By NEIL HARTNELL
Tribune Business Editor
Suggestions that today’s Budget will seek to “promote home ownership” and green energy yesterday generated calls for an attitude overhaul and a variety of tax reforms from participants in both sectors.
Mario Carey, the Better Homes and Gardens Real Estate MCR Group Bahamas principal, responding to the broad-brush overview given by Senator Michael Halkitis, minister of economic affairs, backed the objective of increasing home ownership but added that Bahamians needed to do their part by “stopping spending on all this crap”.
While Mr Halkitis gave no details on the Government’s plans, the real estate veteran called for a cultural or mindset shift on the priority that Bahamians give to owning their own home. He added that the younger age group, especially, needed to adopt the mantra of “buy good real estate and a cheap car” if they are to realise their ownership dream.
“Home ownership has so many benefits,” Mr Carey added. “In any society it provides a means of stability. It creates wealth, helps children to do better in school. There’s just so many benefits when you have a high level of home ownership, and the Government should do everything in its power to make it more affordable for Bahamians. Anything to help Bahamians enjoy the fruits of this country. The foreigners are enjoying it. Every Bahamian should have that right.”
However, he quickly added that Bahamians needed to do their part by avoiding the temptation to become over-leveraged on consumer debt through the desire “to keep up with the Joneses”, which led to spending on frivolous ‘wants’ rather than saving and investing towards home ownership.
“Bahamians have to take responsibility; save, budget and invest, and stop spending on all this crap. That is the mentality of many people There’s a saying that you buy good real estate and a cheap car. That’s a saying I always try to impress on young people. It makes a lot of sense. The car is an expense, and a depreciating expense that happens very quickly.”
“Everybody wants to keep up with the Joneses and buy what they have. It’s the jewellery, the necklace, whatever it is, rather than a smart investment like real estate which is one of the most proven ways of creating wealth.”
The main obstacle to more Bahamians becoming homeowners is their inability to qualify for mortgage loans, which is often directly linked to the fact they have too much consumer debt. As a result, the debt servicing costs are more than their income can bear.
The Central Bank’s recent lending conditions survey found less than 40 percent of mortgage applications were approved during the 2021 second half, with the report adding: “The primary specified reasons for the rejection of mortgage requests was applicants’ breach of the debt service ratio threshold of 40-45 percent (50.5 percent) and prior loan delinquency (12.6 percent)”
How the Government intends to push increased home ownership will be further revealed today. It will likely use fiscal policy, and tax breaks and incentives, to reduce the transactions costs associated with closing a home purchase which are also viewed as an obstacle for Bahamians because of the sums involved.
Besides the attorney’s fees and realtor’s commission, typically 2.5 percent and 6 percent of the purchase price respectively, 10 percent VAT (often split 50/50 with the vendor) is also applied to the transaction cost. Bahamians thus have to come up with significant sums, usually running into five-figures, to close a home purchase, while commercial banks have added to this cost by typically requiring mortgage borrowers to come up with 10-20 percent equity down payments.
While the Government will likely seek to mitigate these costs, as it did during the first Christie administration with the first-time buyer Stamp Tax (now VAT) waiver, its focus on increasing renewable energy penetration was yesterday met with calls for further electric vehicle incentives.
Pia Farmer, partner in Easy Car Sales, called for the Government to either eliminate or reduce the present 45 percent tariff rate on “fast chargers” while also removing the $50,000 price threshold above which commercial electric vehicles currently attract an 85 percent Excise Tax rate.
“There are a couple of things that would be beneficial,” she told Tribune Business. “The first one would be the elimination, or reduction, of duty on electric vehicle chargers because they are currently taxed at 45 percent, which is a very high rate for fast chargers that can charge an electric vehicle in under half-an-hour.
“It’s prohibitive to have taxes that high on an electric vehicle chargers, and that [eliminating or reducing duty] will be very conducive to establishing a network of charges throughout the country and establish the structure we need.”
Ms Farmer then targeted the $50,000 price threshold below which an electric vehicle can be imported into The Bahamas at a 10 percent Excise Tax rate. Above that benchmark, passenger vehicles attract a 65 percent duty rate and the commercial variety, 85 percent.
“I’m really lobbying for commercial vehicles over $50,000,” she added. “I think the initial concept was that if you can afford to bring in a luxury vehicle valued over $50,000, you can afford to pay a higher rate of duty. That’s debatable. For commercial vehicles, it’s critical to eliminate threshold. Jitneys, garbage trucks and big trucks are all over $50,000.
“I know, for example, that New Providence Ecology Park (the former landfill) is interested in electric trucks and garbage trucks but, right now, they’re at 85 percent duty. Unless you get an exemption, that makes it cost prohibitive. It should be eliminated for commercial vehicles. I have no opinion on passenger or delivery.”
Ms Farmer even suggested eliminating one of the border taxes, either 10 percent VAT or 10 percent Excise Tax, as a way to encourage faster adoption of electric vehicles. And, describing regulation of the sector as akin to “the Wild, Wild West”, she called for the creation of a body that would develop policies, guidelines and rules for the electric vehicle sector.