|Property sale stamp duty cut|
|Thursday, 29 April 2010 11:15|
Stamp duty on property transfers, once one of the country’s top sources of income, will be revised in hopes of spurring real estate sales.
A bill approved April 22 by the Consultative Forum lowers stamp duty for property sales under $3 million. It also provides for paying duty over four years and offers a 10 percent discount if paid in full at the time of the sale.
Revenue from stamp duty amounted to only $11.7 million in 2009-10, down from $43 million in 2008-09. The government estimates a slight increase to $13 million in 2010-11 because of the change in stamp duty rates and with some rebound in the real estate market.
Most real estate transactions on Providenciales have required a stamp duty rate of 9.75 percent. The new fees apply to all islands except North Caicos, Middle Caicos, East Caicos, South Caicos, Grand Turk and Salt Cay, which are 50 percent of the following rates:
Less than $25,000—no duty.
$25,000-500,000 — 4%
$500,000-1.5 million — 6%
$1.5-3 million — 8%
More than $3 million —10%
For example, a purchase of $1 million on Provo would require a payment of 6 percent duty in four annual payments of 1.5 percent. If the duty is paid in full at the time of purchase, the rate would be 5.4 percent, which is a 10 percent discount of the 6 percent rate.
The plan was recommended in the recent revenue study by economist Alan Roe as a way of making stamp duty a more stable source of income while encouraging real estate sales.
Past governments have given breaks on stamp duty for land purchases, and developers can still negotiate for lower rates, said Permanent Secretary of Finance Delton Jones. The new rate plan is aimed at the majority of land transactions in the country, he said.
In cases where stamp duty is being paid in four annual payments, the property will have a registered restriction to the crown and cannot be sold until duty is paid in full, Jones said.
Reaction and expectations
The new bill is being met with sighs of relief from local real estate agents and developers, who say they have been lobbying for this sort of change for awhile. It’s welcome news to the real estate industry and for the TCI economy, Joe Zahm President of Turks & Caicos Sotheby’s International Realty told the fp.
“The combination of significantly lower rates at all but the uppermost tier, and the ability to pay the stamp duty either up front at a 10% discount, or over 4 years at the full rate, will provide much needed stimulus for buyers in the short-, mid- and long-term,” he said. He also noted that it reflects forward thinking on part of the TCI government, and is the result of effective communication amongst the Turks and Caicos Real Estate Association, the Council of Business Associations and the TCI government.
Those sentiments were echoed by long-time developer Mark Durliat of Grace Bay Club Resorts.
“On the whole I am extremely encouraged by the duty change, both as a developer and a property owner,” Durliat said. He was pleased to see the government take into account many of the suggestions that have come from the real estate sector — many of which were made several years ago.
Durliat explains that the changes could have big impact on the local real estate industry, especially for the first-time home buyer.
“Looking at the big picture in the Turks and Caicos, one of the more encouraging aspects of this changed policy is that finally we can encourage investment in first-time homeowners,” Durliat said. “Most first time buyers will be paying less than $500,000, and with a 4 percent rate, the market opens in a big way.”
Durliat said he witnessed this first hand when he was developing in South Africa, where the government changed to a sliding scale, dramatically reducing rates on the first-time homeowner market. “The market responded in a massive fashion, and it was proven that the impact was … yep, you guessed it, more sales volume and … more total taxes,” he said.
Allowing a first time buyer to pay over four years is even more attractive. “With a purchase of $300,000, this equates to $12,000 duty over four years, $3,000 a year. When compared to the one-time payment of $30,000 in duty this purchaser would have had to pay under the previous policy, this change is very, very attractive. I believe it will make a big impact over the longer term.”
However, he expects the impact to not only be seen on the lower-end housing market. “The same logic as above applies to the buyer of a $1 million property. Now they pay $60,000 or $15,000 a year over four years. For a buyer of a $1 million property, this is very attractive and will definitely encourage new investment and new development.”
However, he says whether this will have the “shot in the arm” effect, generating immediate sales, is less obvious. “The key to new sales is sellers being willing to meet buyers on pricing,” and this he says still remains the biggest hurdle.
Simon Padgett, a broker at RE/MAX Elite TCI, thinks the new rate structure will spur purchases in some cases.
“Whilst I do not believe it will significantly increase new real estate enquiries in the short term, it will actually enhance the chances of those who have perhaps been hesitant on making a purchase to move forward and buy something,” Padgett said.
“I have found that we have a group of buyers who feel our price drops have some way to go, then you have others who feel we are at the bottom. It is the latter that have been making the recent purchases. It is the group that lies somewhere in the middle that I feel this reduction will be seen as the catalyst that makes them move forward with a purchase,” Padgett said.
“In essence, whether we like it or not, we are in a buyer’s market, and this reduction goes a significant way to enhancing the absorption of properties on the Turks and Caicos Islands and creating excitement whereby buyers start to hurry in buying something, before somebody beats them to it. I am starting to see this in certain areas already, and this reduction only goes to aid the acceleration of this process and take us into the next cycle,” Padgett said.
Click HERE to see the government's May 7 press release on new stamp duty rates.
|Last Updated on Friday, 07 May 2010 17:28|
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