Don’t expect cheaper homes, says CAPRI
HOMEBUYERS WILL pay lower government fees but not necessarily receive lower-priced homes as a result of the Government’s slashing of transfer and stamp duties, say experts.
Developers and sellers will eventually price these saving into the cost of the home and that’s not necessarily a bad thing as it will still lead to stimulating new home transactions and investments, according to Dr Damien King, executive director of the Caribbean Policy Research Institute (CAPRI), in a budget review titled ‘Path, Police and Patty Shops’.
Government plans to slash transfer and stamp duty by more than half, effective April 1. Both taxes are cumulatively equivalent to 9.0 per cent of the cost of acquiring property but will be reduced to 2.0 per cent.
”A 7 percentage point reduction in transfer tax could increase property values by 7 per cent,” stated King in his address at The Knutsford Court Hotel, New Kingston, on Monday. “That’s a pretty good deal for property owners.”
King added that the reduction would occur within the context of large historical inequalities in wealth, largely based on disparities in the ownership of property. “It is something for us to bear in mind.” He suggested that increased numbers of transactions would occur over time.
“Taken together, a seven percentage decrease in taxes is likely to have an increase in the volume of investment by a multiple of that reduction. This has the potential, according to the empirical evidence, to remove a major impediment to investment,” he stated.
CAPRI, in seeking to gauge the effect on the economy, found and examined a handful of case studies. Two studies contained strong empirical data from Canada and France on the consequences of changes to the transfer tax. In Canada, the volume of transactions increased tenfold after the change in the transfer tax. That study tracked the impact of a one per cent increase in Canada’s transfer tax and a 0.7 per cent rise in France.
“So, a one per cent increase in the transfer tax reduces property values by 1.0 per cent; a 7.0 per cent reduction in transfer tax could increase property values by 7.0 per cent,” stated King.
Regarding its impact on new investment, the Canada case study signalled that transactions increased by a factor of 10. King, however, did not believe that study would serve as a predictor for local activity.
LOW-INCOME HOME
Finance Minister Dr Nigel Clarke, in his address at the event, indicated that the reductions are meant to also spur new low-income home developments.
“The Government needs to get out the way of taking the lion’s share of these transactions,” Clarke said. “There is a significant unfulfilled demand in the lower end of the market . ... We want to incentivise supply at the lower end of the market and remove barriers.”
Clarke indicated that there is a dearth of housing stock under $5 million despite demand from tens of thousands of Jamaicans. Last year, over 70 per cent of all property transactions could be completed with two National Housing Trust mortgages, indicated Clarke. He explained that developers told him that taxes at 9.0 per cent made it unattractive to construct such developments.
Housing prices within the corporate and urban areas, however, continue to rise with new developments priced out of the reach of professionals, argued Dr Dana Morris Dixon, assistant general manager at JN Group.
“The average mortgage is $13 million and obviously that is not for the average working Jamaican,” stated Dr Dixon, a panellist at the forum. “Even when you look at a lot of the new developments you are seeing that they are priced outside of even professionals. So there has to be some drive at the lower end of the market to stimulate supply at that level.”
She concluded that the reduction in fees represented a significant development in Jamaica.
“Our organisation started in 1874 to give Jamaicans, recently freed slaves, who couldn’t access financing services, an opportunity to own their own home. This transfer tax and stamp duty reduction is a very significant one,” she said.
Clarke offered the nation a $14-billion tax break as part of his $803-billion budget for fiscal year 2019-20. Capital expenditure is projected to total $72 billion, which represents a 162 per cent rise from 2014-15 when adjusted for inflation. The Budget’s capital expenditure seeks to focus on security, job creation and the economy.