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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.
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.
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
Why does a home or lot not sell? In almost all cases it was not priced right. If a home is priced properly and attractively it will always find a buyer if the marketing is handled properly. However if the price is not appropriate no amount of marketing and splash will make a difference to getting it sold. Despite the existence of the phrase “Selling ice to the Eskimos” the reality is much, much different. The Eskimos would buy the ice if it were priced right. i.e. it is more sensible to buy it rather than spend the time to go and get it.
This goes for real estate too. To sell a house it must be attractively priced to make it a good opportunity. There is not point hoping and praying for a Lottery winner to come along and want to pay you twice the value of your home. You don’t help yourself or your real estate agent by having this ‘pie in the sky’ attitude. Most folks with money to spend are not silly with it. In fact, most of the high end clients I’ve dealt with were much more conscious of the value of a dollar than the low end client’s I have worked with. The demand more value for money and more ‘value added content’.
In Bahamas Real Estate I see many, many sellers who are very unrealistic in their expectations. I recently heard a truism – “You don’t sell real estate unless you have to.” And if you have to sell, be realistic, put on your buyers shoes and take a walk around your home or lot. What would you do if you were buying? It is hard to put aside prejudices and truly be empathetic but it is a worthwhile exercise.
Similarly – don’t try to by real estate that the seller doesn’t want to sell. Unless you are truly prepared to pay a heavy premium over market value. I’ve had a client recently who didn’t want to buy anything that was for sale, he wanted to buy homes that the seller wasn’t interested in selling and then was offended when the unwilling seller stated their price…
In any event, what does it look like in the real estate market in the Bahamas?
Over the past few years, the Bahamas MLS has provided the ability to get a real picture of the market that we didn’t have before. There is now a window into the workings and functioning of market here and what it is revealing is telling.
For instance, over the past years it is quite astounding how many properties simply never sell at all. This is shown by the number of expired listings which essentially are Unsold or Market Rejected. Basically overpriced and no one was willing to consider it. The history of expired listings on the MLS is below:
2013 – 668 expired listings (skewed because many are still active this year)
2012 – 1,017 expired
2011 – 1,038 expired
2010 – 1,063 expired
And as of right now there are currently 2,013 properties for sale being actively marketed around the Bahamas.
Below is a recent letter I wrote to a prospective buyer client of mine who asked for any advice I had to give on buying real estate for the first time. As I was writing it, I thought it might be useful to others as well and thought I’d share it on the world wide web!
It has some good information for those looking to start out with a small entry level investment in real estate. I should add, that when choosing a lawyer, get recommendations from friends, family, and colleagues, ask around, do some homework on them. Not all lawyers are good at what they do, and you will want to find one with experience, larger companies have more resources to help you, and make sure you feel good about the relationship of working with them. A good Real estate agent can give you a couple of good referrals too as we work with attorneys everyday…
Above: a beautiful beachfront Lot for sale in Central Abaco at a great price of $180,000
Here is my letter that you are welcome to read:
Hi Laura (name changed),
Sorry about the delay, its been busy the last couple of weeks. Feel free to call or email me anytime,
In purchasing your first real estate investment, do not plan to sell it in less than 5 years. Ideally make it a 10 year investment. The ideal plan is to pay it off as soon as possible, and then you can use it as security for future loans to buy more real estate (ie a house). So you’d pay it off, then you can borrow against it. The banks like that and it sets you up as a good client for credit.
Get the interest rate as low as possible, 7% would be ideal being a first time borrower. People with history can get as low as 6% but they will probably want to offer you an 8% loan to start with. Shop around for the best rate. Get a 15 year mortgage but pay and extra $100 or more into it every month and you’ll pay it off in 8 years or less. When paying more than the standard payment, make sure you specify that the payment is for principal and not interest.
