The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Bahamas Real Estate Association's (BREA) president yesterday said two tax-related initiatives the Progressive Liberal Party (PLP) has pledged to enact during its first 100 days in office would have a "significant impact" on the Bahamian property market, creating a "win-win" for all parties.

Franon Wilson told Tribune Business that the new government's pledge to reduce the top Stamp Duty, rate payable on real estate transactions worth $250,000 or more, from 12 per cent back to 10 per cent would help to stimulate activity in the $250,000-$350,000 price bracket.

Describing the promised tax rate reduction as a significant cost savings, especially for young professionals, Mr Wilson said the party's second pledge - to re-introduce a maximum ceiling on annual real property tax payments - would boost both the high-end and foreign second home markets.

Although the PLP has not specified the maximum real property tax ceiling it will introduce, it will have an early opportunity to score a 'quick win' on its election promises by incorporating them in the upcoming 2012-2013 Budget, which it will have to present to the House of Assembly by end-May 2012.

The promised changes would also undo the reforms enacted by the now-former Ingraham administration. Its 2010-2011 Budget increased Stamp Duty by 2 per cent for each valuation bracket, and pushed the top rate from 10 per cent to 12 per cent, while it had also earlier removed the real property tax maximum ceiling - then set at $35,000 per annum.

Realtors and other industry professionals complained at the time that these measures would depress market activity, and fail to achieve the Ingraham administration's desired objective of enhanced revenue/tax yields.

"We feel that these two initiatives will have a significant impact on the real estate market," Mr Wilson told Tribune Business. "Firstly, regarding the drop in Stamp Tax, that will have a significant impact for a lot of people all over the spectrum."

Even if the Government did not adjust the three lower Stamp Duty bands downwards by two percentage points, Mr Wilson said the top rate's reduction to 12 per cent would be especially useful for young Bahamian professionals seeking to acquire properties in the $250,000-$350,000 price bracket.

On a $300,000 property, the proposed Stamp Duty rate cut would save a buyer between $3,000-$6,000, depending on whether they were paying all the tax or splitting it 50/50 with a buyer.

"There is a lot of product in that range," Mr Wilson said of the $250,000-$350,000 bracket. "That [young professionals] group can have huge cost savings, and would be more inclined to make a move and pull the trigger."

As for the real property tax maximum ceiling proposal, Mr Wilson said that would especially aid the upscale, luxury end of the Bahamian real estate market by giving buyers certainty as to what they would annually pay the Public Treasury.

High-end buyers, especially foreign second homeowners, were stunned by the previous ceiling's removal, which left them with sharp increases in their real property tax bills - amounting to thousands of dollars. This caused them to question whether it was worth retaining their Bahamas investment, and eroded the value of existing homeowners as a 'word of mouth' marketing tool.

"We went from having people who knew $35,000 was the maximum they would pay to receiving bills making them second guess whether their home was worth it," Mr Wilson told Tribune Business.

"For the luxury high-end market, that will do what the reduction from 12 per cent to 10 per cent in Stamp Duty will do in the $250,000-$350,000 range."

By stimulating real estate activity through reductions in transaction and annual-related taxes, Mr Wilson said any revenue given up at the front end would be more than outweighed by taxes related to construction and home ownership.

"At the end of the day, the Government gets more than it takes off the top. It's a win-win for everybody," Mr Wilson told Tribune Business.