No buy, no sell
Realtors warn of stagnated industry
BY JULIAN RICHARDSON ASSISTANT BUSINESS CO-ORDINATOR firstname.lastname@example.org
INDUSTRY experts worry that the latest tax measures will help slow down activity in the real estate sector to a virtual standstill.
Government increased transfer tax from four to five per cent and stamp duty from three per cent to four per cent on properties as part of its recently announced $16.4-billion tax package. It also proposed measures that will more than double property taxes for persons owning land with a value of at least $1 million.
But realtors argue that the new taxes -- part of the state's reform programme required to ink a deal with the International Monetary Fund (IMF) - are counter-productive in a harsh economic climate that has seen the Jamaican dollar depreciate significantly against its United States counterpart.
"It's going to hinder the market for sure," said Anya Levy, an associate with Re/Max.
"When the vendors calculate their net out, a lot of them are going to say it's not worth it with the devaluing dollar," said Levy, adding that fees alone could now run up to 16 per cent of the sales price.
"When you talk about real estate, that's millions of dollars."
Transfer taxes are borne by the vendor by law, while stamp duties customarily are split between the vendor and the buyer.
Earl Samuels, Assistant General Manager of Jamaica National Building Society and former managing director of the National Housing Trust (NHT), stated that he has a problem with the increase in the transfer tax.
"It was just recently reduced, and I think it can impact the closing cost in the purchase of property," Samuels told the Business Observer.
He suggested that Government should perhaps, to increase affordability, allow the interest element of the monthly mortgage payment to be classified as a tax-deductible expense. "It is done in several other countries and it can increase affordability," he said.
Chairman of DC Tavares & Finson, William Tavares-Finson, said the "number one concern" is the psychological effect of what is happening on the market. All indicators point towards a contraction in investment in a sector that was already flat before the latest wave of measures, said the businessman.
"You are living in a country where the Government now is after taxes, along with the fact that you had a renegotiation of their debt, a sliding dollar etc," said Tavares-Finson.
"What you are going to find is that developments will start to slow, people will start to second guess everything, and the expected revenues that they are hoping to get from transfers may not even arrive, because people are not selling or buying," he said.
Against that background, Government must instill confidence that the country will embark on an economic growth path, Tavares-Finson added.
Immediately after the tax measures were announced, the Realtors Association of Jamaica described it as regrettable, saying the move will have a negative impact on Jamaica's growth.
"This is another reversal of tax reductions that were designed to stimulate growth in the economy. The transfer tax rate had been reduced from seven-and-a-half per cent to four per cent and stamp duty on real property from approximately five-and-a-half per cent to three per cent since May 2008.
"This measure is a retrograde step as, with the initial reduction, we were able to survive the 'recession' and, coupled with low interest rates, we were able to provide homes for the low- to middle-income purchases," the association said in a release.
According to the association, the increases will result in "less traction in the marketplace, as many first-time buyers will experience great difficulty in financing their purchase" and could possibly result in tax avoidance and evasion.
The uncertainty of the NHT also has some realtors jittery. Government plans to draw down close to $45 billion from the coffers of the Trust over four years to help address its debt
"A big part of our industry is the Trust. It is there to supply affordable housing, and if the coffers are raped, and there is no money there, then it can't fulfil its mandate ," Levy said.
Among the measures, the reform in property taxes -- notorious for its non-compliance rate -- largely escaped the wrath of the realtors.
"I have no problem with the changes; the property tax in Jamaica is one of the lowest taxes anywhere," said Samuels.
"My only problem is that I don't think the Government has the mechanism to ensure that the property tax is collected. If the Government gets what is expected, it could go a far way in paying for street light and community improvement," he added.
What's more is that the former NHT head noted that, although in the short term people's real income will fall, thus affecting affordability, if the Government achieves its long-term economic objective, there should be an improvement in the overall economy, more jobs will be created and more people will be able to afford a home.
"The fact is, you are making a short-term sacrifice for the long-term good of all," he said.