The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian Contractors Association’s (BCA) president says recently-unveiled first-time home buyer and real property tax concessions are “not as earth-shattering as they seem” and will likely represent “modest good news for a small number of people” in the middle class.

Leonard Sands told Tribune Business that the incentives revealed by Prime Minister Philip Davis KC in his recent national address will have limited impact on both The Bahamas’ housing crisis, and shortage of available affordable homes for local buyers and renters, and level of activity within the construction industry.

Instead, he encouraged the Government to follow through on statements that it plans to increase the supply and availability of affordable housing. The BCA chief told this newspaper that, with a “waiting list” of around 7,000 to 8,000 applicants, the Davis administration needs to increase the Department of Housing’s annual Budget allocation to around $80m if is to make a swift and rapid dent in that number.

Michael Halkitis, minister of economic affairs, on Thursday last week confirmed that - besides increasing the first-time home buyer VAT exemption threshold from the present $500,000 to $600,000 - the Government is also extending the real property tax exemption for duplexes and triplexes worth less than $300,000 to the whole property rather than just the owner-occupied portion.

Presently, if the owner of a duplex or triplex valued below this threshold occupies 50 percent of the property, the tax exemption only applies to his portion - meaning that while no real property tax is paid on the owner’s half, the other 50 percent occupied by tenants is taxable. Now, under the planned changes, the owner will enjoy the full 100 percent exemption below $300,000.

And extending the first-time buyer exemption threshold from $500,000 to $600,000 means more Bahamians can qualify for VAT relief on the purchase of a home, thereby reducing upfront tax payments and their closing costs to make home ownership more affordable and accessible. If the VAT is split 50/50 between buyer and seller, this will increase the maximum relief available from $25,000 to $30,000 on a $600,000 home.

However, Mr Sands suggested the incentives are not as generous as the Government is letting on. “I don’t really think the impact will be felt at all,” he told this newspaper. “The challenge is not what the Government is doing. The challenge starts with the banks having the desire to lend money in the mortgage market. The fact we have expanding product, people need to get bank mortgages.

“The Government has very little leverage with that. You’re now talking about real property tax. That’s after you build a home. That will not help persons build a house. No impact for construction there. And the target number of people seeking to buy a home is under $300,000, so increasing the threshold to $600,000 will not help them as much. The impact is modest at best.”

Mr Sands said it is the owner/occupier, or landlord, who will benefit most from the extension of duplex/triplex real property tax relief. “You know who the burden shifts to? The landlord will shift the burden to the tenant,” he argued.

“I know a number of people whose rents have increased because the landlord has to make up for property tax on the rental portion. I know rents have not gone down. It may mean that the additional money that now goes to the Government stays with the landlord. It’s not going to spur economic activity. And they don’t cost $300,000 any more.

“We still have a challenge where the cost of the housing product it higher than the mortgage persons are allowed to get because of the economic state of The Bahamas. They cannot afford to get what they need. Developers have their mark and don’t build under a certain threshold. Why sell something for $300,000 when they can get $600,000?”

Mr Sands said it was “noteworthy” that both the Prime Minister and Mr Halkitis had talked about increasing the supply of affordable housing and inventory, describing this as “the right approach”. However, he argued that with homes now costing around $200,000, the Government needs to increase its housing budget to $80m and build around 400 homes per annum to make a dent in the housing ‘waiting list’ and create work for hundreds of small contractors.

“This whole conversation is not as earth-shattering as it sounds,” the BCA president told Tribune Business of the concessions, pointing out that most inner-city properties fall below the $300,000 value and are thus real property tax exempt.

“There’s more relief for the middle class than anyone else,” Mr Sands added, pointing out that $500,000 to $600,000 properties are typically found in communities such as Blair Estates and Stapledon Gardens. “It’s modest good news for a smaller group of people than suggested. For many of the population, it means nothing and doesn’t change anything in their lives.

“This is good for the middle class. Those are the ones going to feel the effects of this. They have been complaining that many of the policies do not impact them as those on lower incomes. This is their win. Will it have any impact on construction? It’s negligible. It’s not a benefit that will be felt by all. It’s a benefit that will be felt by some, and that’s the biggest point.”