The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Budget’s focus on stimulating home ownership “could be the catalyst that triggers an economic windfall” by boosting investor confidence in the wider economy, the Bahamian Contractors Association’s (BCA) president believes.

Leonard Sands, reacting to the package of tax breaks directed by the Prime Minister at first-time home buyers, told Tribune Business that a revived housing market will enable multiple local sectors to “get a piece of that dollar” and create the perception of an expanding economy that will attract more local and foreign direct investment (FDI).

Suggesting that the Government’s focus was broader than just the housing market alone, he also urged Bahamas-based building suppliers to fully pass the Budget’s construction tariff cuts on to consumers to ensure they have the desired effect.

“If the benefits go to homeowners, that increases the amount of activity we can expect in the sector,” Mr Sands told this newspaper. “It absolutely will.” He added that the Davis administration appeared to have realised that rising construction costs, driven by building material price inflation post-COVID, meant greater numbers of Bahamians were struggling to qualify for a home mortgage loan - hence its decision to cut tariffs on a wide range of key products.

The BCA chief said this had also driven the Government to increase the VAT exemption for first-time buyers from $250,000 to $300,000, hoping the move will “allow more people to qualify for a mortgage loan” by raising the threshold below which the 10 percent levy on property acquisitions is eliminated.

“I believe that alone will increase activity in the sector,” Mr Sands added. “It will encourage persons to buy. It will certainly encourage persons sitting on the fence to pull the trigger. I see it as a windfall for our sector and for realtors who are linked to our sector.”

The Budget presented by Prime Minister Philip Davis contains multiple import tariff eliminations and reductions on building materials supplies and electrical products. For instance, PVC pipes, tubes, hoses and elbows will now enjoy a 5 percent duty rate from July 1 as opposed to the current 35 percent. Plastic sinks, basins, toilet seats and shower baths will drop from 25 percent to 5 percent, with the 20 percent rate on ceramic roof tiles completely eliminated.

Joint compound’s duty rate is being slashed in half, from 10 percent to 5 percent, while other sealants are set to fall from 45 percent to 5 percent. Lime will become import tariff-free, as will felt, while building tapes will drop from their present 20 percent and 45 percent to 5 percent.

Elsewhere, steel pipes and fittings, which presently attract 45 percent and 20 percent rates, will become duty-free. And import tariffs on ceramic sinks, basins, toilets, baths and other lavatory items will be completely eliminated. Bar joists, currently taxed at 20 percent, together with screws, nuts and bolts, will also become tariff-free. Copper plates, sheets, strips, pipes and tubes will have their rates lowered to just 5 percent.

“What would be good is we can find additional ways to increase local consumption of building materials and parts; to support local building material suppliers,” Mr Sands added. “A lot of people will take advantage of these concessions and go abroad. I’d prefer to see Bahamians shop local.

“It’s a very competitive environment. We feel that with these concessions we will see more construction projects, but hope that with these concessions the suppliers pass them on to the consumer. In that way, everyone wins. The whole community gets to see the benefit of those concessions that the Government laid out for the Bahamian people.”

Pointing to the construction industry’s overall economic impact, the BCA chief added: “We know any dollar spent in construction directly affects gross domestic product (GDP). If these concessions translate into $100m in increased construction activity, that will go around the country ten times. 

“We certainly encourage the Government to find more benefits for contractors and the construction industry as it directly impacts the economy of The Bahamas. It’s a key indicator of the strength of our economy. You’re talking about a number of concessions joined up together that will have a positive impact across the board over the next 12 months. It was targeted and it was specific, and if it does what it was intended to do we will see a robust increase in activity.”

Besides contractors and realtors, Mr Sands said up to 15-20 professions will benefit from increased home construction activity include attorneys, accountants, heavy equipment operators and landscapers. And the benefits from a stronger market would spread far wider than that.

“If your citizens can afford to build or buy, that’s an indication of your economy,” he added. “For the last five years we’ve seen sluggish numbers and some decline. If you provide concessions that allow persons to construct and build more, it tells the world the economy is good, it’s open for business and encourages outside investors to spend hundreds of millions of dollars in this environment.

“I think this is the idea behind the compendium of concessions targeted at this industry. It’s targeted at investor confidence and will result in investor confidence. We only have to move the dial a few cents for us to have a competitive advantage. Once we tweak that, we could have a windfall of investment coming in. This could trigger an economic windfall. It could be the catalyst in that regard. Let’s wait and see.”

The multiple measures designed to boost Bahamian home ownership including an up-to $40,000 refund of VAT paid by first-time buyers on construction services and building materials. Philip Davis QC, unveiling the 2022-2023 Budget in the House of Assembly, pledged to expand and grant equal incentives to first-time buyers either purchasing an existing home, renovating a property or acquiring land to build their house on.

“For those who are constructing or renovating their first home, we also are refunding up to $40,000 in cash for any VAT paid for construction services or materials purchased once the occupancy certificate is provided within 18 months of the commencement of construction,” he added.

“We are also increasing the level of exemption for first home buyers from $250,000 to $300,000, and reducing VAT on property transfers below $1m for individuals.” Under the VAT Act reforms tabled in the House of Assembly, first-time buyers acquiring a property valued between $300,000 and $500,000 will pay a VAT rate of just 4 percent.

The Government is also introducing a tiered scale for VAT payable on property transactions below $1m. While persons buying property valued at less than $100,000 will still pay the current 2.5 percent VAT rate on the sale/purchase, those acquiring at a price between $100,000 and $300,000 will now pay 4 percent.

Non-first time buyers will face a 6 percent VAT rate where the property value falls between $300,000 and $500,000, and 8 percent between $500,000 and $700,000. Properties valued at between $700,000 and $1m will attract 9 percent.

“We are also eliminating VAT on property transfers between joint tenants of property. This is especially important to Bahamians who have inherited land jointly with siblings. We have also simplified the rules around transfers of property with similar but not identical beneficial ownership. We have, as well, eliminated nuisance fees in the Stamp Act for documents unrelated to the transfer of property or registering a financial instrument,” Mr Davis said.