The Tribune

• Concern DIR not meeting two-week objection response

• Appraisal requests up 40-50% before end-March cut-off 

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian realtor yesterday revealed that evaluations he conducted for his commercial property clients showed that closer to 10 percent of their real property tax bills are “fair and reasonable”.

David Morley, a past Bahamas Real Estate Association (BREA) president, told Tribune Business he had submitted objections to the Department of Inland Revenue on behalf of 28 of 38 commercial landlords whose properties have seen a significant hike in their valuations for real property tax purposes.

Revealing that his assessments produced results that were far different from the Department of Inland Revenue’s (DIR) assertion that 90 percent of valuations are “spot on”, he also voiced concern that the agency was not meeting its stated two-week response time to any of the challenges he has filed.

And Mario Carey, the Better Homes and Gardens Real Estate MCR Group Bahamas principal, told this newspaper his firm had seen a 40-50 percent increase in appraisal requests from owners of both high-end residential and commercial properties following substantial increases in their tax bills following the recent New Providence-wide assessment.

He added, though, that he had “heard both sides” with those who believe they are still undervalued for real property tax purposes racing to pay their bills before the March 31 deadline to obtain a 10 percent discount from government.

Mr Morley, Morley Realty’s principal, told this newspaper: “We ran assessments on all 38 properties, and ended up submitting 28 in total.... The ones I’ve done for commercial properties are calculated using the income approach.

“For example, as I’ve told most of my clients, and put in the cover letter to the Department of Inland Revenue (DIR), when you look at the Palmdale area, the Madeira Plaza, the method for them to assess your property are [comparable] sales within the last three years.”

Pointing to the challenges with such approach, and using the Madeira Plaza as an example again, he asked: “How many shopping centres in the Palmdale area have been sold in the last three years? Zero. Even in the last ten, the last 30 years? So how accurate is the data that the Department of Inland Revenue has entered in the system?

“Commercial properties rarely, if ever, change hands. What can they rely on for accuracy other than the income approach?” Such a method values a property based on the cash flow, rental and other incomes it generates, but the Real Property Tax Act speaks to only employing the cost or sales comparison methods.

Mr Morley argued that neither was suitable for valuing commercial property. He argued that the income approach was far superior given that it was widely used in North America, and accepted both in the UK and by mass valuation providers such as Tyler Technologies, whose recent New Providence-wide mapping exercise provided the basis for the latest property tax valuations.

And, more importantly, the Morley Realty principal said the income approach was the internationally-accepted accounting standard for assessing investment properties. “The point being, how are they [the Department of Inland Revenue] going to be able to challenge it and say it’s not recognised,” he added.

“They’ll not be able to shout it down because it’s a globally accepted standard.” Mr Morley said he had sought to make his valuations “fair and reasonable” to both his clients and the Government by basing them on the average income earned over the past three years, given that both 2020 and 2021 were depressed due to the COVID-19 pandemic.

Both revenues and operating costs were supported by the property owner’s VAT payments and filings, and he added that the calculations also employed a “conservative” vacancy rate of 15 percent when, in many instances, it was “more like 25 percent over the past year”.

Mr Morley said he also employed a “capitalisation rate” of 5.5 percent, as opposed to the pre-pandemic average of 7-8 percent. He added that the former number represented “a risk” because of higher vacancy rates.

“It’s been an interesting development running these numbers for different properties,” he told Tribune Business. “I came and gave the benefit of the doubt on the appraisal to the Government as much as possible, being fair and reasonable.

“The majority of the assessments are too high, and a couple did prove to be fair and reasonable. It did not show 90 percent to be fair and reasonable, as they’re claiming. It’s 10 percent that are fair and reasonable. It’s an interesting challenge.”

Shunda Strachan, the Department of Inland Revenue’s acting controller, said earlier this week that 90 percent of this year’s property tax bills were “spot on” in their valuations - something that is disputed by Mr Morley’s findings.

The Government contracted US-based Tyler Technologies to conduct an island-wide mapping exercise of New Providence that ensured all properties are captured on the real property tax roll. This, and the subsequent revaluations, are a first step in what the Government views as a wide-ranging exercise that will lead to all taxable property owners paying their fair share.

The valuation process employed by Tyler and the Department of Inland Revenue was a “bulk” assessment that used algorithms to calculate the worth of properties in a particular neighborhood or subdivision based on their dimensions/size and which category - owner-occupied, residential, commercial, undeveloped land etc - they fell into.

This has resulted in triple-digit increases for some taxpayers, with the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) saying its members had reported increases of between 100 percent to 435 percent compared to 2021 billings.

Many of the objections will likely come from high-end residential and commercial property owners, given that real property tax and its rates are structured such that the burden is heavier for more expensive real estate.

A significant portion of complaints will also stem from owners whose properties have not been valued for years, sometimes for decades, meaning that the Tyler Technologies revaluation will have resulted in a seemingly-huge tax hike even though it may have only brought the bill to the correct level. The Act calls for a revaluation to be conducted every five years, which has not been done.

Mr Morley, meanwhile, voiced concern that the Department of Inland Revenue was not sticking to its stated timeline for addressing valuation challenges. The initial query, which is to be accompanied by an appraisal, is supposed to be processed in 14 days.

“I submitted my house and properties in February,” he added. “They said to expect a two-week turnaround and I’ve heard nothing. You get an auto response when you submit online. It gives you so much information about how to pay it, where to get the form to object from, but nothing about how to follow up.

“You can only assume that your query was received. It’s been concerning that there’s been no response back apart from the auto response. How do you follow up? You try to call down there and speak to somebody, and it’s a miracle if you get them. You have to get the objections in by March 31. From what I understand they’ve been inundated with formal challenges to valuations.

“All I have been doing is telling my clients that, regardless of whether you hear back by March 31, we should go ahead and pay to get the 10 percent discount and, that way, it’s a credit to your account. And if, after March 31, they reduce your property tax they will give you a further credit for 2022, which will go on your 2023 bill.”

Mr Carey, meanwhile, said appraisals were becoming “a very specific request” especially in the high-end residential market that does not typically need them because property purchases are financed on an all-cash basis.

Estimating that appraisal inquiries have increased by 40-50 percent in recent months for both high-end residential and commercial properties, he added: “People are calling in and having discussions. I guide them as to whether it’s worth it and warrants an appraisal; I won’t guarantee it...

“We’re just seeing on Paradise Island a continued trend where things are very much over-valued. Commercial is way out of whack, Paradise Island is way out of whack. They’re really out of sync. I’ve heard the same in Old Fort Bay and Lyford Cay. We’re getting requests for a lot of commercial properties because the valuations seem to be high.”

The Ministry of Finance, meanwhile, has served notice on all financial services regulators and their mortgage-lending licensees that it plans to finally use powers it has long-possessed under the Real Property Tax Act to require the latter to pay tax on behalf of their borrowers who are in arrears.

“The provisions of Section 19 deem the mortgagee to be the owner of the property and make remedies under the Real Property Tax Act available to the ministry and its agencies to recover monies owed to the Government of The Bahamas,” a Securities Commission notice said.

“The section states the mortgagee shall pay or cause to be paid the amount of tax or surcharge that is due and payable.... As part of the Government’s ongoing effort to enhance revenue and improve compliance across all taxes, we expect you will take measures and implement internal processes to ensure your client’s real property tax obligations are up-to-date.

“Lastly, you can expect revenue collectors engaged by the Ministry of Finance shall exercise the full authority granted to them to recover real property tax amounts owing to the Government of The Bahamas pursuant to the legislation.” The enhanced enforcement and compliance efforts will apply to both current taxes and those in arrears.