain prices at relatively stable levels. However, it is interesting to note that even though prices have edged higher during 2008 there has been a substantial fall back in the number of properties sold with this particular rate having fallen by around 30% during the year.

The future of the Isle of Man property market

While the relative gap between the Isle of Man and neighbouring countries such as Ireland, Scotland, Wales and England has widened over the last 12 months we are not really comparing like-for-like. The Isle of Man property market is fairly illiquid and those who live on the island are generally there for the long term – although those who do move have no trouble at all selling their property.

With this in mind it is highly likely that the Isle of Man property market will continue to edge higher and higher so long as the balance between supply and demand is maintained. There is also the need to assume that the tax status and local government capabilities will remain as they are into the future as this plays a vital role in attracting people to the region.

Conclusion

While in many ways the Isle of Man property market is perhaps the one true safe haven in a sea of depression, it is not really a market open to the masses. A population of just 80,000 people means that property transactions are fairly infrequent to say the least and the balance between supply and demand has been maintained for many years in favour of sellers.

The Isle of Man offers an interesting look at a true safe haven in these troubled times but in reality it is a market which is effectively shut off from the rest of the world.