With the Government looking to increase revenues to help balance a new budget full of new expense items, realtors are concerned the stamp duty reduction on property transfers in place since November 2001 will end abruptly.
Stamp duty was reduced from nine per cent on the Seven Mile Beach corridor properties and seven and a half percent on all other properties to five per cent across the board to stimulate the real estate and construction industries after the economic difficulties created by the 9/11 terrorism attacks in the United States.
Originally scheduled for one year, the Cabinet extended the reduction for specific time periods three times before extending it indefinitely in January 2004.
Dale Crighton, of Crighton Properties said he has heard some reports the reduction could be ending soon. ‘I’ve year it could be in November, or it could be in January,’ he said.
Even though some sectors of the real estate market are strong, several of the island’s realtors don’t think the stamp duty reduction should be lifted yet, including Cayman Islands Real Estate Brokers’ Association president Billy Culbert.
‘You could say there’s good demand in the market now, but there’s also great scarcity in the market,’ he said. ‘That makes it seem like the demand is more than it really is.’
Donnie Smith of Cayman Fidelity Real Estate said the stamp duty reduction worked well from a real estate point of view, and that it needs to continue.
‘With the present state of our economy and the world economy, it would dictate that a responsible government would continue the incentive provided by the current reduction in stamp duty,’ he said.
Sheena Conolly of Sheena Conolly Real Estate said the market is still unsettled after Hurricane Ivan.
‘It’s still a bit turbulent as we’re going through the waves of the hurricane,’ she said, pointing out that the post-Ivan cost of living has made it more difficult for many residents in particular to buy homes or condominiums.
‘Construction costs are up, strata fees area up, insurance is up and some developments have had special assessments,’ she said. ‘Having to come up with an extra two or three per cent (in additional stamp duty) could kill a sale.’
A rise from five back to nine per cent on the Seven Mile Beach corridor could hurt foreign investment, Mrs. Conolly said.
‘We don’t want to discourage overseas investors who have maintained confidence in us after the hurricane,’ she said. ‘To make a jump from five to nine per cent, which is almost double… I don’t think at this point would be prudent.
‘The increase in government coffers wouldn’t be worth the amount of damage it might do.’
Mrs. Conolly said that before the government raises the stamp duty rate it should look at all of the stamp duty and property transfer statistics to determine what might be gained or lost.
‘What we need is a serious analytical review based on fact and not speculation,’ she said.
Mr. Crighton also thinks raising the Seven Mile Beach corridor stamp duty back to nine per cent would be unwise.
‘Nine per cent is a bit high, especially at this time,’ he said. ‘That’s the location where the majority of our investors invest.’
Mrs. Conolly also pointed out that the market on the beach side of the Seven Mile Beach corridor was one thing, while the market on the east side of West Bay Road was another.
If the government decides to raise the stamp duty, Mr. Culbert thinks it should be done in incremental increases and with ample advance notice.
‘CIREBA has agreed for quite some time that stamp duty eventually has to go back up when things get normal again,’ he said ‘But we’ve always supported a gradual increase.’
Mr. Crighton agreed.
‘Personally, I’d like to see it go up in stages, maybe first to six per cent and then to seven per cent.’
Mrs. Conolly also believed the graduated approach was the way to go.
‘Any increase in stamp duty should not be done in a drastic move, but with a well thought-out strategy,’ she said.
The realtors also think any stamp duty increase needs significant advance notice.
‘I’m hoping they would give a little advance notice rather than just popping it out in the paper,’ said Mr. Crighton.
Mr. Culbert had a specific time period in mind.
‘I think you need at least six months notice on something like this,’ he said. ‘Just because someone decides they want to buy something now, doesn’t mean they’ll find what they’re looking for right away.’
Mr. Culbert said the process of finding the right property, obtaining bank financing, getting appraisals and getting insurance takes time.
‘Six months would really be the minimum of time that would be fair to the public and realtors,’ he said.
‘Any kind of short term notice will create a panic.’
Mrs. Conolly recalled the last time there was short deadline on the stamp duty reduction extension.
‘It was absolutely crackers with people waiting in line at Lands and Survey to pay stamp duty,’ she said.
Mr. Smith said that if six months notice were given, it could actually simulate sales to a point it would increase government revenues beyond any gains they would have gotten from raising the stamp duty rates immediately.
Leader of the Opposition McKeeva Bush, who as a former member of Cabinet was instrumental in getting the reduction extended, said he did not believe it was time to raise the stamp duty.
‘It would be a short-sighted approach,’ he said. ‘Yes, you lose some revenue, but you gain more than you lose in the long run.
‘If the government (raises stamp duty abruptly) they’ll hurt the real estate market, which brings in significant revenue.’
Mr. Bush said it was important not to add any additional expenses to Caymanians still trying to recover from Hurricane Ivan.
‘Insurance rates are killing us,’ he said. ‘We have had price increases in gas and in our CUC bills, which have all brought the cost of living out of reach for ordinary Caymanians.’
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