The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Real Estate Association’s (BREA) president says it will be “the admirable thing to do” for the government to “honour” current VAT rates on high-end deals agreed before the budget’s unveiling.

Christine Wallace Whitfield, pictured, told Tribune Business it was “a huge concern” for many realtors that $2m-plus transactions already in process prior to the end-May budget communication could suddenly incur extra tax if they fail to complete before the new fiscal year’s July 1 start.

Disclosing that she planned to write to the government on the matter, Mrs Wallace-Whitfield said that suddenly applying a 12 percent VAT rate to the portion of a real estate transaction valued at $2m and above threatens to disrupt such deals by forcing buyers or sellers - and possibly both - to come up with extra monies to cover the additional tax at the last minute.

While BREA and its members had no difficulty with the government seeking to increase taxes on high-end real estate deals, given that the parties involved likely have the ability to pay more, she argued that it was “not fair” to spring such an increase on the sector given that deals often take up to 90 days to close.

“That has been a huge increase for the real estate community,” she added of the 12 percent VAT’s imminent July 1 imposition. “I think it’s only fair that the government honour existing sales contracts in the pipeline. They could have said that in 60-90 days it will come into effect, but this came on us suddenly.

“I don’t have a problem with what’s happening, but with these people they need to honour their agreements. They have budgeted what they have to pay and shell out at closing already.” Marlon Johnson, the Ministry of Finance’s acting financial secretary, referred Tribune Business to Kwasi Thompson, minister of state for finance, but he could not be reached for comment.

Mrs Wallace-Whitfield, meanwhile, argued that all high-end real estate transactions for which a signed sales agreement existed prior to the May 26 Budget announcement should still attract the present 10 percent VAT rate even if they close prior to July 1. All those signed afterwards, she added, should attract 12 percent on the $2m and upwards portion if they are not closed by the 2021-2022 fiscal year’s start.

While cash buyers had the ability to close their purchases within 30 days, the BREA president said it was those requiring mortgage financing who may be challenged if they have to adjust the sums require to accommodate the extra tax.

“A loan does not happen overnight,” she added. “If they honour those agreements made pre-announcement that would be very doable, and people would be more satisfied. The real estate agents and brokers would definitely be more satisfied if they honour those pre-announcement agreements. It’s just the admirable thing to do. That’s the bottom line.”

Mrs Wallace-Whitfield said first time foreign buyers were especially vulnerable to being caught by the 12 percent VAT as they have to undergo the Know Your Customer (KYC) due diligence process with the Bahamas Investment Authority (BIA) and Investments Board to obtain the necessary permits under the International Persons Landholding Act. This process can often push closings beyond the standard 90 days.

However, the BREA chief acknowledged that the Government would want proof of when real estate sales agreements were signed, and conceded that it had legitimate concerns that some attorneys, realtors and clients could seek to “back date” contracts to avoid the extra tax.

The reforms to the VAT Act, which will introduce the 12 percent rate on the portion of a real estate transaction worth more than $2m, are due to take effect from July 1, 2021, to coincide with the start of the new fiscal year.

And, given that the government expects to raise just an additional $4m from the increase, many observers will likely argue that the wealthy participants in such transactions will not be deterred by such a relatively modest increase especially since buyer and seller are likely to split it 50/50 - meaning they each pay the equivalent of just an extra 1 percent of the purchase price.

However, Andrew O’Brien, attorney and partner with the Glinton, Sweeting & O’Brien law firm, told Tribune Business he was “hopeful there may be an extension” for high-end real estate transactions and that the Government would give them extra time to close after July 1 without levying the additional tax.

“I think attorneys and clients are stressed with trying to meet the deadline or close early, and some are just not going to be able to do so,” he said. “We’re trying to expedite those that we can, and just deal with it as best we can. 

“I feel like a broken record on this issue. It’s just unfortunate. For whatever money we may be making, I think it leaves a negative impression for those investors coming into the country anew. I think everybody understands it’s just being caught by surprise and for existing transactions it leaves a sting if you have this extra short notice.

“The concept of the higher tax rate, I think everybody understands it. If everybody has notice you can make a decision and accept it. This is an instance where you don’t have notice, and have to live with it, and for doing business certainty is always beneficial. This creates some general uncertainty in our market.”