The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell”tribunemedia.net

The Government has a “once in a lifetime opportunity” presented by the expiring real property tax exemption to force Hutchison Whampoa and its Grand Bahama Port Authority (GBPA) partner to “fix Freeport”, a prominent attorney is arguing.

Terence Gape, a Freeport-based partner at Dupuch & Turnquest, believes the Christie administration can use upcoming negotiations over the tax incentive, due to expire in 2015, to `stimulateGrand Bahama Development Companys (Devco) joint owners to fulfill the development commitments they made - in statute - in 1993.

Noting that the Bahamas, and Bahamians, “need a successful Grand Bahama” whereas Hutchison Whampoa, a multi-billion dollar international conglomerate, did not, Mr Gape argues in today`s Tribune Insight that causing it to become proactive on the island is critical.

“Hutchison does not need a successful Grand Bahama - we do. The big question: what would cause Hutchison to become proactive in Grand Bahama?” Mr Gape asked.

Hutchison Whampoa has held management control at Devco, owner of 70,000 acres in the Port area, since 1999, but Mr Gape said the latter had undertaken no major tourism or real estate development on its own land for the past 22 years.

He argued that Grand Bahama had missed out on the real estate boom experienced by the rest of the Bahamas and Caribbean prior to the 2007-2008 recession, despite having the “best infrastructure” in the region and being equipped (in Freeport) with numerous economic incentives.

Essentially, Mr Gape is suggesting that the Christie administration use the 2015 real property tax exemption`s end as negotiating leverage with the GBPA, Devco and Hutchison Whampoa.

He is also highlighting the fact many believe the real property tax exemption has contributed to Freeport`s moribund real estate market, and disincentivised economic development, by effectively eliminating carrying costs associated with land and real estate holdings in the Port area.

Once their purchase is complete, Freeport property owners - unlike many elsewhere in the Bahamas - face no annual tax payments on the asset. As a result, they incur no costs in holding real estate indefinitely - something that disincentivises using properties for economic development and job creation.

Noting that much of Devco`s landholdings were vacant, but developed, fully serviced and subdivided, Mr Gape writes: “Despite most of the Bahamas having benefited from the worldwide boom in real estate development in 2001-2007, Devco was not successful in the sale of any significant acreage on which development took place during this period.

“Certainly, no major touristic or condominium development programme has been undertaken by Devco itself within the last 22 years.”

And he added: “Grand Bahama again, perhaps due to the lack of a professional sustained marketing programme, and despite having 60 miles of beach and tens of thousands of acres of prime Bahamian property, has consistently lagged behind the rest of the Bahamas in property value and sales. This despite having arguably the best infrastructure in the Caribbean and having the advantage of no real property tax.”

Mr Gape acknowledged the different opinions over Freeport`s real property tax exemption, one suggesting that it should be extended in 2015 because the city had still to reach economic critical mass.

The other opinion, he said, was that Freeport`s real estate market had “historically lagged behind (and as noted is now moribund) all other ‘hot’ areas of The Bahamas: Abaco, Harbour Island, Paradise Island, Lyford Cay, Old Fort, Albany, Exuma, all of which have always had real property taxes”.

And Mr Gape added: “The exemption may now be working against the interest of the sale and development of the thousands of acres of property already sold in the Port Area.

“There are many lots, parcels and tracts of land now held by non-Bahamians in the Port Area that are not being marketed, or offered for sale, or offered at competitive prices because there is no carrying cost to the owner.”

And he added: “A primary example of this is a 26-acre beachfront tract on famous Lucayan Beach (arguably the finest tract available for hotel/condominium development on the Island), owned by a non-Bahamian, that has been marketed for sale for the past 10 years and has not moved. A part of the reason for this is the lack of the international sales marketing effort, but also because the price of this land is arguably too high.

“If that owner had to pay $300,000 a year in real property taxes, most likely major efforts at marketing would have been made, and the price made more attractive for sale and a new owner would be in place with the intention to develop.

“ This present owner would have actually benefited from the sales and marketing efforts of the GBPA, and the activity created by hundreds of other sellers (who would now be prompted to sell because of the tax). Therefore, it is argued that real property taxes can be seen as an inducement to sale and development.”

Mr Gape said the Hawksbill Creek Agreement, and its 1960 successor, were clear that Devco`s landholdings were to be developed and marketed for sale. He declined, though, to tackle the argument that Devco and its shareholders were engaged in land banking.

Yet Mr Gape concluded: “As it is critical to Devco and its ownership partners not to have to pay real property taxes on their vast holdings, the GBPA and Devco will no doubt be applying to Government for such extension, touting it as a benefit to everyone in the Port area.

“I submit this is perhaps a once in a lifetime opportunity, given the ‘perfect economic storm’ Freeport is now experiencing, for Government to make definitive demands of these parties to live up to their prior commitments made and to ‘fix’ Freeport in the short and long-term.”