When looking for a property to invest in, look for one that is priced lower than other properties in the neighborhood. Make sure it is elevated and not subject to flooding. Water views are worth money but cost more. Also you’ll want electricity connections at the lot, ideally you want a home to be near it or less than 500 feet away, that will ensure its re-sell-ability in the future and help maintain value. And I wouldn’t invest in something that is too far away from amenities. You can get good prices for more remote areas, but they won’t appreciate in value as quickly.
These properties are higher price than the ones you inquired about but they will likely increase in value more quickly than Bahama Palm Shores. The reason behind that is they are right in Marsh Harbour and closer to jobs, shopping, dining, amenities, airport etc. I would consider spending the extra $10,000 and buy one of these…
http://www.hgchristie.com/property-details/abaco/vacant-land/19128/vision-heights-lot-1/
http://www.hgchristie.com/property-details/abaco/vacant-land/17385/lot10-vision-heights/
http://www.hgchristie.com/property-details/abaco/vacant-land/17384/lot-2-vision-heights/
http://www.hgchristie.com/property-details/abaco/vacant-land/17386/lot-11-vision-heights/
But if you are trying to keep your initial investment as affordable as possible, then Bahama Palm has a great beach and is a nice area which will grow slowly and increase in value slowly over time.
This is one of the best options for a lot in Bahama Palm Shores, in my opinion, crown (government) land on the rear boundary, so no neighbors building right up to your back door and ruining your view of the Abaco Parrots and forest vistas. You could also cut a private path to the beach…
Closing costs – keep in mind that you will pay half the stamp tax (you half will be 3% of the price) on top of the purchase price, you will also need to pay some legal fees, most law firms have a minimum fee of $900. So if you bought a Vision Heights lot for $30,000, be aware that you will have to pay another $900 in stamp tax, and $900 in legal fees on top. So the total cost will be $31,800.
If you are getting a mortgage to buy the property, there will be another 1% stamp tax on the mortgage document, if you borrow $27,000 (meaning you have $3,000 to put down as a deposit plus the $1,800 above in cash) there will be $270 in tax for the mortgage document and then another $400 or so for the lawyer to prepare the mortgage document and have that registered and work with the bank on the documents. Lastly, the bank is going to have approximately $260 in fees.
So if you purchase price is $30,000, you will be able to borrow $27,000 from the bank and then be prepared to have $5,730 in cash to close the deal.
I hope all of this is helpful. Let me know if you have any more questions or want to take some time to view the properties.
All the best,
Dwayne.
Dwayne Wallas
Appraiser/Estate Agent
HG Christie Ltd.
Marsh Harbour, Abaco, Bahamas
T: 242 367 5454
F: 242 367 5452
**Side note, I recently arranged an aerial photo shoot of a new listing with a company that uses an RC drone to get the images. They obtained some fantastic shots of a new listing here in Marsh Harbour – check it out, European Luxury and Tropical Caribbean Flair. http://www.hgchristie.com/details/abaco/marsh-harbour/house-as12275.
Nice Job and shout out to Sky High Media.
How similar is the Bahamas Real Estate Market to the US Real Estate Market? Well for starters, 2 years back I had read from the National Association of Realtors, that the most common house colour of homes that sold was yellow so I decided to find out if that held true in the Bahamas. And guess what, it is the number one colour of homes sold in the Bahamas, by a very large margin. Go figure. The number 2 house colour was blue, which is my personal favourite choice for a home.
Then more recently, I had read that the biggest time to sell a home was Spring and Summer. According to Realtor.com, “Selling in the spring and moving in the summer is a perfect arrangement for families. Families like to move during the summer to prepare for the new school year. The weather is warm and accommodating for moving and relocating. Springtime, with its blooming flowers and pleasant temperatures, is an ideal time to present your home to the real estate market. Real estate agents boast that over 50 percent of homes are sold during the summer.”
So, does this trend extend to our little real estate market as well?
