The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than $2bn in real estate sales were brought forward for stamping and the payment of taxes during the first 11 months of the 2021-2022 fiscal year, it has been revealed.

Shunda Strachan, the Department of Inland Revenue’s (DIR) acting controller, gave an insight into the Bahamian real estate market’s strength - and how it helped fill the void in the Government’s income created by tourism’s COVID shutdown - by disclosing that almost 31 percent of VAT revenues collected by her agency between July 1 last year and end-May 2022 originate from property deals.

Speaking at the weekly briefing held by the Prime Minister’s Office, she said some $220m of the $712m in VAT revenues collected by the Department of Inland Revenue for the fiscal year to-date came from land and property transactions.

The present VAT real estate structure, which will be replaced come July 1, 2022, applies a 2.5 percent rate to any transactions worth less than $100,000. All other deals attract a 10 percent levy and, although the Minnis administration temporarily increased the rate to 12 percent on the portion of transactions $2m and above, that was eliminated when its successor slashed the VAT rate to 10 percent with effect from January 1, 2022.

Using these rates, and extrapolating from the data provided by Ms Strachan, the $220m in VAT collected on conveyances brought forward for stamping translates into $2.2bn worth of real estate sales that generated these tax payments. Even allowing for the fact that a small portion will have attracted the 2.5 percent levy, and not 10 percent, places the value of such sales well above $2bn.

“Stick a pin by that VAT,” Ms Strachan said. “Of that $712m, $220m was coming from VAT on conveyances. That tells us that this is a buyer’s market; persons are finding money from somewhere to purchase property. That’s a good thing. We’re excited about that. Of the $712m in VAT collected by the DIR, persons that file and pay at the DIR, out of that $712m some $220m of that came from the stamping of VAT on conveyances, property transfers.”

Realtors yesterday cautioned that the potential $2bn-plus in sales, and $220m in VAT payments, likely include transactions that closed - and tax liabilities that became due - before this fiscal year started. They suggested that a significant portion could relate to the “backlog” created by 2020’s COVID lockdown and subsequent restrictions, when government agencies were closed and neither documents could be stamped or taxes paid.

David Morley, Morley Realty’s principal, told Tribune Business that it “seems a little bit excessive” to suggest that all $2bn-plus of real estate sales occurred during the first 11 months of the 2021-2022 fiscal year. Pointing out that transactions typically took three to six months to close after sales agreements were signed, he added: “Throw the pandemic in on top of that, and that 11-month period could reflect sales that took place over 18 months.

“Two billion dollars in sales seems an awful lot of property. A good number of those transactions may have been hold because of the pandemic or their closings; it’s the same thing. It’s probably a lot more than what was contracted in 11 months. It doesn’t necessarily reflect what was contracted to be sold in that period. It seems a little bit excessive to my mind....

“To me, it doesn’t seem possible that it was all in that 11-month period. If you add five to seven months to that, you’re talking a 16-18 month period. The question I would ask is that during the pandemic lockdown period, many of those people [at the DIR] were working remotely. How long did it take to get that into the system where people were trying to pay? A lot of that could be the backlog they were trying to put into the system.”

Nevertheless, Mr Morley said the real estate VAT figure disclosed by Ms Strachan showed just how the industry had helped to prop up government revenues at COVID-19’s peak when its main income generator - tourism - was all but shut down due to pandemic-related lockdowns, border closures and travel restrictions.

“Government has to be thankful for that,” he added. “If a government is hurting for money, you’d think they would try to keep that train rolling as quickly as they can and keep the money coming in. It will be interesting to see what the repercussions are from increasing the cap on real property tax on high-end homes.”

The Government is increasing the real property tax cap, which sets a maximum limit on a homeowner’s annual payment, from $60,000 to $120,000 - effectively doubling this, or increasing it by 100 percent. It says only high-end homeowners, with properties valued at $6m and above, will be impacted by this reform, and the maximum $120,000 will just apply to those with real estate valued over $19.3m.

Other realtors, too, said the VAT and sales data provide an “indicator” of the real estate industry’s economic and fiscal impacts. Mike Lightbourn, Coldwell Banker Lightbourn Realty’s president, told this newspaper: “It just shows the real estate industry has been healthy, and I hope it continues.

“Every time a property changes hands there’s a possibility there will be new construction or renovations on existing buildings, and that’s all good for the economy. It’s part of the package we need to reinvigorate our economic situation. Anything that we can get to accelerate the economy is good. Whatever is good for the economy is what we need.”

Mario Carey, the Better Homes and Gardens Real Estate MCR Group Bahamas principal, said: “I’ve always postured that real estate is by far in the top three tiers of our economy, and it just continues to show more and more. It’s powerful, and has to be an industry that is handled delicately.

“The Budget showed some progress. At first read, it looked pretty good. Every time real estate is sold, it creates two to three jobs. There’s a lot of people employed in real estate, directly and indirectly. It’s a good market right now. We’re in a very good position, and anybody in the real estate business is seeing some good returns. Anybody in the Family Islands, anybody in New Providence.

“The new frontier is going to start to become the Family Islands, and all that is geared towards airlift and airports.” The post-COVID real estate surge has largely been driven by international buyers via a combination of factors including pent-up pandemic demand plus the desire to secure a property that meets the need for social distancing and remoteness.

Bahamian real estate is also being viewed as a hedge against soaring inflation, and increased interest rates, in the US and other major international markets. This heightened activity has resulted in growing calls from some observers for real estate-related taxes to be increased given the Government’s need for revenue and a belief that the wealthy should pay a greater share.

Meanwhile, in the Bahamian segment of the market, shortages of available housing have produced multiple bidding wars among buyers that have helped to maintain prices.