The Tribune

By NEIL HARTNELL

Tribune Business Editor

A LEADING realtor yesterday encouraged the Government to further stimulate the Bahamian real estate market through initiatives such as a "three-year moratorium" on commercial real property tax, and "incentivising" the development of vacant Family Island land.

Praising the newly-elected PLP government for its manifesto commitments to boost the real estate market and wider economy through several tax-related measures, Mario Carey, head of Mario Carey Realty, suggested other incentives that he felt could have just as great an impact.

He told Tribune Business that the wide-ranging 2 per cent real property tax rate applied to all commercial buildings was "a huge deterrent to returns" for the likes of vacation homeowners and Bahamian-owned small businesses.

Suggesting that the Government place a short-term moratorium on this tax to see if it stimulated the vacation home market, and helped small businesses to survive, Mr Carey also suggested that the "sensitive" issue of undeveloped Family Island land owned by Bahamians be addressed.

Acknowledging that this issue had to be tackled carefully, the Mario Carey Realty head suggested the Government assess a number of potential incentives that could encourage Bahamians to develop vacant property they had been 'sitting on' - sometimes for generations.

"I think some focus needs to be given to the 2 per cent real property tax bill on commercial properties," Mr Carey told Tribune Business.

Explaining that this "has wide scope", he added that it impacted businesses that owned their own premises; any owner of commercial property; and homeowners who wanted to rent their properties out to earn income.

"That 2 per cent's a huge deterrent to returns," Mr Carey said. Citing the example of a person who acquired a condo unit they wanted to rent out as a vacation home for $3,200 per month, the realtor said a mortgage with an 8 per cent interest rate, plus associated fitting-out, maintenance and upkeep costs, would combine with the real property tax bill to reduce net returns to around 4 per cent.

Suggesting that such returns would merely encourage potential vacation home investors to leave their funds on fixed deposit with a commercial bank, Mr Carey said: "It's difficult in this day and age for someone to get a 6 per cent return on their rental investment."

Pointing to Abaco, whose economy is heavily dependent on the vacation home and second homeowner market, Mr Carey said the sector not only "brings people into the country" but involved investors who acquired, renovated and financed these properties.

"The 2 per cent real property tax is a huge deterrent for that," he emphasised. "Maybe they should put a moratorium on that. I would like to see them suspend it, maybe for three years, and somewhat encourage people to get more involved in the vacation rental business. Again, it's a service industry. The vacation business in the Family Islands has bottomed out."

Temporarily suspending real property tax levied on commercial buildings might also help Bahamian small businesses and entrepreneurs that owned their own properties, Mr Carey said. In some cases, he added, it could be the difference between survival and business closure.

The Mario Carey Realty head added that businesses who acquired their own real estate, apart from the upfront purchase price, then had to renovate, outfit and inventory it, and hire staff, before thinking about whether they could make a profit.

"Trying to renovate a building and outfit it is expensive, and that hurts, especially in trying to encourage small business people," Mr Carey told Tribune Business.

Another "sensitive thing" the Government could employ its policy tools to tackle was the issue of Bahamians acquiring land in the Family Islands, then sitting on it long-term - sometimes for generations - without developing it.

Other private sector sources had previously told Tribune Business about this practice, with purchasers exploiting a loophole that exempts Bahamians from paying real property tax on undeveloped land they own in the Family Islands.

This newspaper was told the exemption has encouraged 'land banking' by many wealthy Bahamian families, who had acquired numerous real estate parcels - including prime land - and were sitting on it with no incentive to develop their properties. Such practices, Tribune Business was told, were a factor hindering economic development in many Family Islands.

Mr Carey alluded to this, telling this newspaper: "You have a lot of old families sitting on a lot of vacant land all over this country, and have no incentive to do anything with it. This is prime land in places like Exuma and Long Island."

Suggesting that the Government carefully examine incentives that would encourage owners to either develop or sell such land, Mr Carey said: "Do you charge them a tax, give them a timeframe in which to develop it, grandfather it in over three-five years?"

The question, he added, was "how do you stimulate, motivate action" in relation to such land. Currently, there was "no incentive to do" any development.

Several private sector sources, though, suggested that the undeveloped Family Island land exemption might soon run afoul of rules-based trading systems such as the World Trade Organisation (WTO), as it would be seen as discriminatory in favour of Bahamians. Under the likes of the WTO, Bahamian and foreign investors would have to be treated equally.

Meanwhile, the newly-elected Christie administration's pledges to cut the top Stamp Duty rate on real estate transactions from 12 per cent to 10 per cent, and 'cap' the maximum that could be paid in real property tax, had created "a real buzz" in the real estate industry.

"I see where the PLP have talked about reducing the rate and revisiting capping the real property tax," Mr Carey told Tribune Business. "That type of talk, in the last 48 hours, has gone around the industry and created a very real buzz. We're very, hopeful they will use the tools they have and policies at their disposal to stimulate the economy.

"In our real estate sector, people are feeling very confident that some changes and re-tooling will be made in order to stimulate the market. The fact they are talking about putting a cap on real property tax, dropping the Stamp Tax back down, those are very positive steps in the right direction."

Given the economic "trickle down effect" from the real estate industry, with the US-based National Association of Realtors (NAR) estimating that three extra jobs were created through every house sale, Mr Carey said the sector should be treated as "the third or fourth pillar" of the Bahamian economy.

"As an industry, real estate needs to be focused on as a prime contributor to our economy and well-being. It should definitely be the third or fourth pillar," Mr Carey added.

And he urged the new government to consult with those working in the real estate industry, as this would "make policy better to strengthen one of the top three pillars of the economy".