By NEIL HARTNELL
Tribune Business Editor
The Bahamas Real Estate Association’s (BREA) president wants to “stop the haemorrhaging” represented by a 50 per cent first half sales decline on its Multiple Listing System (MLS), describing the trend as “worrisome”.
Carla Sweeting told Tribune Business she was determined to halt the pace of year-over-year sales declines, comparing the Bahamian economy to a “ship that needs to be turned around quickly”.
Suggesting that the economy was going “backwards” based on the industry’s performance, the BREA president said the multiple negatives currently affecting the Bahamas were undermining market confidence.
Apart from the Baha Mar dispute and Value-Added Tax’s (VAT) introduction, Bahamians are having to contend with the increasing fear of crime, low growth and high unemployment, and downgrades of this nation’s creditworthiness.
Ms Sweeting said VAT’s addition to real estate-related service charges, and the continued difficulties experienced by buyers in accessing bank financing, meant acquiring and owning a home was increasingly becoming “more expensive and difficult” for Bahamians.
Her sentiments were echoed by Peter Dupuch, ERA Dupuch Real Estate’s president, who told Tribune Business that Bahamians were “really worried” about the economy and the country’s future prospects.
“The statistics that came off the MLS give a feel for what’s going on, and between this year and last year they [sales] were down about 50 per cent,” Mr Dupuch told Tribune Business.
“If you look at the numbers, 110 homes were sold in the first six months of 2015. That’s not great for a real estate industry. Can you imagine the housing market in the US being down by 50 per cent?”
Mr Dupuch’s numbers were confirmed by Ms Sweeting, who described market activity as “significantly slower”.
“We saw a minor change from 2013-2014 for the same period, but certainly for 2014 to 2015 there was a significant difference,” she said.
“We have to hope that the numbers increase instead of continuing to decrease. I don’t want that amount of percentage rate to continue. We have to at least stop the haemorrhaging until we get through these rough times.
“It’s very worrisome, but we have to stay positive. There are a lot of worries, but have to hope that this ship turns around, and turns around quickly.”
While the MLS does not feature every property listed for sale throughout the Bahamas at a particular point in time, it still captures enough activity to represent a reasonable sales barometer for the real estate sector.
The MLS data did not give reasons for the slowdown, but Ms Sweeting said the industry “can clearly assume” it was related to the combination of factors driving a sluggish economy.
Apart from Baha Mar and slow growth, Ms Sweeting also pointed to VAT and the July amendments specifically for the real estate industry that now split the ‘transaction tax’ 2.5/7.5 between Stamp Duty and the new tax.
“The lending practices of the banks have been getting harder and harder over the years because of the foreclosures,” the BREA president added.
“All that is due to the economy. Every country looks at real estate and construction as industries that determine whether the economy is growing or going backwards.”
Real estate is a key indicator of the Bahamian economy’s strength, given that activity in this market generates much spin-off business for other key sectors.
Apart from construction, it also drives business for the accounting and legal professions, architects and engineers, landscaping firms, furniture stores and other types of retailers. Thus the impact of a 50 per cent sales fall, as represented by the MLS, is felt throughout the economy.
Ms Sweeting said she had last week been contacted by the Central Bank of the Bahamas for her views on the market’s performance and wider economy.
And she also met with John Rolle, the Ministry of Finance’s financial secretary, to discuss government policy towards the industry and its latest taxation adjustment.
The Government’s new real estate ‘VAT Rule’ requires that the tax burden on residential real estate transactions worth more than $100,000 be split between 2.5 per cent Stamp Duty and 7.5 per cent VAT.
This is designed to ensure no reduction in real estate-related taxes, given that the combined 10 per cent rate between the two will be the same as the old 10 per cent Stamp Duty rate.
Typically, real estate transactions usually see the tax burden equally split (50/50) between buyer and seller, with each paying equivalent to 5 per cent Stamp Duty under the old rate.
However, several realtors have warned that the new VAT structure has caused “confusion” among market participants, due to the fact that the buyer is deemed responsible for paying all the VAT to the Government.
Ms Sweeting said it was “too soon to tell” what impact the adjustment would have on the real estate market, adding that the sector was just “trying to work our way through it”.
“It doesn’t sit well,” she added. “Most homeowners don’t like change. Bahamians change. When you put it down on paper, buyers and sellers say: ‘What’. But the bottom line hasn’t changed. It’s still 10 per cent [on the purchase price].”
The BREA president told Tribune Business that VAT had made “everything more expensive”, with the 7.5 per cent levy now applied to “four to five cheques” relating to real estate transactions.
Apart from realtors’ commissions and legal fees, VAT also applies to appraisals and bank charges. And while banks are offering mortgage rates as low as 3.99 per cent, prospective buyers are first being asked to come up with down payments equal to 20-30 per cent of the purchase price.
“Who walks around with that?” Ms Sweeting asked. “Owning a home is becoming more and more expensive, and more and more difficult.
“It’s a significant challenge. We’re staying positive and hoping we can find ways to make it work and help ease our way through these rough times.”
She added that certain market segments would benefit from the Government’s tax reforms, especially first-time buyers. They will enjoy a greater exemption, in the shape of the 7.5 per cent VAT, compared to the 5 per cent Stamp Duty ‘forgiveness’ previously granted.
And, while the 2.5 per cent Stamp Duty applied to properties worth $100,000 or less would be unlikely to aid the New Providence market, the BREA president said the lower tax rate might help stimulate Family Island activity.
Mr Dupuch, meanwhile, said the Bahamas was effectively witnessing a ‘two-speed’ real estate market - a thriving foreign segment that was being offset by a weak Bahamian one.
“Luckily, my business is still holding its own, but real estate is not selling like it used to,” Mr Dupuch told Tribune Business.
“We’re selling more high-end homes, as non-Bahamians go in behind the gates, and don’t care about crime and the economy.
“But the Bahamians are really worried. The banks are not lending. The market has shifted to where we are selling more high-end homes, and to non-Bahamians, than we were before.”
Mr Dupuch said the real estate market’s sluggishness was a reflection of the wider Bahamian economy, with potential buyers lacking either the money or confidence to invest.
“It’s not VAT alone; it’s everything,” he added. “There are five-six things on top, like Baha Mar and crime.”
Mario Carey, Mario Carey Realty’s (MCR) president and chief executive, told Tribune Business that real estate market confidence was being weighed down by the “heavy burden” the Bahamas is currently carrying.
“I fell that there’s a lot of negative publicity out there,” he said. “When you talk about Baha Mar, when you talk about the downgrade by S&P, you talk about crime.
“It’s a very heavy burden on the Bahamas, and that has a direct impact in keeping property values down. It’s still a buyer’s market.”
Mr Carey reiterated that the Government needed to employ policies and tax reforms that incentivised the market, given that almost all major developments in the Bahamas were real estate-based.
“I feel that again the Government’s real estate policies are totally not being sensitive to the economic benefits,” he added. “They’re missing the message of the need to create positive incentives.
“They’re not doing that. They’re adding more fees, more taxes and more confusion. VAT has affected the cost of everything and we’re being negatively impacted. The market wants to do well, but people are retrenching.”
While MCR itself had seen a slight increase in sales volumes year-to-date, Mr Carey said the Government needed to do its part by working with the industry.
“The private sector continues to create ways to absorb the cost,” he added. “We try to do owner financing, we try to negotiate fees - agents’ fees, lawyers’ fees - structure a payments schedule that allows the burden to be spread over time. The Government has to have policies to assist that.”