• Down payments, closing costs not tackled
• Developer: Biggest ‘hurdle’ to owning home
• Along with hefty consumer debt burdens
By NEIL HARTNELL
Tribune Business Editor
A PROMINENT developer yesterday warned that first-time Bahamian homeowners must be able to access “the front door” if the Prime Minister’s ambition of sparking a construction boom is to be realised.
Franon Wilson, Arawak Homes president, told Tribune Business that the package of construction material and services-related tax breaks unveiled by Dr Hubert Minnis at the weekend will not yield maximum effect unless the two greatest obstacles to home ownership are addressed.
While affirming Arawak Homes’ “100 percent support” for anything that makes home ownership more affordable, Mr Wilson said the plan did not tackle the down payments and closing costs that purchasers are required to cover from their own savings and other financial resources.
With vacant lot prices now often in excess of $100,000, he explained that the combination of bank down payment requirements, legal fees and, potentially, realtor commissions would require first-time buyers to come up with a five-figure sum to close such deals prior to even beginning construction of their home.
Many Bahamians lack such savings, having been sucked into pay cheque to pay cheque living, and will require several years to build-up the necessary resources. Added to this are high levels of existing consumer debt, which Mr Wilson said is the other greatest factor impeding the ability to qualify for a mortgage.
“At the end of the day, it’s helping people get in the door,” the Arawak Homes chief told this newspaper. “If someone cannot get in at the front door, no matter what happens at the back door they cannot get in. The faster you get in leads to more opportunity.
“Coming off COVID-19, people had to use the savings they may have had for their home to pay the rent and things of that nature. Anything that helps people get back to where they were, that would be a big boost.”
Asked how many potential home buyers Arawak Homes had witnessed being turned down because of their inability to qualify for mortgages with commercial banks and other lenders. Mr Wilson responded: “It’s hard to put a figure on it. There’s two things; two reasons why it’s so hard for people to own their own home.
“One is the amount of consumer debt which they have, and second is finding the downpayment and closing costs. Those are the top two reasons why it’s hard in The Bahamas. Addressing just one of those two issues would go a long way to helping people own their own home.
“If you want people to get in, it’s even more important than offering stuff on the back end. The challenge is coming up with the down payment and closing costs. If the Government can find ways of bringing that down, help to reduce that, more people will own their own home,” he added.
“Even if you make the money and have the income, unless you have the down payment and closing costs the bank will not accept the application. That’s one of the biggest challenges in The Bahamas.”
The pledges unveiled by Dr Minnis at the weekend appeared targeted at first-time home owners who are constructing their own residences, as opposed to first-time buyers trying to acquire an existing property.
Those constructing their own homes will first have to acquire vacant land on which to build, and Mr Wilson told this newspaper that such land or lots are “becoming harder to find under $100,000”.
Commercial banks typically require buyers to come up with between a 5-10 percent down payment or deposit to cover part of the purchase price, sometimes raising this as high as 20 percent. A 10 percent down payment on a $125,000 lot equates to $12,500, which can still be a significant some for middle class and low income buyers.
Adding in legal fees at 2.5 percent of the acquisition price ($3,125) and a potential realtor’s commission at 6 percent ($6,250), and total costs to complete the purchase of this $125,000 lot could run to $21,875. This represents funds that the buyer would have to possess to satisfy a lender even before a mortgage is extended.
Dr Minnis acknowledged the six-figure sums now required to purchase New Providence lots when he unveiled his Prospect Ridge “young professionals” community, explaining that this was why the Government had chosen to sell the lots at a cut-price $40,000 to $50,000 to that purchasers would have extra equity against which to secure mortgage loans.
While affirming that Arawak Homes backed the Prime Minister’s latest home ownership strategy, Mr Wilson added: “Anything that helps we support, but the main point is the down payment and the closing costs. People need that, and that’s a big hurdle right there.”
Dr Minnis, in the latest of his election campaign trail pledges, promised that if re-elected the Free National Movement (FNM) will provide housing construction tax-breaks for all first-time Bahamian homeowners who are building an owner-occupied dwelling valued at $300,000 or less.
“This applies whether you intend to build on private land or on government land you received or purchased,” he said at an FNM rally.
“There will be no customs duties on building materials. For all such home construction, there will also be no VAT on building materials nor on the value of the construction contract. This will benefit many potential homeowners. This will help to create a construction boom.”
Dr Minnis said he planned to expand the “young professionals” community concept to Eleuthera, Exuma, Abaco and Andros.
“Those who buy land in these developments will not have to pay customs duties on building materials, nor on furniture and appliances. Additionally, they will not have to pay real property tax for five years,” he added.