By NEIL HARTNELL
Tribune Business Editor
The Bahamas could leverage the opportunities created by Airbnb and the exploding vacation rental market by creating “a new investment category” for persons seeking to develop the sector.
A report commissioned by the Bahamas-based Organisation for Responsible Governance (ORG) argues that this nation’s ability to make greater inroads into the vacation rental market is being impeded by old, impractical laws and regulations.
Apart from the International Persons Landholding Act imposing “especially strict rules” on foreign home owners, the study said all vacation-based properties have to be approved by the Bahamas Investment Authority (BIA).
“While vacation home owners and foreign owners can overcome these hurdles, this comes at a cost in terms of time and money,” the report’s author, the Oxford Economics consultancy, said.
“In the view of interviewees, most of the complexity reflects laws that are designed with mega-resorts in mind. For example, if the owner is not the primary occupant, then the applicant must present detailed business plans that addresses issues such as how many people will be employed, traffic issues, etc. For the vacation home rental market, this is not a practical approach.”
Data obtained by Oxford Economics showed that the Bahamas had 1,878 properties registered with Airbnb, of which 908 - just under half - were deemed to be active.
Highlighting the vacation rental market’s growth and economic potential for the Bahamas, the ORG report showed these numbers were between eight to three times’ higher than comparable Airbnb data for Bermuda, the Cayman Islands and Turks & Caicos.
The Bahamas’ mean occupancy rate was lower than Bermuda’s and Cayman’s, at 38 per cent and 22 per cent, respectively, but higher than Turks & Caicos’s 16 per cent.
When it came to yield, the Bahamas’ mean Airbnb nightly rate of $306 was higher than Bermuda and Cayman’s, but lower than Turks & Caicos’s. This nation’s guest ratings were also in line with its regional rivals.
To better exploit the growing global demand for vacation rentals, the ORG report suggested creating a new investor category that traded off faster approvals for tax compliance.
“Policies that promote increased foreign investment and those that promote increased tourism through home rentals should be considered in tandem,”Oxford Economics concluded in the report.
“One solution is to establish a new investment category that recognises that questions suitable for large investments are not relevant for foreigners who just want to build a vacation home.
“This new investment category, for example, might allow expedited and simplified approval in exchange for the homeowner agreeing to register as a new business and agreeing to collect VAT (or Hotel Guest Taxes) on home rentals made to tourists.”
Prominent Bahamian realtors, such as Mario Carey, have already urged the Government to get a better regulatory grip on the vacation rental market, warning that it is losing potentially valuable tax revenues.
“It should be noted that many foreigners who might wish to invest in a second home in the Bahamas have no desire to live full time in the country,” the ORG report said.
“For example, it was noted during several interviews that the poor quality of healthcare was a particular concern for elderly, wealthy Americans who might otherwise consider making a Bahamas property investment.
“Therefore, leveraging the opportunity presented by the fast-growing home rental vacation market could be a valuable strategy for attracting foreign dollars from investors who might not want to live year-round in the Bahamas. Zoning rules would address most obvious objections, such as limiting the number of days a home can be rented, making sure beaches maintain public access.”
The ORG report suggested that “more relaxed investment requirements” for vacation rental home developers could be restricted to specially-designated areas, such as Trade Development Zones (TDZs), located near ports and airports.
“TDZs would allow the Government to experiment with different policy prescriptions in specific limited areas before fully committing to a much larger or permanent programme,” the ORG report argued.
“TDZs would also afford the Government the opportunity to experiment with tax schemes to promote equity. One goal, for example, might be to bring more equity to visitor occupancy taxes so that regardless of whether the visitor stays in a home rental or hotel, the tax burden is the same or comparable.
“For example, within the TDZ, homeowners who voluntarily registered to collect occupancy taxes on home rentals might receive property tax reductions proportionate to the amount of occupancy tax remitted. In this way, registration schemes for the collection of occupancy taxes from renting homeowners can be experimented with so that only proven and effective programmes get implemented on a national level.”