New listing above, Casa Bella, Treasure Cay is a dream beach home.

Lately there has been nonstop discussion among Bahamians and foreign owners of homes in the Bahamas about the impending doom of the implantation of Value Added Tax (VAT) in the Bahamas.  The current government stance is a roll out in July of this year 2014.  In all likelihood given the track record (using the Marsh Harbour airport as an example) the introduction will happen in 2016 or 2017.  But, by all account it is coming, just a matter of when.

The typical discussions surround the cost of food or medicines, which are very important items to consider of course, we can’t live without them.  We also cannot live without somewhere to live in.

Currently the rough average cost to build a home in the Bahamas hovers around $150 Per Square Foot or living space.  Porches, patios, garages generally cost anywhere between $30 to $90 per square foot.  This rough numbers are estimates for a very simple home, 4 walls, 3 bedrooms 2 bathrooms, tile floors nothing fancy.  Take my advice if you ask a Bahamian contractor to incorporate a bay window or some new roofing material he hasn’t seen before, you can double the cost to build instantly.  In most cases, going with a design outside of the simple box will cost you plenty to build here. 

There is a looking question that no one is really discussing yet – that is “How with VAT affect home values in the Bahamas?” and “How will VAT affect the cost of construction in the Bahamas?”

Well, if we look at an example of a typical 3bed/2 bath, 1,600 sq.ft. nice but simple home built in the Bahamas for $150 per square foot, with a  total cost of $240,000.  That should include all permitting and plans, but typically won’t cover utility connections or landscaping.  We are talking nothing fancy, all off the shelf average fixtures and appliances, no marble, no granite, no travertine, no fancy glass showers or claw foot tubs.  Getting off topic here.

So let’s start with a cost to build a home in the Bahamas at $240,000.

Currently, we pay import duties on all goods imported into the country so the cost of materials is generally quite high in comparison to the United States.  Volumes are low in comparison and shipping costs are high.  At the moment, in my estimation approximately 60% of the $240,000 cost to build is paying for materials. 

So $140,000 in materials, and $100,000 in labour to build a $240,000 home.  (These numbers are for example only, not exact)

According to the government communications, the cost of goods in the country will rise only 5%, however the private sector is saying the end result will be more like 12.5% post VAT.  Using the private sector estimate the cost of materials to build our home will rise to $156,800.  Not the end of the world just yet.

Under the current tax structure of the Bahamas, there is no tax payable on the services provided by electricians, plumbers, tile layers, carpenters, contractors, architects, surveyors, Quantity surveyors, masons, etc.  This is a very big elephant that is discussed but no one has grasped the implications yet.

The moment VAT is implemented, the cost of the services and labour to build a home is going to rise 15% over night.  A large new tax where there was not tax before.   What is the net result?

The $100,000 labour and services component of building a new home in the Bahamas just went up 15% to $115,000.  This is a simplification as VAT has a tax on tax effect compounding the cost to end consumers which ultimately means these estimations are very much on the conservative side.  The reality remains to be seen.

Now our $240,000 home will cost you $271,800.  Additional $21,000 Post VAT.  Do you think the construction will sector will weather this change in the economy well?

I would advise anyone who had plans to build a home, in the near future, you do it now, and hope to finish before VAT is implemented.  I also expect that the market for existing homes will strengthen while the market for vacant land which is already weak will become even softer. 

The cost to buy a home will rise somewhat also – VAT will be collected on the services of lawyers and realtors and home inspectors and appraisers.  Closing costs are expected to rise about a percentage point post VAT in my estimation.

Family Island Development Encouragement Act Ending

It looks like the development and construction incentive for the lesser developed island is ended and may not be renewed.  This serves to put home building back on equal footing for all the islands of the Bahamas.  over the past couple of years it has cost about 30% less to build on the southern islands than the islands of Abaco, Eleuthera, Grand Bahama and Bimini.