The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading developer has seen more sales inquiries during the initial months of 2013 than “in the last two years”, with the Bahamian real estate industry “anticipating” the Government will reduce all Stamp Duty rates to pre-2010 levels come the May Budget.

Tennyson Wells attributed the increased interest, which he has seen across his multiple New Providence-based real estate developments, to last July’s two percentage point reduction in the top rate of Stamp Duty.

Indicating that this had produced a return of some investor confidence, Mr Wells, whose Sanctuary Investments firm is the lead developer of communities such as Lyford Hills, South Seas and Yuma Estates, blasted the former Ingraham administration’s decision to increase Stamp Duty rates as “counterproductive to the entire economy”.

Arguing that the previous government failed to understand that “another 2 per cent of zero is still zero”, Mr Wells urged the Christie administration to go further still and slash all real estate-related Stamp Duty rates back to where they were in the upcoming 2013-2014 Budget.

He even suggested that the Government cut Stamp Duty rates to a level one percentage point lower than prior to the 2010-2011 Budget, arguing that this could help stimulate a housing market recovery that would benefit contractors, developers and the Public Treasury alike.

Noting just how depressed the Bahamian real estate market had been for the past two years, Mr Wells said the Source River investor group, which he leads, had been forced to place on hold plans to develop a 65-lot subdivision at the former Bacardi plant they acquired in 2009.l

“This year we have had more inquiries, calls on land sales than we have had in the last year-and-a-half, two years,” Mr Wells told Tribune Business. “That would be a fair statement. We have had a couple of sales as well, whereas the last two years nothing was happening.”

Asked what had sparked the rise in demand from potential real estate buyers, the former Cabinet Minister and MP linked it to the Government’s decision to reduce the top Stamp Duty rate from 12 per cent to 10 per cent in the 2012-2013 Budget.

This immediately reduced transaction costs for all Bahamian real estate valued at $250,000 upwards, and has raised expectations of more to come. Mr Wells said the entire real estate industry – attorneys, realtors and developers – expected the Government to do the same for all other Stamp Duty tax brackets come the 2013-2014 Budget.

“I believe that come the next Budget in May/June, all of the Stamp Duty [rates] will go back to where they were in 2006, 2007 and 2008,” Mr Wells said. “Ten per cent will go back to 8 per cent, 8 per cent will go back to 6 per cent.

“I think that will encourage land developers, home builders and so forth, and put the construction industry back on its feet.”

The Stamp Duty rates on real estate transactions were raised by two percentage points across the board in the 2010-2011 Budget. While the move was intended to increase government revenues and help repair the damage caused by successive heavy fiscal deficits, many criticised the Ingraham administration for further depressing a real estate market already grappling with a severe recession.

Critics also argued that it would fail to produce the hoped-for revenue increase, and by reducing sales would actually lower income for both the Treasury and private sector, while making the Bahamas less competitive against rival high-end real estate/second home destinations.

Embracing this theme, Mr Wells told Tribune Business: “It was counterproductive to the entire economy.

“I advised the previous administration it was a mistake, and told this administration they should reduce it. They [the Christie government] haven’t gone far enough. The industry is anticipating that when they come with the next Budget in May, they will reduce them [Stamp Duty rates] to the rates they were before.

“Two per cent of zero is zero, but 10 per cent of $100 is $10, and that is the philosophy I don’t think the previous administration understood.”

By “driving people off” from house purchases, Mr Wells said the Government ensured that developers, contractors and realtors all lost money, as did the Public Treasury.

“Everyone lost,” he added. “I hope this administration sees the wisdom in putting those rates back to where they were, or even less than that – maybe one percentage point lower than they were.

“They have to get more revenue in, and if they do that, land sales and work for contractors will rise, and we will have more people buying property and furniture.”

That argument implies that the Government will earn more in revenues at the ‘back end’ by encouraging real estate market activity and home building than it loses on the ‘front end’ by giving up Stamp Duty.

Given its dire fiscal position, the Government will be reluctant to lose any revenue it may be entitled to when announcing the 2013-2014 Budget. It has yet to confirm whether it will continue the first-time buyer Stamp Duty exemption for properties worth $500,000 or less beyond the current June 30, 2013, expiration date.

There is little doubt, though, that the real estate market remains weak. For the nine months to end-September 2012, mortgage commitments for new construction and repairs in the Bahamas fell by 15.2 per cent to $75.5 million. They also declined by 42.7 per cent in number to 402.

And actual mortgages issued for new construction and repairs dropped by 22.8 per cent to $82.4 million over the same time period.