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I must apologize to my readers, I have been too busy over the past 6 months to sit down and write as often as I should. Since January, I have only had time to write once. I shouldn’t really be taking the time now to write this but I have put it off for too long. There have been some significant changes in the real estate market in the Bahamas lately.
The Iconic Abaco Estate, Man O War Cay.
If you talk to seasoned real estate brokers in the Bahamas how have been in the profession for 20 years or more, they will tell you that historically in the US election year the market in the Bahamas dips. Suggested reasons include pre-occupation of the US buyers, or uncertainty for the US economy based upon who wins the presidency, or simply that would be buyers are putting money into the campaigns of their chosen candidate. Who knows the real reason – there is only opinion and anecdotal evidence. And until 2008 there really was little empirical evidence to prove that the market was up or down. As I’ve written in this blog before, the presence of our Bahamas MLS is a great improvement and tool for the real estate business in the Bahamas. We now have 8 years of good data with the possibility to tease out some real trends based upon real numbers. It’s night and day compared to the end of the 20th century when the internet was still unfolding.
We still have little real access to data from the Government. But perhaps in the future that will change. There is a silver lining to the implementation of VAT – a brand new division of government was established to collect and keep track of Value Added Tax. It is called the Department of Inland Revenue (i know, very original right?) This division is staffed in large part by trained accountants, who will hopefully keep good records. Through the collection of VAT, there may be a beneficial result in the provision of detailed accurate data on the performance of the economy and perhaps even real estate.
The Bahamas still needs to clean up its act in terms of the ease of doing business in real estate transactions. Ask any real estate professional and they will tell you the current system is not sustainable. Excessive costs, taxes, inadequate recording, and insufficient tenure of title are a few of the downfalls in the business. Add to it he need to provide an appraisal for every real estate transaction and the speed with which a sale can occur gets slower and slower every year. It is still possible to close a sale in 2 months, but it is the exception.
Now for some hard numbers: Last year January –June 2015 saw 248 real estate transaction recorded on the Bahamas MLS, the same period this year is posting 291 sales. A 17% increase in sales activity is stellar. Equally positive is the increase from 209 transaction during the 6 month period of 2014, showing a year over year increase of 19%. (Side note: There are 25 properties still pending from 2013 on the MLS)
The table shows a strong growth in sales volume in the Bahamas. I expect this trend to continue steadily. Given this is a US election year which is supposed to be a slow period for sales in the Bahamas and given the data shows a strong market leading into this election, it is reasonable to assume that the real estate market in the Bahamas will see a bumper year. Dare I say bubble? Or is that too early?
If the 17% growth continues, we can expect to see 340 transactions in the first half of 2017.
One interesting point for sellers to note, is that over the past 4 years, there has been a steady 3000 listings on the Bahamas MLS. (this year is 3,010, last year was 3,008). This would tend to support the idea that there are a large number of sellers around the Bahamas who are fishing with prices which are unrealistic. And these sellers continue year in and year out just hoping the movie star or lottery winner comes along to buy their home because it is so much better than the neighbors. While at the same time there is a large segment of the market who are likely listening to their Realtor or broker and being serious about getting their home or land sold. Point is, listen to the real estate professionals, and get second and third opinions on pricing and values. Don’t list with a company or agent just because they say they can sell it for the highest price. Work with the realtor who is giving you the real picture.
There are a few really good opportunities around to take advantage of this growth in the Real Estate Market. One of them is a package of 16 beachfront condominiums in Marsh Harbour. The possible returns could be substantial with the right person at the wheel. Take a look at the details here:
PS: the construction incentive, called the Out Island Encouragement Act, was extended for another year so building materials are still import duty free until June 2017. VAT is still payable though. This is a good reason to start building that dream home now. Call or email if you have any questions about this.
