Top Producer Monica Knowles Takes Hard Look at Real Estate Tax Changes on Market Impact
A top producer at Bahamas Realty who less than two years ago saw what she called “an exciting and encouraging renewed confidence in the Bahamian housing market” is now sharing mixed feelings about the changes announced in the 2018-2019 budget that she fears will dampen interest at the high-end level and could have lasting impact on the luxury market.
Monica Knowles, Bahamas Realty’s top producer in 2016, said today she is holding her breath, anticipating the relief that the Bahamas Real Estate Association (BREA) has been seeking.
“The budget impacts the housing market in three ways,” she explained. “First, there is the increase in Value Added Tax (VAT) from 7.5% to 12% on legal fees and real estate commissions so that alone drives closing costs, which were already high, even higher. In the end, so long as contracts that are currently pending a closing are honoured at the rate initially signed for, the 7.5%, I think long-term the dust will settle and while it will cost a bit more to purchase, and it may slow down the market a little bit, those who desire to own will find a way to do so and we may all have to be more patient as we hold hands with clients getting them through the process.”
While increased VAT on fees may slow the market initially, Knowles said she is far more concerned about the other two elements of the budget that impact real estate – redefining owner-occupied to mean six months in residence and elimination of a $50,000 cap on real property tax for those spending less than six months of the year in residence in The Bahamas.
“I understand the government’s desire to find additional sources of revenue. It may seem easy to sit back and think, ‘The rich have money, let them pay’ but the backlash was instant. The high net worth individual feels as though he is being targeted and they believe that the sudden and sometimes startling hikes and the demand for them to spend half the year here or face the consequences is unjust, unfair and untenable. I am just hoping there will not be a flood of luxury homes on the market as high net worth individuals decide the cost of a second or third home in The Bahamas is too high.”
The economic recession of 2008, which saw the closure of several real estate agencies was a teachable moment, she said. Government, subsequently lowered stamp tax from 12% to 10% and introduced the annual property tax cap, which provided a huge relief to the sector.
According to the new budget, real property tax on non-owner-occupied residences, meaning those lived in for six months or less, increases from 1% with a cap of $50,000 to 2% with no cap.
“Let’s say that someone owns a home that is valued at $10 million and he and the family are here for less than three months over a few holiday periods so last year they paid $50,000 in real property tax. This year, that same homeowner would face a tax bill of nearly $200,000,” said Knowles. “People with that kind of money do not want to be taken advantage of and that is how some of my clients are feeling.”
She cautioned The Bahamas to remain aware of the long-term impact the amendments could have upon the sector. Caribbean neighbors in Turks and Caicos and the Cayman Islands offer incentives such as no property taxes whatsoever, said Knowles. “We want and need to remain competitive in the buyers’ eyes.”
“The Bahamas is my home,” says the agent known as a go-getter who has gone so far as to host a major gala event to show an 11,000 square foot home. “I want the country to reduce the debt level, I understand that need, but the path to success lies in encouraging economic growth, not discouraging those who contribute to the economy and demand so little in services from the government. These people can get up and move tomorrow and I just hope that is not the unintended consequence from a decision that was intended to produce the right results.”