By NEIL HARTNELL
Tribune Business Editor
A Bahamian realtor fears the budget's tax changes will dampen interest in high-end real estate and have a lasting impact on the luxury second home market.
Monica Knowles, Bahamas Realty's top producer in 2016, who less than two years ago saw what she called "an exciting and encouraging renewed confidence in the Bahamian housing market", said she is now holding her breath while hoping that the government agrees to the Bahamas Real Estate Association's (BREA) transition requests.
"The budget impacts the housing market in three ways," she explained. "First, there is the increase in value-added tax (VAT) from 7.5 percent to 12 percent on legal fees and real estate commissions, so that alone drives closing costs, which were already high, even higher.
"In the end, so long as contracts that are currently pending for closing are honoured at the rate initially signed for, the 7.5 percent, I think long-term the dust will settle and, while it will cost a bit more to purchase, and it may slow down the market a little bit, those who desire to own will find a way to do so and we may all have to be more patient as we hold hands with clients getting them through the process."
While increased VAT on fees may slow the market initially, Ms Knowles said she is far more concerned about the other two elements of the budget that impact real estate - redefining owner-occupied to mean six months in residence, and elimination of a $50,000 cap on real property tax for those spending less than six months of the year in residence in The Bahamas.
"I understand the government's desire to find additional sources of revenue. It may seem easy to sit back and think: 'The rich have money, let them pay', but the backlash was instant," Ms Knowles added.
"The high net worth individual feels as though he is being targeted, and they believe that the sudden and sometimes startling hikes and the demand for them to spend half the year here or face the consequences is unjust, unfair and untenable. I am just hoping there will not be a flood of luxury homes on the market as high net worth individuals decide the cost of a second or third home in The Bahamas is too high."
The 2008-2009 recession, which saw the closure of several real estate agencies, was instructive, she added. The government subsequently lowered stamp tax from 12 percent to ten percent, and introduced the annual property tax cap, which provided a huge relief to the sector.
Under the 2018-2019 budget, real property tax on non-owner occupied residences, meaning those lived in for six months or less, increases from one percent with a cap of $50,000 to two percent with no cap.
"Let's say that someone owns a home that is valued at $10m, and he and the family are here for less than three months over a few holiday periods, so last year they paid $50,000 in real property tax," Ms Knowles said.
"This year, that same homeowner would face a tax bill of nearly $200,000. People with that kind of money do not want to be taken advantage of, and that is how some of my clients are feeling."
She warned The Bahamas to remain aware of the long-term impact the changes could have upon the sector. Caribbean neighbours in Turks and Caicos and the Cayman Islands offer incentives such as no property taxes whatsoever, said Ms Knowles. "We want and need to remain competitive in the buyers' eyes," she added.
"The Bahamas is my home. I want the country to reduce the debt level - I understand that need - but the path to success lies in encouraging economic growth, not discouraging those who contribute to the economy and demand so little in services from the government. These people can get up and move tomorrow, and I just hope that is not the unintended consequence from a decision that was intended to produce the right results."