Many times I am asked how the process of buying real estate in the Bahamas works. Often our foreign home buyers (who love the idea of having a tropical home in the islands) are concerned about the process and the security of the investment. I will discuss the Bahamas Investment Safety and Security at another time. Below I have outlined the rough steps and a very rough estimate of the time it takes for each one. I have to qualify all of this by saying the estimates of the length of time it takes vary widely. How quickly a sale will close in the Bahamas is dependent on many many factors, some of which are beyond the parties control. For instance I have seen a financing application take 6 months for approval. I have seen title and requisition process take as long at 6 months due to continuing questions arising from the history of the chain of title.
On the other hand, I have seen instances where the whole process moved like clockwork and the new homeowner had the keys and were enjoying a cocktail on the back porch in less than 7 weeks from the time of first offer. For things to move this quickly under the bright Bahama sun (which seems to slow everyone and everything down to the speed of warm molasses) is not a common occurrence and it is imperative to have patience when dealing with a real estate transaction in the Bahamas.
There is a major factor which can influence the speed of a real estate transaction here, and that is whether a bank is involved providing financing for the purchase and/or if a bank is releasing and existing mortgage on the property being sold. This is partly a result of the Bahamas banking environment being dominated by 3 major Canadian institutions. The final approvals of any major decisions the lending institution has to make is not made here in the Bahamas, it is made offshore somewhere.
That said, the lender won’t commit to financing a purchase until they have a copy of a formal purchase agreement in hand. We commonly insert a 21 day financing clause in purchase agreements which allows the buyer 3 weeks to formalize their loan and get a commitment letter. 3 weeks may seem like a good length of time, but I would suggest working on getting as much of the paperwork as possible into the loan rep, before making an offer. They will take 2-3 weeks just make a decision, so if they are waiting on something from you like a reference or utility bill that will hold the hole process up. I would ask 3 times for the complete list of all the documents they will need from you just to be sure that all the bases are covered. In my experience they always come back a week later and say they need one more thing, and often that happens more than once.
With the 21 day financing clause inserted into a formal “purchase and sales agreement”, if you don’t get the loan secured you can get your deposit back and everyone can walk their separate ways. The vendor is often weary of entering into an agreement which is dependent on a bank partly due to the time off the market with no guarantee of a sale and partly due to a bit of expense in hiring a lawyer to prepare a purchase agreement and work with the purchaser’s attorney on the deposit etc. Title investigations typically don’t start until after the financing commitment letter is in hand. Once the title is approved, they we move to conveyance drafting and approval and then the mortgage would be drawn down.
Time to close a cash sale (no mortgage involved) is 60-90 days. Time to close with a bank mortgage will be 90-150 days. So keep in mind you won’t be able to take possession of the home for some months while waiting on the lender to do their thing. Some people will purchase a home in cash and then leverage the cash back out with a mortgage after the purchase as it allows them to take possession of the home sooner.
- First step is to get the ball rolling with the bank and get a nod. (about a 1week)
- Second we put in the offer to purchase, negotiate and hopefully reach agreement in principle (1-2 weeks)
- Third you retain an attorney top represent you in the transaction, put up a deposit with the seller’s attorney’s ‘Escrow Account’ and the purchase agreement is executed by both parties. (1-3 weeks, this begins the real process of purchase, get appraisal, all paperwork to bank, references, etc.)
- Forth, you put in the formal application for financing, provide the bank with a copy of the executed purchase agreement and go through the motions with them. (3-5 weeks) (If Necessary, no bank financing involved, it would skip straight to the title search)
- If the buyer is getting a permit from the Foreign Investments Board, the application gets put in right away and approval of the permit can take 2 weeks up to 3 months.
- Then, once the mortgage is approved and you have a commitment letter in hand. Your attorney begins title search. (3-5 weeks)
- Once title is approved the vendors attorney drafts a conveyance, it gets approved and the vendor executes (2-3 weeks)
- Then the bank gets a copy of the conveyance and begins to draw down funds. (2-6 weeks)
- Once the funds are disbursed, the sale closes and you can take possession. (you get the keys).