Thanks to having a proper Multiple Listing Service here in the Bahamas, I am able to tease out some real data on our market place. Prior to 2008, there was no data sharing, no listing sharing among real estate brokers in the Bahamas. Trying to figure out the dynamics of the real estate market in the Bahamas either came from straight up guess work, or from decades of experience in the business. Most decisions and value assumptions were performed inside a small bubble based upon the experience and results of one’s small sphere of business. Now, the Bahamas Real Estate Association has full embraced the 21st century and on the cutting edge of real estate. Most recently gaining a datafeed portal to the Realtor.com website. Now prospective buyers can go to the number one real estate portal in the US and search for real estate in the Bahamas. This was a massive step forward for the industry in our ‘backward little country’ (I say that having intimate knowledge of my home, and how we function, and some chagrin at how some things get handled here in my beloved Bahamas). The Bahamas MLS is the number one tool for selling real estate in the western world, and has already become the main tool for buyers and sellers of land and homes in the Bahamas in just under 5 years of existence.
Now to the point, I analyzed the number of real estate sales that were placed under contract during each month as recorded on the Bahamas MLS over the past 5 years to date, and what I found, interestingly supports the trends in the USA. Perhaps our love affair with our great neighbor to the north has an influence, or maybe it is just fundamentally a byproduct of our school year, fiscal year and indeed April is one of the most beautiful months of the year in the Bahamas. The seas warm up, the air temperature is not stifling hot yet, the Poinciana trees start to bloom in May. We have a few showers to bring out the green in the landscape. The busiest real estate months in the Bahamas are April & May, closely followed by March and September.
More generally speaking, the Bahamas real estate market is doing ok. Nassau is definitely seeing a return to a strong and stable market and economy, which I believe is largely a result of geography, being a densely populated metropolis with a large number of visiting tourist and most especially being propped up by the large scale development projects of Bahamar and Albany. And to a lesser extent the Balmoral project is turning a long at a good clip. On the flip side, the other islands of the Bahamas have had a struggling year. Abaco’s struggling market I know about first hand, while my colleagues in Eleuthera and Exuma and Grand Bahama are seeing a similarly flat market. It is a shame because the lesser developed parts of the Bahamas rely on the real estate component of their economy very substantially, and when real estate drops off it hurts every other sector of the micro economy. Real estate on our family islands drives the incomes of at least half of the economies of the small settlements scattered around outside of the big city Nassau. We don’t have large resorts to bring in mass tourism. When real estate sales activity dries up in Abaco, air travel drops, the restaurants suffer, hardware stores and grocery stores struggle with turnover, it impacts taxi drivers, ferry drivers, boat and car rentals, folks who caretake homes and handle vacation rentals. Even the lady that cuts my hair says she sees her bottom line affected when the real estate market in Abaco drops off.
I would propose that the pending implementation of VAT (purported to be 15% of all sales in the Bahamas) is having a strong negative effect on the real estate market in the Bahamas and all other parts of the economy. No one likes to see taxes raised, and when there is an uncertainty, any element of the unknown in the future financial realm it directly affects people’s confidence. When the confidence is impacted, then prospective buyers or investors, hold off on making large decisions, ie buying or selling real estate.
For instance, I don’t know how this VAT will affect the economy, my life, my financial bottom line. I don’t know what the fall out will be and how long it will take to smooth the hiccups. As a result, I’m not going to take any unnecessary risks. Similarly the level of tax burden has gone up significantly in the Bahamas over the past year, and everyday Bahamians see it and feel it. So when taxes go up, spending and borrowing drop almost immediately. So when someone asks me about ‘How’s the real estate market these days?’ – I tell them it is pretty rough, everyone is in a holding pattern to see what the present government will be doing. It is difficult to try to plan a new project of business venture when you don’t know what your cost of goods is going to be in 3 months, 6 months, a year from now.
So, I hope that things will settle down, I hope we will see a steadier, more predictable business environment to work within soon. I for one would like to see less rocking of the boat.
For those interested here are the recent remarks by the Deputy Prime Minister at the recent Abaco Business Outlook seminar, where he paints a positive picture, but apart from Baker’s Bay and some agriculture he is hard pressed to make any positive remarks about the economy of Abaco directly:
Just a little bit of interesting information to do with home buying – directed at Bahamian residents not foreign second home owners.
