The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian realtor yesterday warned that disputes over property sale valuations are delaying transactions to the point where “everybody loses” as he urged the Government to place priority focus on making the Department of Inland Revenue’s (DIR) acceptance process as “seamless” as possible.

Mario Carey, president and chief executive of Better Homes & Gardens Real Estate MCR Bahamas, told Tribune Business that the tax authority’s frequent rejections of real estate sales prices - and the amount of VAT due to the Public Treasury - are causing “a huge confusion” in the marketplace that, ultimately, break deals.

He warned that no party wins from such a situation, as the payment of VAT on the purchase price is held-up and delays the Government’s receipt of much-needed tax revenues, while buyers, sellers, banks, realtors, attorneys and the wider Bahamian economy all miss out if such disputes prove a deal-breaker.

Mr Carey suggested that the Department of Inland Revenue be more willing to accept valuation reports and confirmations by licensed appraisers - especially since the Bahamas Real Estate Association’s (BREA) Multiple Listings System (MLS) provides a wealth of data for price comparison purposes. And he also recommended that the tax authority hire its own licensed and qualified appraisers to help speed-up the valuation and tax approval process.

Multiple other realtors have previously told Tribune Business that one of their biggest headaches has been the frequency with which the Department of Inland Revenue disputes the value of property transactions when the conveyance is presented for stamping and the payment of due VAT tax. “I think there are certain things that are working and certain things that are not working,” Mr Carey told this newspaper.

“What’s not working is when there’s a sale and the Department of Inland Revenue seems to distrust the sale. That creates a huge confusion for the deal. The deal has been negotiated, and then it’s left up to a government entity that has limitations on its response time and ability to assess value. Who knows value better than appraisers? The data is there. It’s so easy to access and is available with the MLS, going online and looking at previous transactions.

“A lot of effort should be put into making that process more user-friendly,” he added. “If there’s a dispute over value it creates a huge mess. If the Department of Inland Revenue says they don’t agree with that, it can create all kinds of hell. It’s a big problem.”

Mr Carey reiterated that the Bahamian real estate market itself “speaks to you about value” and sets the price of transactions. He added that realtors frequently supply data to clients to show the price range between where their properties will likely sell quickly and smoothly if listed at that valuation, and noted that some real estate remains on the market for months - even years - before a transaction is ever agreed.

“The process of validating the contract price needs to be worked on a bit before everybody loses,” he told Tribune Business. “VAT loses, real property tax loses, the banks lose, real estate professionals lose, lawyers lose” if a property deal is held up significantly, or even collapses, because a valuation dispute with the Department of Inland Revenue drags on for too long.

“That needs a seamless process,” Mr Carey added. “A solution to that is the appraiser, and then reporting in a timely manner to the appraiser. If the appraiser comes in, gives an opinion, they need to give value and weight to that and not dispute and say: ‘We don’t believe it’.

“Are the persons giving opinion on value in the Department of Inland Revenue qualified? I don’t think they are. I don’t know of any that have accreditation on appraisals. The Government should make that a priority to have professionally-trained evaluators working on real estate sales. That will make everything function a bit better. That nexus there, there needs to be some thinking and improvements made.”

Meanwhile, Mr Carey renewed his call for The Bahamas to establish a special development fund - independent of government, and professionally managed and overseen with proper governance procedures in place - that would receive contributions from major investors and their projects, and be used to fund healthcare, education and Family Island development needs.

Suggesting that such contributions could be set at the equivalent of 0.5 percent to 1 percent of an investment project’s value, he argued that The Bahamas should not be swayed by arguments this will be a “deterrent” to attracting job-creating growth as “the profit margins are way too high for that”.

“I still feel, and feel strongly about this, that there should be an independent fund that, when a developer comes in and you have these $80m, $200m, $300m projects, that a percentage of that should go into a social development fund,” Mr Carey told Tribune Business. “That will be applied strictly to development. A percentage of whatever comes in has to be allocated to Family Island development.

“Everybody knows we need good infrastructure, good roads, good healthcare. A lot of people don’t buy real estate in remote parts of The Bahamas because they don’t have medical facilities and don’t have access to healthcare. That fund can finance healthcare, education, environmental protection. And we cannot go into the posture that will scare investors away.

“Investment margins are high enough to absorb that type of type of expenses, especially when we are giving them so many concessions in the Heads of Agreement. Look at what we’re giving away - real property taxes, sometimes Crown Land, Customs duties. When they come to do a development, a contribution of 1 percent of the project is not a deterrent. Their profit margins are way too high,” Mr Carey added.

“It can be something simple. Every time there’s a lot sale 0.5 percent goes to a development fund. You always get the best traction during the negotiating phase when people try to make the decision to engage. It’s just a missing component in the Heads of Agreement negotiations, and is something the country can benefit from. It’s all about development of the country, especially medical facilities that everyone can benefit from - the elderly, children and mothers.”

Mr Carey said the proposed fund would ease the burden on the Government from having to replicate critical infrastructure and public services on every Bahamian island. And he also called for The Bahamas to build bicycle lanes, especially on the Family Islands, as another added-value component for the Bahamian tourism product.