The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government has been urged to focus on distressed properties, rather than new housing developments, in its "daunting task" of reviving the Bahamian mortgage market.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the Government's recently-announced housing initiative "doesn't bode well for the economy" by threatening to further increase the existing over-supply of properties.

Mr Bowe, who is also Fidelity Bank (Bahamas) chief financial officer, argued that the Minnis administration would better achieve its objectives by instead focusing on how to place existing homes - subject to delinquent mortgages - into the hands of qualified buyers at affordable prices.

Emphasising that a "structured" solution is required, Mr Bowe said resurrecting the local housing/mortgage market was "the most important element" in generating renewed economic growth and "swallowing" the $1.8 billion surplus liquidity currently drowning the commercial banking sector.

And he echoed concerns expressed by Tim Rider, Royal Bank of Canada's (RBC) now-retiring vice-president of northern Caribbean sales, in a controversial speech at Fidelity's recent Bahamas Economic Outlook conference by calling for clarity in the mortgage market's legislative and regulatory framework. "When you look at the mortgage environment, the Government has a daunting task that it faces," Mr Bowe told Tribune Business. "There's a lot of chatter around new housing developments and projects, but I would probably say the Government ought to look at the housing inventory that exists.

"Look at how to acquire those homes, and put them into the hands of borrowers who can afford them. Building new homes while having excess inventory doesn't bode well for the economy."

The Prime Minister, in his recent national address, unveiled a plan to make low-cost serviced lots - complete with utilities and the necessary infrastructure - available at a price of less than $30,000 to first-time Bahamian home buyers.

While purchasers would then be responsible for their own homes, Dr Minnis said they would also access Customs duty exemptions on imported construction materials and equipment if their homes were built within two years.

Emphasising that the Government's primary goal was to expand affordable home ownership among young Bahamians, Dr Minnis said "the average home" today costs $180,000 and upwards - a price tag that he argued was out of reach for many.

"Remember, the average lot today may cost $100,000 or more, so that's automatically a $70,000 savings," the Prime Minister said last week. "When you are constructing your home, you paying duty; you talking about 30 to 50 per cent duty on various things.

"If that's at least another $60,000 to $80,000 savings, you're talking about $70,000 savings, another $60,000 to $80,000 savings, you're talking about the average Bahamian being allowed to save at least a minimum of $120,000 when you remove all those extra taxes."

Mr Bowe, though, argued that his plan would "get buoyancy back" and achieve the same goals without adding to the excess supply of housing and further depressing prices. With prices already experiencing "pressure", he said this provided the Government with an opportunity to get first-time buyers into existing homes at affordable prices

While some observers may view his comments as serving the banks' interests, given their desire to shed non-performing mortgage loans/properties, the potential 'Achilles heel' of the Government's plan is whether borrowers will qualify for loans even at reduced prices.

The Central Bank's December economic report said less than half of all mortgage applications, just over 43 per cent, are currently being approved by commercial banks. This indicates the continued struggle to find qualified buyers able to service loans and meet the industry's more stringent lending criteria.

Private sector-led initiatives have already enjoyed some success. Gateway Financial has been able to restructure some $60-$70 million worth of delinquent mortgages it acquired from Scotiabank (Bahamas) at between $0.25-$0.30 on the dollar, providing a potential model for how Bahamian home ownership can be saved.

Mr Bowe, meanwhile, identified three issues - excess housing inventory, the $1.8 billion in surplus bank lending assets, and regulatory clarity - that needed to be resolved if the housing market is to revive. On the latter, he pointed to three recent initiatives set to impact the market.

Besides the recently-introduced Credit Reporting Bill, which facilitates the creation of the Bahamas' first-ever Credit Bureau, the former Christie administration also passed the Homeowners Protection Bill and initiated the Mortgage Relief Plan's second version.

"These three positions need to be very clear so as not to stagnate the mortgage arrears issue facing the country," the BICA president warned.

K P Turnquest, deputy prime minister and minister of finance, has previously said the Government is reviewing both the Mortgage Relief Plan and Homeowners Protection Act.

He expressed scepticism over the first, given that it has not assisted the number of distressed mortgage borrowers predicted by the Christie administration, while acknowledging that the latter Act risked unintended consequences.

And Sir Franklyn Wilson, the Arawak Homes chairman, last year branded the Homeowners Protection Act as "a real disaster" for the Bahamas' struggling mortgage market in an interview with Tribune Business.

A well-known Progressive Liberal Party (PLP) supporter, he argued that it imposed overly-burdensome restrictions on what banks and other mortgage lenders "can and cannot do" in relation to their distressed properties, and introduced concepts and definitions that were unworkable in practice.

Apart from regulatory clarity, Mr Bowe said the Government needed to focus on getting distressed properties back into "the performing portfolio" if it was to revive the housing market, something he conceded was no easy task.

"We have a significant inventory of houses on the market, and there needs to be a strong focus on getting those sold into the performing portfolio," the BICA president argued. "That's not easy as the economy is not producing a lot of qualified borrowers that get to but these homes in a distressed state."

Acknowledging that this would result in 'winners and losers', with some delinquent mortgage-holders losing their homes, Mr Bowe said making distressed properties available to qualified buyers at affordable prices would reduce both the housing over-supply and the banking sector's liquidity clog.

"Some people will lose their homes, but equally it will be an opportunity for people coming into the housing market to have affordable homes," he told Tribune Business. "There is a lot that has to be done in a structured manner.

"We want to see the liquidity swallowed up, and the only way that happens is if we have growth in the economy and housing market."