About conch conservation in the Bahamas. Enjoy!
This week I am going to promote a project of 2 very good friends of mine. They are providing a wonderful service with no direct personal gain to themselves. Producing educational and informative videos and sharing them on the web for everyone’s enjoyment and edification.
Their most recent video is about the disappearing stocks of conch on the seabeds of the Bahamas. Please take a moment to check it out. It is entertaining and informative. I can personally attest to the depleted conch stocks in the waters. As a kid it was much much easier to go out and dive up a few conch than it is now. Fishermen was go further and wider to find enough to fill the hold an make a profit.
A recent ‘letter to the editor’ of the Nassau Tribune discusses fisheries in this country and the issues facing commercial fishermen. He makes a very good point that there is no point trying to push conservation and education to Bahamian fishermen, when we allow illegal commercial fishermen from the Dominican Republic to sneak into our borders and essentially rape and pillage one of the countries few natural resources. Take a read of his rebuke of the Bahamas Government and fishing at this url:
http://www.tribune242.com/news/2013/apr/21/fishing-in-the-bahamas/?opinion
Also, take a look around at the conchsaladtv.com website and the other entertaining videos they have done. One of my favourites is the one on lighthouses.
Happy Earth Day, and lets hope we are all still here next year and don’t get taken out by a massive asteroid! :0
Easter Weekend in the Bahamas is a 4 day holiday, with Friday and Monday both public holidays. It is a long standing tradition of the less faithful to take advantage of the spring weather and the extra long weekend to travel afar in a boat to the Exumas, or hop on a plane and skip to another island. or go back home to the roots. Or go shopping.
It is always a rather busy couple of days for me. For instance this year, friends from ‘off-island’ were staying on Guana Cay who wanted us to spend time with them, family members were staying on Man O War Cay and wanted us to spend time with them, and there were other happenings going through the weekend too. What we did was have lunch at Grabbers on Friday with the Nassau crew. I had a very nice pizza by the pool looking out across the beach, the paddlers and the moored vessels. Saturday we went to Pete’s Pub in Little Harbour for the Pig Roast with family. Then on Sunday we went to the Hope Town Eastern Egg hunt for the children: Clara loved it. Hundreds of kids swarming the hillside searching out the hidden eggs and chocolates. 
This was followed up by lunch at Firefly Resort on Elbow Cay. The food is spectacular and possibly some of the best eating you can find in the Bahamas. www.fireflysunsetresort.com They have just expanded the dining area so you don’t have to worry about inclement weather.
And of course, being a in real estate I had to work all of the Monday holiday. But it was a gorgeous day in Abaco.
On top of all that, a good friend of mine was recently hired to assist with a reality survival TV show shoot here in Abaco a few weeks ago. The show Man Woman Wild was shooting in Abaco. They were shooting the marls and creeks areas of the Bahamas instead of the typical deserted beach island scene. In many ways the creeks and mangrove marshes are much more interesting and alive than the idyllic deserted beach islands are. As a visual – a beach is kind of like a desert, there really isn’t much sealife around. But when you get in the creeks, it is like the equatorial rain forest and you will find turtles, baby sharks, all sorts of fish and lobsters, crabs and a variety of plant life. When you get bored of lying on a beach sipping frozen drinks out of coconuts, you should find the energy to go and explore some of the oceans baby nurseries. There are several eco-kayak tours and guiding companies that can arrange for a trip, or just buy your own kayak and got check it out on your own. For instance http://www.abacoeco.com/ is one option to check out.
Enjoy, and make a point to visit this time of year, it is still cool in the evenings, but warming up steadily in the days. Right now is one of the best times of the year in the Bahamas.
And if the idea of kayaking the creeks and exploring nature that way interests you – you might like this home in Casuarina Point on the canal creek. right outside the back door you could hop in a kayak and paddle on up into Yellowood Creek and fly fish. it is a 4 bedroom home on a half acre lot and a steal of a price. Click the picture for more details:
