Realtors have given an unequivocal thumbs down to the idea of an annual property tax, warning it would have a devastating effect on the Cayman Islands’ economy.
The concept was discussed as a potential revenue generating measure in the midst of the financial crisis. And the prospect of a direct annual tax to replace the current stamp duty system could come up again if government fails to dig itself out of the debt hole that led to last year’s budget crisis.
Real estate agent Kim Lund said it would be the wrong move to make. “It would be doomsday for the Cayman Islands if that happened. It is probably one of the worst things, in conjunction with payroll tax, that could happen to this island,” he said. “People invest in real estate here because they know there is no ongoing tax. They can hold a property here and go through good times and bad and not be penalised.”
Mr. Lund said the impact of an annual taxation system would be immediate and would create long term problems that rippled way beyond the real estate market.
“There would be a rush of people leaving this island and selling their investments. It would drive property prices down and it would take decades to recover. It would be the kiss of death for the real estate industry.
“This industry has evolved because of the way it is structured – you pay a one-time fee. If you make a huge structural change, it is going to have a disastrous impact, not just in the next year but in the long term as well. We know that because many of our clients and customers mentioned that when it was being discussed a few years ago,” he said.
Currently, property buyers pay a one-off tax to government of 7.5 per cent of the value of the property at the time of purchase. The thought of replacing that with an annual fee is unthinkable for Mr. Lund, who believes it would take away the Cayman Islands’ biggest selling point.
“I think it won’t happen. I think hopefully we have smart people in government that realise if it does happen, it will destroy a lot of jobs and opportunity here. The investment will leave this country very quickly.
“This is the one thing that gives us an advantage over every other Caribbean country that we compete against. It is a huge advantage for us and if you take it away we are just like everywhere else,” he said.
Another realtor, Tamara Siemens, said the impact of such a significant change to the tax system would be felt in other industries as well. Investors would fear that more annual taxes could be on the way, retracting from Cayman’s appeal as a stable no-tax jurisdiction, she said.
“The fear is if they can just change the law and start an annual tax, then what is next?” she asked.
She said the plan, if it was proposed, would attract widespread opposition: “That would completely put people off buying property in the Cayman Islands. Realtors would oppose it, buyers would oppose it. If you come up with any annual taxation, then deals will be falling off the table.”
She said the increases in stamp duty had already created a burden for buyers. The rate for properties outside the Seven Mile Beach area had increased from 6 per cent to 7.5 per cent at the turn of the year. At the same time, a lower tax band for Caymanians (not including first-time buyers who are exempt) was taken off the table and rates were increased for long-term leases.
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