The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to amend the “really unjust” Stamp Duty exemption policy hurting hundreds of first-time home buyers, attorneys warning it was “prejudicial” against those who could least afford their own property.

Investigations by Tribune Business have revealed that the Treasury is effectively discriminating against first-time buyers who require mortgage financing to purchase real estate that will act as their primary residence.

Under the policy instituted by the first Christie administration, which has been strengthened and continued, Bahamian first-time buyers can qualify for an exemption that enables them to avoid paying Stamp Duty on property transactions worth $500,000 or less.

Initially, the Ministry of Finance/Treasury approach was to grant the exemption on the conveyancing value or purchase price, enabling first time buyers to avoid paying the highest Stamp Duty rate.

However, Tribune Business has now learned that the Treasury is adding the value of any mortgage financing to the purchase price. And, if the aggregate value is more than $500,000, it is refusing to grant first-time buyers the Stamp Duty exemption - a potential saving, under the current 10 per cent rate, of between $25,000 to $50,000, depending on how the transaction is structured.

Attorneys spoken to by Tribune Business yesterday said the policy was “causing a lot of trouble”, and impacting potentially hundreds of Bahamian home buyers, further impeding the real estate market’s recovery.

They also said the policy was being applied “unevenly”, and went against both the “spirit” of the exemption and the law, making it impossible for them to properly advise clients.

And, apart from the uncertainty it created for first-time buyers with respect to transaction costs, possibly deterring them from closing a deal, the attorneys said the way in which the policy was being applied discriminated in favour of all-cash buyers.

Since they did not need mortgage financing, these buyers could purchase properties worth $500,000 and still qualify for the exemption. But those who needed the assistance of lenders, and had meagre financial resources of their own, were now facing further home ownership hurdles.

Simon Lowe, an attorney with the Lennox Paton law firm, told Tribune Business: “It is causing a lot of trouble for many people. I am sure this has happened to possibly hundreds of people in the last six months or so.”

He explained that previously, a first-time buyer purchasing a property for $300,000 was able to take out a mortgage for the same out and still obtain the Stamp Duty exemption, as the two were not being added together.

But, detailing the new approach, Mr Lowe said: “If the combined value of the transaction is over $500,000, you can’t get an exemption on any part of the deal, neither the conveyance nor the mortgage.

“The really unjust part of that is where people, who can buy a $500,000 property for cash, get the exemption, but the person who needs a mortgage for a $300,000 home and really needs the exemption, can’t. It’s very unfair.”

Mr Lowe said several Bahamian law firms had written letters to the Government pointing out the unfair discrimination, but he was not aware of any reply being received.

“It’s symptomatic of the Government’s desperation to get revenue,” he suggested. “They’re not following their own laws. Sometimes they come up with compromise exemptions, saying you can pay half the amount, but there’s no basis in law for that. They’re making it up as they go along.

“It’s having a big effect on people’s budgets for house purchases, particularly those relying on the exemption. Sometimes it takes a year to process the exemption, the decision is no, and they have to come up with an extra $40,000 to pay Stamp Duty.

“The banks are unwilling to pay that, so you [the buyer] have to come up with that yourself. It is causing a lot of trouble for many people buying homes.”

Adrian White, head of the Bahamas Bar Association’s real estate committee, told Tribune Business he himself had dealt with two transactions where the Treasury lumped together the mortgage and conveyance values, and rejected the Stamp Duty exemption application because the aggregate was more than $500,000.

Disclosing that he had heard of “at least anywhere from seven to 10 cases”, Mr White, an attorney with the Delaney Partners law firm, said the issue had been raised and discussed numerous times during real estate committee meetings.

He added that the issue had first surfaced in 2010-2011, under the former Ingraham administration, and “it remains to be seen what policy approach” the Christie government will take.

Mr Lowe, though, said “nothing has changed” since the general election.

For his part, Mr White added: “I know it is a bothersome issue, and the most concerning part of it is there doesn’t appear to be an even application of the rule.

“I do know of some attorneys who have successfully obtained the exemption on behalf of their clients, whereas others are turned down.

“It’s the interpretation of policy decisions being applied by the individuals of the Exemption Unit at the Treasury Department. My understanding is what they are applying is the policy made clear to them by the Ministry of Finance, which has the final say in the matter.”

Echoing Mr Lowe’s concerns that the Stamp Duty exemption policy being applied was discriminatory, and unfair, to first-time buyers requiring mortgage financing, Mr White said he understood the issue applied to applications submitted only under the former Ingraham administration.

“If the value of the consideration on the conveyance, together with the amount being lent by the lending institution by way of a mortgage, is more than $500,000..... you’re likely to going to be turned down,” he added.

Explaining that first-time buyers had previously experienced no trouble in obtaining the Stamp Duty exemption on the conveyance, although not the smaller 1 per cent related to the mortgage, Mr White said the Treasury was now checking whether mortgage financing was involved. If it was, then rejection likely followed.

“I would like to be able to advise clients at the commencement of the transaction what they can expect, but policy seems to change and the only notice provided is a Letter of Decision,” Mr White told Tribune Business.

“The reality is you have some people that should receive the benefits of the exemption but do not, because I believe the current wording of the legislation is being strictly interpreted and is not assisting home buyers. It’s going against the market.”

He added that while home buyers and their attorneys could appeal, the decision often went in favour of the Stamp Duty exemption unit’s initial verdict.