Saturday, October 11, 2014

Land prices in The Bahamas: Thinking about the issues and possibilities.

As Jimmy McMillan would say as a slogan when running for Governor of New York back in 2010 with the political party of the same name: "The Rent is too damn high!" We feel you Jimmy. We can also say here in The Bahamas that the price of property is too damn high. Just too damn high!

The price of land has sky-rocketed in The Bahamas over the last 25 years. Many parcels of land today, in middle to lower-middle income areas without a dwelling on top, can fetch any where from between $70 thousand to $95 thousand dollars. In fact, a piece of property 40 by 80 in a middle-income area in 1985 went for anywhere between $2,500 to $3,000 dollars. Yup, the generation post 1995 was given a raw deal with this. A raw and dirty deal.

For upper scale areas, parcels of land can start from $200 thousand dollars and upwards to $1 to $2 million dollars. This is also without dwelling on it.

Based on The Bahamas's GDP per capita at a very liberal $22 thousand dollars (a grossly inflated estimation of GDP per capita as it doesn't take into consideration the over-saturation of incomes from the top 20% high-wage earners compared to the bottom 70%), leveraging for land becomes more than a task. It's almost impossible for average families to purchase land and a home of their dreams without being in debt to banks or land developers for years on years.

This, coupled with the perpetual and seemingly ubiquitous soft-services economy, an economy yet to fully rebound from the ravages of the 2008 economic collapse and financial crisis, we have a dire and particularly important issue of land-reform that's desperately needed in The Bahamas.

Land reform, or the intention of land reform, has not been missed by all and sundry. In fact, recent developments based on rulings of two major and long-standing cases (one of these matters dating back to the early 1980's) for a major land development company in The Bahamas, Arawak Homes and their associated company, Eleuthera Properties Ltd., drove the critical issue of land reform home to many Bahamians.

Without going into the details of the particular court cases, the major issue involved a process called "Quieting Titles". A process by which a person can transfer title of a said property through the Supreme Court though particular means. Whether through just occupying the land for a considerable amount of time, or just through being interested in the land and the original property owners are uninterested in doing any thing with it, for some reason or the other.

Thus was the case for Eleuthera Properties Ltd. in North Eleuthera and their claim and subsequent acquisition, through a Supreme Court ruling, of nearly 2500 acres of land.

A second case, involving the parent company, Arawak Homes, is a more acute case of Quieting Titles and involved the purchase and re-sale of property that was disputed from the onset. This court case involved a particularly controversial area in The Bahamas- Pinewood Gardens. An area where someone put a petition to Quiet the land that was already, reportedly, purchased and owned by Arawak Homes.

This issue also underscored the need for a proper land registry in The Bahamas and a revamping of the Registrar General's office and the department charged with insuring the integrity and validity of property titles.

So, here we have it, one company being both a victim and claimant in two separate court cases surrounding the Quieting of Titles conundrum, where the same company came out the victor in both of the court proceedings.

This prompted the president of Arawak Homes, Mr. Franklyn Wilson, to cry about the abuses of Quieting Titles in The Bahamas. And we cry with him too! Really!

All of this, in addition to other matters surrounding the murky process of obtaining Crown Land from the central government; the lack of commitment by policy makers and the judiciary in finding a workable, best-case-solution to Generation Property (with Generation Property being land handed down from former plantation owners to their slaves primarily); and another issue of contention, The International Persons Landholding Act. of 1993 (making land purchases and ownership less cumbersome for foreigners), which repealed the former Immovable Properties Act., and is a key reason behind the explosion of land prices in The Bahamas.

In fact, with current prices taken into consideration with the Landholding Act of 1993, a Realtor from one of the most prominent real estate companies, H.G. Christie, lamented on the now 90/10 split in property sales with the 90% of sales being high-end North American, Canadian and European clients.

What the Realtor didn't explain during his lamentations was whether or not this 90/10 split was based on the numbers of individuals or entities buying property; or, in other words, 90 high-end buyers to 10 local buyers. Or was it a case of sheer value and profit; For example, 90% of his profit is realized from high-end buyers as opposed to 10% of his profit from local buyers.

Explaining what that Realtor means can help a great deal towards understanding how severe the issue is. It also must be noted that H.G. Christie specializes in the high-end market in any event.

Be that as it may, without question, all of this has certainly opened the market to fraudulent activity with particularly lengthy and confusing court cases as the fight for property for Bahamians becomes more heated and contentious as the years progress.

I'm not going to pretend that I have the solutions to all of these issues. I won't even give the impression that I can give you a workable solution to any of them. But I would like for my reading audience to consider this formula for helping with reducing the overall cost for average Bahamian families. This formula may prove fruitful for the rest of The Caribbean and Latin America at large, where developing country stagnation issues and bottlenecks are severe in many instances.

One way in which we can look to reducing the cost of land, without amending the International Persons Landholding Act., is by policy makers creating a "race to the bottom" scenario. A scenario whereby real estate companies, banks, lawyers, relevant stakeholders along with the government create an atmosphere through capping fees and interest rates for land valued and zoned in particular areas.

For example, hypothetically speaking, pieces of land in "Eastern Estates", deemed as a historically Bahamian area for residences and businesses, the rates at which the stakeholders can extract service charges and other processing fees should be capped at a certain value.

A Realtor typically asks for anywhere from 7% to 10% for sales, and the lawyer asks for 2-3% on top of that.

Lets say that a piece of property worth $100 thousand typically attracts 10% total fees from the Realtor, Lawyer, etc. But, if mandated that sales of $100 thousand should not exceed 5%, or $5 thousand; and sales for property valued at $50 thousand shall be equal to, but no less than, 11% of the total value of the property. That's $5 thousand five hundred. Parties involved would actually make more money per value off of the property at a lower price than they would make selling at the higher price.

Following the rationale of something of this nature needs to have several other factors put into consideration. One in particular is at which rates would it be profitable for a Realtor to sell land at structured price ranges? Without a doubt discussion and analysis into the socioeconomic dynamics of property sales should be broached with the Bahamas Real Estate Association.

A second issue for consideration is with regard to what price range would this ascending fees scale stop? This can also be easily appreciated by both policy maker and the Real Estate Association.

Last, but not least and what should be atop the pile for consideration with both the former, is managing the expectations and the articulation of what regulations vs. free-market policies can mean for the Real Estate industry. This is important. Important particularly with regard to persons that bought land at a higher price, but have yet done nothing with regard to it because they do not have the financial headroom.

One can see persons lashing back at what would be rightfully presumed to be government interference with price mechanisms in the industry. But as it stands now, with all of the prevailing factors surrounding the Bahamian economy, from flagging employment to inflation to socio-political behavior that has become injurious to investment and entrepreneurs, standing around doing nothing while property prices remain at virtually un-buyable prices hurts all involved.

As it stands now however, property sales under a different policy regime and arrangement is a better way forward than keeping the new status-quo of high prices and lack of flexibility for Bahamians looking for decent and affordable homes and property of their choice in their own country.

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