By NEIL HARTNELL
Tribune Business Editor
The Government needs to examine how it can stop owners “sitting on” real estate for years without developing it, a top accountant yesterday warning this impeded economic activity and “prevented young Bahamians” from entering the housing market.
Noting that undeveloped land in New Providence, together with Bahamian-owned properties in the Family Islands, were exempt from annual real property tax payments, Raymond Winder said the absence of so-called ‘carrying costs’ was encouraging land ‘sitting’ or ‘banking’.
The Deloitte & Touche (Bahamas) managing partner, echoing opinions previously voiced to Tribune Business by attorneys and realtors, said the prices being sought by numerous sellers indicated they were not truly motivated to exit their properties.
As a result, the overall Bahamian real estate market remained depressed, with negative ‘knock-on’ effects for the construction industry, legal profession and other businesses.
“The Government needs to ensure you don’t have a situation in the Bahamas where individuals are able to sit on properties for an extraordinary amount of time,” Mr Winder told Tribune Business.
“We need to look at that, as it’s not in the best interests of young Bahamians prevented from coming into the marketplace because large tracts of land are not available, with individuals holding on to them and not moving them through the system.
“They can sit and hold, because the carrying costs on those properties are such that they can wait for years before they move out.”
And Mr Winder added: “Right now, the kind of prices we are seeing in the Bahamas reflects that a lot of sellers are not prepared to truly move their properties, and the same individuals are able to hold on to developed land or undeveloped land.
“We then don’t have the level of activity, property movement that allows the younger generation to get into the market at a reasonable price.
“It’s an inhibitor to the economy, because the more movement of property, the more construction, the more development and the more individuals will be able to come into the marketplace.
“The movement creates a level of activity that the country can benefit from.”
Mr Winder’s comments touch on a sensitive subject, namely that the absence of real estate ‘carrying costs’ via real property exemptions has facilitated ‘land banking’ by Bahamians in both New Providence and the Family Islands.
The absence of these costs means there is little incentive to develop or sell these properties, something that inhibits their use for productive economic means and thus holds back the Bahamian economy.
Realtors Mario Carey and Chris Armaly have both touched upon this subject, the latter telling Tribune Business earlier this year that the Government should consider imposing real property tax on Bahamian-owned vacation homes in the Family Islands, plus undeveloped land on New Providence.
Apart from bringing the former into line with foreign-owned vacation and second homes in the Family Islands, which are taxed, Mr Armaly suggested this - along with levying a “flat fee” on vacant, undeveloped land in New Providence - would enable the Government to avoid the 200-500 per cent real property tax bill hikes it has been imposing on existing payers.
And Terence Gape, a Freeport-based partner at Dupuch & Turnquest, late last year suggested that Freeport’s real property tax exemption had failed to benefit the city’s real estate market, which - unlike the rest of the Bahamas - had missed out on the pre-2007 global boom.
Implying that the Grand Bahama Development Company (DevCO), and its Hutchison Whampoa managing partner had been ‘land banking’ with their 70,000 acres, Mr Gape said of Freeport’s ‘no property tax’: “The exemption may now be working against the interest of the sale and development of the thousands of acres of property already sold in the Port Area.
“There are many lots, parcels and tracts of land now held by non-Bahamians in the Port Area that are not being marketed, or offered for sale, or offered at competitive prices because there is no carrying cost to the owner.”
And Mr Gape added: “A primary example of this is a 26-acre beachfront tract on famous Lucayan Beach (arguably the finest tract available for hotel/condominium development on the island), owned by a non-Bahamian, that has been marketed for sale for the past 10 years and has not moved. A part of the reason for this is the lack of the international sales marketing effort, but also because the price of this land is arguably too high.
“If that owner had to pay $300,000 a year in real property taxes, most likely major efforts at marketing would have been made, and the price made more attractive for sale and a new owner would be in place with the intention to develop.
“This present owner would have actually benefited from the sales and marketing efforts of the GBPA, and the activity created by hundreds of other sellers (who would now be prompted to sell because of the tax). Therefore, it is argued that real property taxes can be seen as an inducement to sale and development.”
Mr Winder, meanwhile, yesterday noted that real estate/property prices in the Bahamas had done a better job in retaining their value during the recession than the US market.
This, he added, had “created an opportunity we cannot allow” to be missed. The well-known accountant said Bahamian real estate taxes, primarily Stamp Duty and real property tax, had also not reached the ‘point of diminishing returns’, where tax revenues would drop if rates increased.
“While it’s important we don’t impose an onerous amount of taxes, here in the Bahamas we haven’t reached the point where those costs are deemed to be such as we move from one property to the next or hold on to the current one,” Mr Winder said. “Government still has room to levy additional taxes before we reach that point.”