There seems to be a ton of buzz lately in the Bahamian real estate sector over some of the recent policy changes the government has introduced and just how they could impact the sector.
Right now there are a few issues arising from the 2018/2019 budget relative to real estate that seem to have caused quite a stir in the sector and we’re going to delve into those issues to try and break it down for you a bit.
So here’s the deal.
Firstly there’s the impact of the Value Added Tax (VAT) rate hike from 7.5 to 12 per cent effective July 1. The Bahamas Real Estate Association (BREA) -which represents some 700 brokers and associates- has publicly expressed concerns over whether the government will provide some sort of “transition period” for property deals signed before July 1, but which have yet to close, or honor them at the existing 7.5 percent VAT rate.
Basically, the fear is that parties to deals “under contract” could effectively be faced with paying extra VAT on attorney fees and realtor commissions when they had likely budgeted for an anticipated 7.5 percent rate. BREA president Christine Wallace-Whitfield has told local media that she is still waiting for a formal response from government on the issue so- STAY TUNED!
Another issue which BREA is seeking talks with the government on and one which is certainly causing quite a stir in the second home market are the Real Property Tax Act changes to the definition of “owner-occupied” property as well as the removal of the $50,000 annual cap.
Our very own Monica Knowles, a Bahamas Realty 2016 Top Producer also recently highlighted these issues.
So what’s all the fuss about? Well, the definition of the term ‘owner-occupied property’ has been amended to remove the phrase ‘or seasonal basis’, and to insert a requirement that an owner must reside in their property for at least six months annually.
So, beginning January 1, 2019, an owner that resides in their property for less than six months in any given year will be required to pay real property taxes annually at the rate of 0.75 per cent on that part of the market value which does not exceed $500,000, and 2 per cent on that part of the market value which exceeds $500,000. Also, the maximum annual tax of $50,000, which applies to owner-occupied property, will not apply in such instances, meaning, there’s NO CAP!
Will the government revisit this decision? BREA certainly hopes so. We’ll wait and see how this all plays out.
Finally, according to local media reports, the government of the Bahamas may look to revisit the Value Added Tax (VAT) ‘exempt’ treatment of real estate.
The Bahamas Government had previously announced that it was implementing: “A wholesale change in the taxation policy for real estate that exempts Real Estate from VAT, replacing the tax on same with a simpler stamp tax formula: a rate of 2.5 per cent stamp tax on transaction values up to $100,000 and a rate of 10 per cent above $100,000.”
Developers currently ‘net off’ the VAT they pay on construction materials, and the likes of contractor, engineer and architect bills, against the ‘output’ tax whenever a property is sold. Well, it appears that major developers in The Bahamas are concerned that VAT ‘exempt’, means they can no longer recover the tax paid on their ‘input’ costs.
What does it all mean?
Well basically, increased development costs which undoubtedly be passed on to buyers.
Like we’ve said, there’s a lot of noise in the market right now and it remains to be seen what the government’s response will be to industry concerns.