“Productive” discussions between the Government and real estate-related professions over the ‘first-time buyer’ Stamp Duty exemption should stimulate “a far stronger and more active market”, Tribune Business was told yesterday.
Adrian White, head of the Bahamas Bar Association’s real estate committee, said talks involving the Bar, Ministry of Finance and the Bahamas Real Estate Association (BREA) had focused on removing the “difficulties” some first-time buyers, and their advisers, had experienced in both accessing the exemption and appealing its refusal.
Telling this newspaper that resolving the issue was “key to the consistency” of real estate sales and providing “comfort” to all involved, buyers, lenders, realtors and attorneys, Mr White said both BREA and the Bar were working to provide suggestions for how the exemption process could be improved.
Tribune Business revealed last year how first-time buyer applications were being rejected by the Treasury, which was adding the value of any mortgage financing to the purchase, or conveyancing prices.
In many instances, this was pushing first-time buyers above the $500,000 Stamp Duty threshold above which they would not qualify for the exemption, and Mr White told Tribune Business that other issues were also discussed with the Government.
These included whether first-time buyer applications could seek the exemption on 100 per cent of the Stamp Duty due on the sale, rather than just 50 per cent, and that banks were requiring mortgage clients to set money aside to pay the tax due to uncertainty over whether they would get the exemption.
Assessing the importance of resolving these problems, Mr White told this newspaper: “I think it’s key to the consistency of sales, and the comfort of both lending institutions, first-time buyers and realtors, as well as attorneys, to know what is acceptable, what will be approved, what will not be approved, and to ensure these policies are consistent with what is contained in the Stamp Act.”
The talks between the Government and private sector were aiming to develop a solution “in everyone’s interest”.
Mr White said the plan was to ensure “there is clarity and a fully-functioning system that is more productive, which enables a far stronger and more active lending market, and a far stronger and more active real estate industry. We’re on our way”.
Confirming that the Bar and BREA had met with Michael Halkitis, the minister of state for finance, and Ehurd Cunningham, the financial secretary, to discuss the issue, Mr White described the discussions as “productive”.
“Our discussions were on the difficulties that have been experienced by first-time buyers expecting to access the exemption, and practitioners advising on their behalf in dealing with the applications,” Mr White told Tribune Business.
“We focused on areas where first-time buyers and practitioners are having difficulty with the initial application, and then appealing [any rejection].
“Everyone is understanding of the situation, and everyone has given a positive response and suggestions as to what needs to be done going forward.”
Mr White said these difficulties included episodes where “the mortgage is being combined with the conveyance amount, and pushing them out of the $500,000 bracket”.
“Another was the question of whether a first-time buyer can obtain the full exemption on the full amount, as opposed to half the exemption,” the Bar real estate committee head added.
Real estate sales agreements in the Bahamas usually split the Stamp Duty payment 50:50 between buyer and seller. While the Treasury had accepted the exemption on the buyer’s portion, it had been rejecting those that included the seller’s share on the grounds that the exemption was never intended to forego 100 per cent of the Stamp Duty due.
But, following the meeting with the Ministry of Finance, Mr White said: “That was something we were advised would be allowed as long as the sales agreement said the purchaser would be responsible for paying the full amount.”
Banks and lending institutions, though, were also experiencing problems where first-time buyer transactions were being held up by delays related to whether the Stamp Duty exemption would be approved, and subsequent appeals of rejections.
“Banks assume that the security for the funds advanced is going to be protected by recording of the mortgage as quickly as possible,” Mr White explained.
“In some cases, there are mortgages subject to Stamp Duty exemptions where appeals are pending for two-three months, and the bank’s concern is that the security is not recorded, and therefore their position of priority is not on record.”
He added: “If the buyers are refused the exemption entirely, or a part of the exemption, whatever amount they contemplated getting approval for, they have to come up with those funds.
“If those funds are not available, it becomes a credit quality issue for the bank; does it advance more money. And buyers, who may already be strained, have to find funds from elsewhere to pay the Stamp Duty they previously thought was exempt.”
Mr White told Tribune Business he was “very encouraged” by the response of Messrs Halkitis and Cunningham, and added: “There’s work to be done on our part to make proposals and assist wherever we can.”
He added that both the Bar Association and BREA planned “to make some suggestions that will be of assistance any time amendments are contemplated to the Stamp Act, as well as the anticipated renewal of the current exemption”.
The first-time buyer Stamp Duty exemption is set to expire on June 30, 2013, but it is thought likely the Government will renew it, not only to stimulate real estate sales but make home ownership more affordable for lower and middle income Bahamians.
“This year hopefully will see positive change to the Stamp Act that not only continues the exemption offered to first-time buyers, but brings certainty to the country’s revenue agency going forward,” Mr White added.
Mr Halkitis forwarded Tribune Business’s inquiries to Mr Cunningham, who did not return this newspaper’s calls on Tuesday and was said to be out of office until Monday yesterday.