Realtor: Millions lost following tax hike
The collection of real property and conveyance stamp taxes for the first quarter of the government’s 2010/11 fiscal year are down 10.2 percent and 33.1 percent respectively year-on-year, but the rates have increased and one realtor is claiming that over$30 million in sales have been lost as a result.
According to The Central Bank of The Bahamas’statistics for the first quarter ended September 2010,$10.4 million in property taxes were collected, down from$11.6 million in the previous first quarter. Stamp tax on conveyances was down to$13.3 million, from$19.8 million the previous first quarter,Guardian Businesscan reveal. Realtor Mario Carey said the increases in the tax rates have had an impact on sales in the high end of the market.
“The minute that[the real property tax increase]went into effect, I know I lost three sales north of$10 million right off the bat,”said Carey, president and CEO of Mario Carey Realty.”People were afraid that if they(government)implemented(the tax increase)and could change it like that, then what’s going to happen in the future?This is an annual expense and they(potential buyers) don’t know what would stop the government from upping it again.”
The former property tax had a ceiling of$35,000, according to Carey, who toldGuardian Businessthat it was a very”doable”amount, and the calculation formula for potential buyers was simple.
The current property tax rate for owner-occupied property allows for the first$250,000 of market value to be
tax exempt, with the next$250,000 assessed at 0.75 percent, any portion of the value between$500,000 to$5,000,000 assessed at 1 percent, and any portion of the market value in excess of$5,000,000 taxed at 0.25 percent. Stamp tax on property conveyances was essentially increased by 2 percent across the various category breaks, with a 12-percent tax applied when the consideration for the transaction is above$250,000. This tax is typically split between buyer and seller.
A$10,000,000 house, for example, would incur stamp duty of$1.2 million before the buyer-seller split, and the annual property tax would be$59,375, according to the schedule above.
“What we are noticing is that with the increase in the stamp duty to 12 percent, pooled with the real property tax restructure, it is a two-edged sword whereby sellers cannot sell because buyers aren’t willing to incur the costs,”Carey said. He added that second home buyers looking for a vacation home face added initial costs, increased annual property taxes and more difficulty securing financing, particularly those buyers coming out of the U.S. market. He added that these factors are combining to create huge downward pressure on real estate values.
“We are seeing prices now in some instances going back to what they might have paid for it in 2005,”Carey said.”If they bought in 2007/2008, some of them are taking a 30 percent loss in what they paid. It’s kind of a vicious cycle.”
Another realtor is reporting a very different experience in the luxury end of the real estate market, however. George Damianos, president and managing director of Damianos Sotheby’s International Realty, toldGuardian Businessyesterday that the increase in taxes is a non-event with”no impact at all on the high end market,”and that no clients had backed out of any sales because of it.
“People expect to pay real property tax. Our real property tax is in line with the rest of the world, so to speak,”Damianos said. He added that the property tax increase was not material to the type of client pursuing high ticket luxury second or vacation homes in The Bahamas. In the case of the conveyance stamp tax, the increase of 12 percent for such high-value homes is split, so it translated into an increase from 5 percent to 6 percent.
“Obviously people would like not to pay anything in stamp duty, there’s no secret about that. But people are still trading properties and it’s just a fact of life,”Damianos said.
“We don’t blow it up to be anything out of the ordinary. The sales tax in the United States is something like 22 percent. Yes it would be nice if it was 2 percent or 4 percent, but I think the government can’t manage on that.”