Tuesday, February 13, 2018
By NEIL HARTNELL
Tribune Business Editor
Realtors yesterday warned that property tax valuations up to eight times' greater than market value are threatening to "kill" Exuma's growing second home economy.
They revealed that "at least 50 per cent" of foreign homeowners on the island were unhappy with their assessments and huge tax hikes, and criticised the Government for a "short-sighted" strategy that would ultimately yield less revenue if such investors were driven away.
Arguing that the Department of Inland Revenue needed to "get real", the realtors said government officials appeared to be "pulling these valuations out of their heads".
They added that there had not been a single week in 2018 where complaints over increased real property tax billings were not received, and warned that the loss of potential buyers and market activity could stall continuation of a "phenomenal" revival experienced in 2017.
Collingwood 'Woody' Turnquest, an Exuma-based broker with Coldwell Banker Lightbourn Realty, told Tribune Business: "Just this week, in the last five days, I had two incidents. One of the properties was an inland lot worth a maximum of $10,000, but real property tax assessed it at $82,000-plus.
"Another lot I'm selling, I had it listed at $30,000, and they assessed it at $137,000. That pushes it up to the 10 per cent Stamp Tax bracket, and when you put 10 per cent on $137,000, that's almost $14,000.
"When the guy who's going to sell it has to pay my commission, almost $14,000 in Stamp Tax and legal fees, to him it's almost worth nothing. He's not going to sell it. By bumping the assessed value above $100,000, the Stamp Tax rate goes from 2.5 per cent to 10 per cent, and that blows the deal straight out of the water."
Mr Turnquest argued that the Government was "being very short sighted" when it came to these inflated property tax valuations, as they would ultimately result in less economic activity and government revenues.
"If I could sell, the buyer can come and build a home, employ a lot of people - architects, contractors, realtors and attorneys - the Government will earn taxes and others will come to rent the home," he explained.
"They're being very short-sighted in the long-term. It's going to hurt the future and the realtors. Everyone who's buying right now is buying on or across from the waterfront. They're looking to build. Everyone wants to get in on the second home market and rentals.
"The Government is going to get 7.5 per cent VAT on those rentals, which is a lot of money over time. You'd rather get 7.5 per cent from vacation rental homes, and have people come and pay for food, entertainment and air fare. You're losing revenues from 10 different places by killing them with real property tax. At least 50 per cent of people are not happy with their real property tax."
Mr Turnquest's concerns are eerily similar to the recent criticisms voiced by his realtor colleagues in Abaco, who last month warned that "crazy" real property tax valuations and bills were threatening "to tear apart" that island's real estate market which is heavily reliant on second homeowners.
The complaints ultimately resulted in a meeting where Department of Inland Revenue officials pledged to address the situation, but Mr Turnquest's comments indicate that the problem of excessive and questionable real property tax billings extends far beyond Abaco and has already spread to other Family Islands where foreign homeowners are a key economic driver.
"Just about every week I get e-mails asking what's happening with real property tax," the Exuma-based realtor disclosed, "and 'can you give me contacts for the Tax Office?' This has been going on since the New Year began; ever since the second week in January.
"The other realtors on the island have been calling me, asking whether I got complaints. It's like a domino effect straight across the board. It's going to kill us. If someone has to pay that much in taxes every year, it's not worth it."
As with Abaco, the sudden, unexplained increase in real property tax valuations and associated billings has unnerved many foreign homeowners and potential buyers, causing them to question the value of Bahamas-based real estate investments and potentially undermining a key industry - especially in the Family Islands.
Mr Turnquest said he and other Exuma-based realtors had no option but to disclose the Government's inflated assessments to potential buyers, otherwise they would "get a bad reputation and everything will go sour from there" in the age of social media and the Internet.
"The buyers will ask what the assessment value is, and you have to be honest with them," he told Tribune Business. "They'll say it's too much, they're not going to buy, and you lose sales. It's also going to cause people to want to sell because they don't want to pay increased taxes, but they can't sell because there are no buyers. It's a stalemate."
Mr Turnquest's concerns were backed by fellow Exuma realtor, Judy Hurlock at Seahorse Realty, who described the situation was "pretty bad" based on her own experiences and reports received from others.
One property, which she sold for $167,000 towards the end of 2017, had a market value of $267,000. Yet the Department of Inland Revenue subsequently valued it at more than $500,000 after the deal had closed.
"That doesn't make sense," Ms Hurlock said. "If it was on the waterfront, you might have a case, but it would have to be prime waterfront." When the $500,000 valuation was queried by an attorney, government officials seemingly sought to justify it on the basis that the living area was upstairs and it had a sea view.
Ms Hurlock also recalled the case of a lot in the Bahama Sound subdivision in 2015, where the vendor ultimately reduced the price to $112,000 to ensure it sold. "The vendor's attorney, when they went to the Tax Office to ask what was due, they insisted on valuing it for $300,000," she added.
The Seahorse Realty principal said Exuma real estate prices had dropped by between 40-60 per cent since the 2008-2009 downturn, highlighting one of the problems likely influencing the huge jump in real property tax billings - that the Government has failed to align assessments with today's market value, and is still using pre-recession figures.
"There's this big discrepancy between the crazy prices of 2004-2006 and what they've come down to now," Ms Hurlock told Tribune Business. "The Tax Office needs to get real, and forcing every buyer and seller to get an appraisal done before closing to satisfy it, they shouldn't have to do that. It's just adding aggravation and stress."
Revealing that there were "bigger horror stories" than transactions she had been involved with, the Seahorse Realty principal added: "It's going to stop real estate if this goes on. People are going to be afraid to buy. It has to kill it. It's ridiculous. They're just pulling these values out of their heads.
"The lawyers and realtors are pulling their hair out, and the buyers and sellers are asking what is the point of this. If you kill the market, you're not going to get taxes. Bahamians don't pay real property tax in the Family Islands. They're [the Government] very dependent on the people they're attacking."
Warning that the increased billings could threaten Exuma's real estate revival, Ms Hurlock said: "Last year was the best year since 2008. It was fantastic. A lot of property moved, but values were falling to find buyers.
"We are gradually getting into, I think, a good market. For me I did exceptionally well. My sales volumes were up a couple hundred per cent. It was phenomenal last year, but this year has picked up as hard."
Ms Hurlock refused to blame the increased tax bills for this, and expressed optimism that 2019 would bring a recovery in Exuma's real estate prices.
Coldwell Banker's Mr Turnquest, meanwhile, called for immediate government and Bahamas Real Estate Action (BREA) to address the matter. He also urged the Government to appoint licensed, experienced appraisers to conduct valuations on each Family Island.
"In the world we're living in, once one or two people put it on Facebook or Twitter, it will get out there that the Bahamas is too expensive to live in," Mr Turnquest told Tribune Business.
"In these islands, once one person gets hit hard, everybody knows everybody and winter residents have nothing to do but gossip. Once the conversation starts about taxation it will go straight down the line, and then we're going to have problems."
K P Turnquest, Deputy Prime Minister and minister of finance, could not be reached for comment before press time last night. Tribune Business did speak briefly with Marlon Johnson, the financial secretary, who said he would call back, but no return call was received.