The 2018-2019 Government real estate tax policy changes have been a hot-button issue over the last couple of months with increased alarm raised among the real estate sector over the impact these changes could have on second-home and investment property sales.
Today, the industry is feeling cautiously optimistic that one such policy change has been reversed; a change which Christine Wallace-Whitfield, President of the Bahamas Real Estate Association said in a statement, “may have just saved hundreds of millions of dollars in real estate value and helped to preserve trust in The Bahamas.”
That key concern was the government’s decision to change the definition of ‘owner-occupied’ property in the Real Property Tax Act as well as the removal of the $50,000 annual cap for owner’s who reside in their property for less than 6 months of the year. This change would have placed a financial burden on second homeowners which could have had lasting and damaging impacts on the real estate industry in the Bahamas.
Fortunately, after pressure from the industry and the Bahamas Real Estate Association (BREA), the government has announced a reversal of the change in the definition of ‘owner-occupied,’ thereby reinstating the $50,000 real property tax cap.
No change to tax on undeveloped property and VAT on vacation rentals.
It is important to note, the reversal of the tax policy change applies to developed property only. The increased tax on undeveloped property and the imposition of VAT on vacation home rentals will remain. Today, agents are wondering if this could this lead to a market flooded with vacant land for sale as foreign owners pull out of the country.
And what about real estate sales tax?
Another industry concern with the tax act changes has yet to be addressed by the government: the policy change to real estate tax on conveyance by exempting it from VAT, and replacing the tax with a new “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 who could previously “net off” duty paid out on construction materials and services would no longer have that opportunity, leading to the obvious: a likely increase in the overall cost to the buyer. BREA and industry professionals are continuing to lobby the government to rethink this decision as well.
In the meantime, the industry is breathing a sigh of relief that the economically important luxury home market in the Bahamas may have just been saved.
Below is the full statement from the office of the Deputy Prime Minister followed by the full statement of response from the president of The Bahamas Real Estate Association (BREA).
The Ministry of Finance is aware that clarity in the market is being sought with respect to Property Taxes as it relates in particular to the impact on the second home market. The government accordingly wishes to advise the public of the following:
In the recent budget exercise, the Government sought to increase taxes on foreign-owned undeveloped land in the Bahamas, in an effort to discourage land speculation and to encourage development of any such property. It also took steps to improve the tax yield from homes used for commercial purposes by recasting the definition of “owner-occupied” properties and by imposing VAT on vacation home rentals.
After consultation with a range of stakeholders from a number of islands and across a number of industries which depend upon the second home market for their viability, the government has determined that it intends to revert to the previous definition of owner-occupied properties that was in effect up until June of this year. The government will give effect to this by amendment to the legislation once Parliament resumes following the summer break.
Note that both the increased tax on undeveloped property and the imposition of VAT on vacation home rentals will remain.
By virtue of this, the same category of persons who qualified for the “owner occupied” property designation prior to the recent changes will continue to be qualified as same. They will be eligible for the $50,000 cap on real property tax payments – the cap on such payments that was reinstated by the previous administration in 2013.
The government continues to encourage the development of the second home market, being fully cognizant of its contribution to a number of Bahamian communities, especially in the Family Islands. The government also expects those persons who use their properties to generate commercial rental income to be subject to VAT and contribute to the public purse as do commercial operators in other segments of the hospitality industry.
Christine Wallace-Whitfield, President of the Bahamas Real Estate Association has released this statement in response:
“The 700-member Bahamas Real Estate Association welcomes Government’s decision to revert to the pre-Budget definition of owner-occupied residential property, eliminating the onerous requirement that owners spend six months of the year in residence,” said BREA President Christine Wallace-Whitfield.
“The luxury market is very important to the overall economy of The Bahamas. Whether a family is in residence or not, the ownership of that property generates constant income in terms of jobs, maintenance contracts, all sorts of related expenses. The high net worth individual has a lot of choices, including other parts of the Caribbean and Florida where property tax is quite reasonable and foreigners are welcome with an E-5 Visa that entitles them to residency without intolerable demands.
We understand that Government did not fully appreciate the backlash that the decision to tie six-month residency to a cap on real estate would have but in light of the fear of a mass sell-out and departure, they had the courage to reverse a decision. That is never easy for any official to do, elected or otherwise,and so we wanted to express deep appreciation for their willingness to listen to BREA and others.
That one move may have just saved hundreds of millions of dollars in real estate value and helped to preserve trust in The Bahamas.”