So, the long and short of it – it could take as little at 6 weeks to close a purchase or it could take as long as 6 months and it all depends on the seller, the buyer, the attorney’s involved, the government for the permits and often most importantly the lender. So make sure to have the right people involved who are attentive, motivated and on the ball to see the sale happen.
I recently had a sale occur where the buyer’s attorney lost the purchase agreement after the purchaser had signed it and neglected to send it to the seller’s attorney for 3 months. So while we all thought the sale was proceeding, it hadn’t even started. Stay in touch with your lawyer and keep them moving things forward.
Lastly, having an experienced and motivated real estate broker or agent on your team can have a very positive effect on ensuring the least amount of frustration and delay. HG Christie is one company with a strong team of professional sales staff who know the ins and outs of Buying and Selling homes, land and development property around the Bahamas. Feel free to comment and tell us your story in buying or selling real estate below. I hope you enjoy this post and find it somewhat useful.
Check out this great write up on Realtor.com if you are buying, selling, re-financing, settling an estate, investing or even considering building.
Last week, the Prime Minister who is also the Minister for Finance in the Bahamas gave a budget communication which had very significant changes to the real estate landscape in the Bahamas.
The changes that have been made are a follow on from the introduction of Value Added Tax in the Bahamas. For the first 6 months of this year, 2015, VAT was not applicable to the sale of real estate itself. Any attorney fees or a broker commission or any other service related to a real estate transaction was “Watable” however the actual sale of the real estate was exempt from the tax.
Beginning July 1st though, real estate transactions will now be subject to Value Added Tax in the amount of 7.5% of the price in addition to a 2.5% flat rate Stamp Tax. Gone is the graduated scale which elicited lower tax rate at the lower price transactions.
Above: Beautiful New Listing Palmetto Beach Villa, Click and check it out.
What are the actual implications?
Real Estate sales under $100,000 are exempt from paying VAT, therefore the sale of a piece of land for $60,000 will not only attract a tax rate of 2.5%, whereas previously that same transaction would have attracted a stamp duty rate of 8%. This is an extremely positive move for the lower price range of real estate. Closing costs for land and homes under $100,000 has been dramatically reduced which will have very positive effects on the market place.
A purchase of a home for $250,000 will attract the same amount of tax now as before. Before the applicable tax was 10% Stamp Duty, NOW it is 2.5% Stamp Duty + 7.5% VAT. In essence the closing costs on a $250,000 purchase will remain the same. And this is effective at all price ranges above $100k up to the multi millions.
Of particular note, is that by converting the tax payable from Stamp Duty to VAT, the government has dramatically lowered the transaction costs for a Bahamas VAT registered business in purchasing or selling real estate. The VAT registered business can now credit their real estate purchase tax liability back. In essence for VAT registrants, the closing costs on real estate have changed to 2.5% stamp duty instead of the 10% is was previously. (+Attorney fee +Broker Fee).
There was also mention of a pending change to the Bahamas Real Property Tax Act whereby a new ‘category’ will be created for ‘Residential’. At the moment there are 2 categories for property tax in the Bahamas, ‘Owner-Occupied’ and ‘Non Owner-Occupied’. Essentially if you live in your home you see a drastically lower tax rate, and everything else including commercial, retail, industrial, residential rental properties, even a home you own but don’t rent and don’t live in could attract the higher rate of 1.5% of the value.
With the creation of a Residential tax category, all Residential properties whether lived in or rented would be within this category. This is a substantial concession for owners of duplex and triplex residences who would have had to pay a relatively hefty property tax on the rental apartments. The ‘Residential’ category will likely incur the same rate as the current ‘owner-occupied’ rate of 0.75% however the legislation has not yet been tabled or approved, but the communication indicated the change would occur prior to the October bills going out this year.
