With new stamp duty rates set to take effect in a little more than two weeks, local realtors say some property purchasers are rushing to pay duty early on contracts while others are stalling until after 1 July.
Stamp duty is a one-time tax on land or building transfers assessed at the time of transfer.
‘It’s exactly what you’d expect,’ said Remax’s James Bovell, president of the Cayman Islands Real Estate Brokers Association. ‘People buying property along Seven Mile Beach or expatriates are trying to pre-pay, while other people are trying to push closings back.’
Mr. Bovell said he expected more people holding contracts to purchase property to pre-pay stamp duty before over the next two weeks.
Nigel Bates, chief valuation officer at Lands and Survey, said there has already been a substantial increase in stamp duty assessments for his office.
Although Lands and Survey looks at each transaction on a case-by-case basis, Mr. Bates said ‘nine times out 10 we take the date of the contract’ for the purposes of assessing stamp duty. Therefore he said Caymanians will not gain any stamp duty benefit by waiting until after 1 July to close, and could in fact find themselves subject to late fees if they wait too long.
The new rates, which passed into law in the Legislative Assembly last Friday, raise the stamp duty for expatriates while dropping them for Caymanians in most cases.
Currently, the stamp duty rate is five per cent for all properties for everyone. Commencing 1 July, non-Caymanians will pay six per cent on all properties except those in the Seven Mile Beach corridor and in certain parts of George Town, which will attract stamp duty at the rate of 7.5 per cent. Caymanians will pay the same rate for those properties, but will only pay four per cent for all other properties.
‘Stamp duty is going down as well as up,’ pointed out Sheena Conolly, owner of Soetheby’s International Realty in Cayman.
Mrs. Conolly said some non-Caymanians who were already looking at property are making the decision to buy now to take advantage of the lower rates.
‘Certainly, we’re seeing some increase in activity as the deadline approaches,’ she said. ‘That’s what’s happened every time [the government] has said the rates were going up.’
After the 9/11 terrorism attacks, the stamp duty rates were lowered from nine per cent along Seven Mile Beach and 7.5 per cent everywhere else to five per cent in order to stimulate sales in the slumping industry. The previous government announced raises of the stamp duty rates twice before, but ended up deferring the proposed rate raises each time.
After announcing the need to implement more than $25 million in revenue measures in the coming fiscal year in order to pay for planned capital projects, the current government consulted with various private sector entities, including CIREBA. During the consultations, CIREBA recommend a lower increase in the stamp duty rates than what is being implemented, which CIREBA now warns could have depressive effect on the real estate market, particularly when the rate increase is coming at the beginning of the slow selling season for realtors. Cabinet Minister Arden McLean responded by questioning whether realtors could lower their commission rates to stimulate sales.
The realtors also criticised the Government’s decision to have different stamp duty rates for Caymanians than non-Caymanians, saying the move would add ‘to the growing divisiveness between locals and expats’ and would ‘further emphasise the differences between the two or three groups that make up our society’.
In addition, the Government increased the stamp duty exemption for Caymanians obtaining property for the first time. Although CIREBA approved of the concept, it said the multi-tiered plan was too complicated and questioned why, if the Government wanted to help first-time Caymanian home buyers, it did not just waive the stamp duty entirely.
Not all realtors, however, think the stamp duty increase will have a big effect on the market.
‘I can’t see a decision [to buy real estate] not being made because of raising the stamp duty a couple of [percentage] points,’ said Mrs. Conolly. ‘I don’t think it will affect any purchasers who were going to buy anyway.’
Billy Culbert of Rainbow Realty, who is also the immediate past president of CIREBA, does not see a strong real estate market in the short term, but said it has nothing to do with stamp duty.
‘There’s no money available [in bank loans] at a level people can qualify for,’ he said. ‘The first-time Caymanian buyers still won’t be able to finance anyway, so it’s really a non-issue.’
With interest rates on mortgages around 10 per cent and the increased cost of homeowners insurance after Hurricane Ivan, Mr. Culbert does not think the situation will change soon.
However, Mr. Culbert does not think the expatriate resident and foreign investor market will be affected significantly by the rise in stamp duty. Although he acknowledged that he doesn’t do a lot of transactions along the Seven Mile Beach corridor, he does not think the raise in stamp duty was excessive. ‘It’s still lower than it was before [the stamp duty reduction in 2001],’ he said.
Still, Mr. Culbert thinks the Government could have handled the situation differently.
‘The market is kind of soft anyway,’ he said. ‘I don’t think their timing was right.’
CIREBA recommended the Government step up the stamp duty more gradually, and wait for six months or so before implement and increase to the levels that will take effect 1 July.