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Jamaica News - Real Estate - Finance (February 13, 2005)
Realtors say tax reform plan good for home sales market
LONG claiming that real estate dealings were over-taxed, president of the Realtors Association of Jamaica (RAJ) Gordon Langford sees significant benefit to the sector from the proposals by the Matalon committee to eliminate stamp duty and cut transfer tax by more than half.

"We are very pleased that Mr Matalon and his group have seen some sense," said Langford, referring to businessman Joseph M Matalon, chair of the Matalon tax committee established by Finance Minister Omar Davies almost two years ago.

The tax reformists' report, titled Distribution of Tax Burdens in Jamaica, was made public last week. The government is still to decide whether to accept the recommendations. The committee recommends the abolition of stamp duty and that property tax should be a flat one per cent, with a threshold of $300,000.

They also suggest that the transfer tax real estate deals be reduced from 7.5 per cent to five per cent. "That's what we're looking for," said Langford. He noted that the real estate transfer tax in other countries is 2.5 per cent and that for Jamaica five per cent is a "fair amount".

Langford remained enthusiastic despite the suggested increase in GCT from 15 per cent to 16 per cent to raise $2 billion in new revenue.

This tax also affects the real estate sector, as it applies to services offered by professionals, such as land surveying.

"That (rise in GCT) will be counteracted by reducing taxes on overall transactions," he said.

Langford and his group have continually lobbied for a reduction in taxes on real estate transactions that, they claim, have had the effect of stifling the market and pushing deals underground to escape taxes.

He said the combined real estate taxes and fees in Jamaica - including lawyer and agent fees - take up anywhere between 20 and 23 per cent of the sale price of properties, much higher than other countries in the region.

The tax reform plan effectively reduces the taxes and fees to approximately eight or nine per cent and "brings us in line with most of the Caribbean countries in terms of property laws."

He added that under the present tax regime, a newly purchased house that was resold after two or three years would not be financially viable because of high transfer taxes. Houses would have to be owned for 10 to 15 years to build up significant capital equity gains.

According to Langford, with the new recommendations houses can be purchased and sold within a year and significant capital gains achieved. He said that the purchasing, remodelling and selling of houses is a popular income gaining activity in other parts of the world.

"That's how many people abroad make money," he said.

With the alterations, the seller of a house will receive approximately 10 per cent more from tax reduction. Therefore the sale of a 10 million house will yield approximately 1 million in cash flow wealth instead of $500,000.

"That will go straight into your pocket," said Langford.

He noted that the money received for the resale of the house will depend on what alterations are made to the property and other contributing factors. He said if the recommendation is approved it will encourage real estate trading.

"Not only the small man, but everybody can build up some equity in their home." Because all transfer records are held by the Stamp Office and kept confidential, it is not possible to chart the present economic value of the Jamaica real estate sector or estimate the financial impact the reductions would have.

"Nobody knows that figure," said Langford. He added that even if the records were made available, the figures would be understated because of the high cases of under declaration of cost values by individuals attempting to evade high taxes.

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