These two adjustments which may seem minor on the surface will have significant impacts on the ownership of real estate in the Bahamas. In essence improving the attractiveness and lowering the soft cost of acquiring, holding and selling real estate here.
Also of note was the elimination of import duty on bicycles, so everyone go out and buy a bike, get out and see the Bahamas on 2 wheels.
And a reduction of duty on ‘Stuffed Pasta’??? Someone has a food fetish there hey?
Lastly, another important point was the extension of the “Family Island Encouragement Act” whereby home construction and repair is permitted to bring in building materials duty free. The spirit of the legislation is to spur economic growth and create short and long term employment through the development and construction of homes. The Act is supposed to be extended to Eleuthera and Abaco which previously were excluded. I welcome feedback from someone who access the Act benefits in Abaco.
Total Bahamas MLS listings active right now: 2,145
Total Listings Sold On the Bahamas MLS in the past 6 months: 86
However, it is worth noting that I personally have been involved in 3 transactions in the last 6 months, that are not being recorded on the MLS for various reasons, either it was a ‘pocket listing’ or just recently expired etc. If one assumes that one quarter of the licensed agents in the Bahamas have been involved in one transaction that was not recorded on the MLS it bumps up the number of sales transactions up to 221. This sales volume figure is modest but indicates strong gains over the previous year. In the past month, every active broker or agent I’ve spoken to has seen a marked increase in inquiries, visits, showings and offers. This is all leading to a significantly improved real estate market for the year of 2015.
The long wait since 2007 is definitely officially over in my opinion.
Above: Beautiful Luxury Estate on Man O War Cay. Multiple dwellings, 3 beaches, large private marina. More information here:
http://www.hgchristie.com/details/abaco/man-o-war-cay/house-as12394/
Every company in the Bahamas is seeing major improvement across the board. In the local Bahamian real estate market, it seems the commercial banks are starting to make loans a bit easier to reach although the lending standards are still quite high. Typically Scotiabank is looking for the borrower to have 30% equity, however they are currently offering extremely low interest rates. RBC has in my opinion been the easiest bank to work with in terms of securing a mortgage with 10% deposit/equity and they will allow the borrower to finance closing costs which is a major help to a first time real estate buyer looking to start out. The government stamp tax of 10% (usually split between buyer and seller) is still a major financial hurdle for most buyers of real estate in the country, so being able to get financial assistance with that is a blessing. CIBC Fist Caribbean is offering 15% equity/deposit with interest rates on par with the other institutions.
In the non-resident or second home owner market there has been a large increase in interest from potential buyers and the sales activity is indicating a strong improvement. The problem I am seeing now though is that sellers who had been on the side lines waiting for the past couple of years have now seen the market improvement and chosen to put their property on the market. This has had the effect of increasing the inventory of available properties on the market which causes the market to skew in favour of the buyers. That said, I believe we are out of the woods and it is still a great time to buy.
When you have multiple people looking at making offers on one piece of real estate that definitely shows a vastly improved market for the past years. I have seen multiple offers at the same time on 5 different occasions in the past 6 months.
Happening right now a reality TV show called ‘Below Decks’ filming in Abaco right now. It is a Bravo network show similar to Big Brother set on a luxury yacht. The film crew is based out of Abaco Beach Resort and has been using the beautiful scenes of Abaco as the backdrop. Good exposure for the island, however I think it only appeals to the teenage audience so economic spill over is likely to be very limited.
I have heard mention of the possibility of the Marsh Harbour airport runway being extended so we might finally see direct flights from New York and Atlanta. Something that will make getting to the Abacos from Europe and the Northeast US much, much easier.
The Friends of the Environment Annual Reef Ball was recently held at the Abaco Inn with great success, and the Marsh Harbour edition is coming up in about a week. Great Cause, Great Food and Great Fun to be had at the Marsh Harbour Marina.
