Just when the local real estate market was beginning to show signs of a rebound, concerns have emerged that the increase in the controversial National Social Responsibility Levy (NSRL) could dampen demand for new development in Barbados, while the new two per cent tax on foreign exchange transactions could affect future property purchases by foreign investors.
Officials of the real estate and construction industries are said to be still assessing the likely impact of the budgetary measures.
However, the umbrella body for local real estate agents and valuers has cautioned that the island stands to lose valuable foreign exchange from potential investors as a result of the foreign exchange fee (FXF), which is being implemented to stop foreign exchange leakage. The Barbados Estate Agents and Valuers Association (BEAVA) has also warned that the cost of property development could skyrocket by as much as 15 per cent, as a result of the NSRL increase from two to ten per cent.
The NSRL took effect on July 1, while the FXF will be implemented in two phases, beginning today with cash transactions, bank drafts and wire transfers, and then extending to credit and travel cards from September 1.
BEAVA president Paul Alleyne told Barbados TODAY there was a level of disquiet among overseas investors who own local properties, while suggesting that the FXF could be a deterrent to potential investors.
“Because when they go to repatriate their funds back to wherever they are from, they are going to lose two per cent of it. So it is not good news for them. Many of these people who own these houses in Barbados own them through offshore companies, so they can minimize their exposure to that type of things through those methods, but not every owner who is a foreign owner does that,” he said.
Alleyne said the industry players understood there was a need for Government to stop leakage of foreign exchange, given the island’s foreign exchange problem. However, he saw the tax as a major blow to the industry.
“The question is whether it will disincentivize foreign purchasers from buying in Barbados if they feel that the instant they bring in, let’s say $100,000, to buy a property, it is really only worth $98,000 if they try and take it out the island the very next day,” he said.
Alleyne said since the recession hit in 2007/2008, there had been a major slowdown in the number of transactions along with a reduction in prices, which continued until about three years ago.
He said during that period, prices were reduced on properties anywhere between 15 and 35 per cent depending on the location and type of the properties.
“So we have seen the market stabilized over the last two years and transactions have started to increase slightly, but that was then dampened in a big way by the value of the pound falling to an all-time low, and also the value of the Canadian dollar falling to an all-time low. That is the foreign market,” he said.
“The local market remains fairly depressed, especially the middle-income market. What I would say is that land sales, if the land is priced between $90,000 and $125,000 and is in a good location, there seem to still be demand for that.
“But the question in our minds now is the effect that the NSRL will have on the demand for new land development, because the building cost now for homes is going to go up, probably somewhere between 12 per cent and 15 per cent when you compound all the taxes together. So you may see a reduction in the number of land sales if persons feel that they can’t spend as much on the land because what they have left to build the house is not much because of the [NSRL] increase,” explained Alleyne.
The flip side, he said, was that the burdensome tax could result in existing homes becoming more attractive, although he said it was still a wait-and-see game at this point.
“But right now in Barbados, if you are looking to buy a property and you could find a home that is already built, chances are you could buy that for less than it would now cost you to build it on a vacant piece of land. So, I think that is going to have a negative impact on people who are developing new properties on the island, because they are going to be at a competitive disadvantage versus the existing product,” explained Alleyne.