Upcoming events in Abaco – Great Abaco Family Fitness Weekend (Triathlon), Fishing Tournament season, Hope Town Music/Songwriters Festival (Happening Now).
Get out of the snow and come down for a visit.
Southworth Development LLC has joined the investors who see value in the island of Abaco. a recent announcement in local news was made recently. see the ZNS video on youtube:
In other news, the sipsip is that the buyer for Treasure Cay walked away, so nothing will be changing there. Shame, the hotel and commercial areas really need a major facelift and a nice 20-30 room boutique hotel on that beach would be a wonderful addition to the Island.
https://www.youtube.com/watch?v=Ci3GlzuYFbw
Happy Holiday, Happy Christmas, Happy Hanukah, Happy… well you know what I mean.
Heres to making a better effort to write updates move regularly in 2015.
Over the past 6 years, Great Guana Cay seems to have been hit harder by the receding recession than the other settlements and cays of Abaco. Hope Town and Elbow Cay have definitely seen a strong improvement in the housing and real estate sector. Tourism on Elbow Cay is vibrant with activity through the slow period right now. Marsh Harbour is till struggling, but was not hit too badly.
One of the reasons for Guana Cays current situation can be attributed to Baker’s Bay – I am not bashing the community, I think it is wonderfully executed Ultra Luxury destination. No the problem was rampant speculation was made by people buying property outside and unrelated to Bakers Bay, elsewhere on Guana Cay. Beachfront and interior lots were being sold at twice the prices of a few years previous. In short there was a massive bubble on the micro market of Guana Cay. The bubble was partly due to the world at the time, real estate speculation was out of control in Las Vegas, Miami, and other touristic destinations, the mentality fed the machine and the perceived influence of Baker’s Bay added to it. Well, bubble popped and Baker’s Bay is here and seeing great market acceptance but it has no effect on real estate values outside of the gates. Plain and Simple.
So where does that leave things now – Guana Cay is now ripe for a significant upward correction. In my view the pendulum swung too far down and will see a good swing back up. Point being, Guana Cay is the place to invest in right now. There are some spectacular opportunities on the cay. A few Beachfront homes that if they were located on Elbow Cay they would have sold 5 times over. On top of the expected recovery in the market in Guana Cay as a natural correction, there are some things in the wings which when they come to fruition will great enhance the cay. More visitors, more home owners and more capacity will simple enable a critical mass which I believe will bring the island out of hibernation.
Below are some of the best bang for buck homes and lots on Guana Cay. call or send me an email if you want more information on them.
Huge Waterfront Home At drastically reduced pricing, $899,000:
http://www.hgchristie.com/properties/abaco/house/12387/dolphin-beach-estates/
Beachfront Home for $599,000, unheard of. And Charming too:
http://www.hgchristie.com/properties/abaco/house/19335/shorecrest-ii/
Rainbow Parrot, Beachfront, close to Nippers, This one would rent for 25 weeks a year almost guaranteed, $495,000
http://www.hgchristie.com/properties/abaco/house/21161/guana-cay/
Charming recently renovated sea view cottage $249,000:
http://www.hgchristie.com/properties/abaco/house/AS12139/just-renovated-charming-out-island-cottage/
Beachfront Lot for $295,000, these beachfront lots traded at $600,000 in 2007. It can only go back up from here:
http://www.hgchristie.com/properties/abaco/vacant-land/20476/beach-lot-p4-guana-cay/
And lastly, a settlement home for less than $100k. Excellent rental potential.
And interior home sites can be found at prices starting at $55,000. Guana is poised for growth, take advantage of it.
HG Christie has finally launched a new website portal that allows you to view listings by area and see their exact location and pricing. It is kind of interesting and somewhat eye opening, if for instance one zooms into Marsh Harbour or Treasure Cay and views how many properties are currently for sale in a specific area. There are few little kinks to work out but overall a great tool. Check it out here:
http://hgchristiebahamasrealestate.bs
