Real Estate for Family & Fun

 

TYPES OF PROPERTY || THE BUYING PROCESS || CLOSING COSTS || PROPERTY TAX || FINANCING

TAX ADVANTAGES || INTERNATIONAL FINANCIAL CENTER || RESIDENCY

Most people looking to purchase property in The Bahamas are eyeing residential properties. Whether it is for a second home to enjoy with family, escape northern winters or establish their dream retirement home, it is the simplest and most common process. We have a later section for clients that are interested in information on potential profits and loss (see Real Estate for Business & Investment)

Types of property

Most of the property sold in the Bahamas is fee simple also known as freehold. There are a very small number of co-ops but most high rise developments are condominiums and work The leasehold properties are usually Crown Lands (property of the state) that are used for developmental or agricultural purposes.

The Buying Process

 

Buying Step 1 – Finding a Property

The Bahamas Real Estate Association organized itself in to a Multiple Listing System about fifteen years ago. For those who don’t understand what the MLS is, it enables around 300 active agents in the country to share their listings by co-broking the sale between a ‘buyer’ and ‘seller’ side and splitting the sales commission. As a buyer, the most important thing to understand is that this enables you to choose a single agent to represent YOU in your search and subsequent transaction. There are a few good reasons for this:

  1. The vast majority of properties listed for sale in the country are registered with the MLS so any agent can search for and show you any and all properties on the market without worrying about missing anything. If an agent or property is not participating in the MLS, this should be a red flag and extra care should be taken.
  2. We understand that in some cultures it is traditional to go straight to the listing agent to purchase a property but here, with so many agents and so few listings in such a small community, you may end up having to coordinate showings with five different agents from four different companies who have all gotten annoyed with you as they all try and register you in the MLS as their own private client. Versus taking a little time and selecting one that you want to represent you and letting that one happily do all of the coordinating for you.
  3. There are zero disclosure laws here and with the average real estate transaction being half a million dollars and up these days, it really is asking a lot of the listing agent to represent you as the buyer, to the best of his abilities. They are after all legally bound to do anything and everything they can to get the best deal for the seller.
  4. The seller has agreed to pay a fixed commission regardless of how many or which agents are involved with the deal, so bringing your own personal expert negotiator to the table will undoubtedly get you a better deal

So at the risk of losing business, I always recommend that you take a little time and pick an agent to represent you as a buyer (that is not necessarily the listing agent of a particular property that you want to buy). As with anywhere, there are some fantastic agents and there are some really, really bad ones so don’t be shy about interviewing them and asking for references

 

Buying Step 2 – Negotiations

When you have found a property you like, it is traditional to begin negotiations with a written offer that your agent will prepare for you. Subsequent negotiations may be verbal or via email. Once a deal has been made a ‘formal sales agreement’ is drafted and agreed to by both parties. A formal sales agreement in most cases is drawn up by independent lawyers representing each side and will outline the full terms and conditions of the transaction. Price, timetable, closing costs, free and clear title and any conditions or contingencies. It is important to note that nothing is binding until this formal sales agreement is executed by both parties and a deposit is then paid to the seller’s lawyer to hold in escrow until the conveyance is completed. You should not be giving anyone (else) any money prior to this. I have seen this process (written offer to formal sales agreement) take 48 hours and I have seen it take 4 months, depending on how motivated the parties are and/or complicated a deal. Normally, I would encourage my clients to allow two weeks to negotiate and finalize the formal sales agreement.

 

Buying Step 3 – Conveyance

The Conveyance is where the Bahamas comes into its own wild animal. Without a computerized title registry and hand-drawn title deeds going back to the days of piracy, the local legal community somehow makes this process one of the most painful slogs in the world. Free and clear title is taken extremely seriously here and we therefore have learned to be patient and let the lawyers do their jobs. As a general rule, you should allow three months between the formal sales agreement and closing. It can be done quicker so recommend that you let your agent advise you on your choice of lawyers if time is of the essence. They should have a good idea which lawyers in town are earning their lunch….and which ones are out to lunch. Once title is deemed free and clear and all other conditions and contingencies met, the lawyers will circulate a conveyance document for signatures (can be done remotely) and balance of funds are transferred to the sellers attorney for disbursement.

 

That’s it! If you are an overseas buyer and this is a one time purchase for pleasure, there is nothing else that you have to think about or do. Stock the fridge with cold Kaliks and figure out where you are going hang the hammock.

 

If it is your second real estate transaction, an especially large property or one that is deemed as a purely commercial investment, it is likely that you will need some additional Bahamian Government approvals – see Real Estate as a Business and Investment

Closing Costs

In accordance with Bahamas Real Estate Association (BREA) rules. All properties are listed at what we refer to in the Bahamas as a ‘Gross’ price. That means as a purchaser, in addition to the agreed price of the actual property, you will be expected to pay an additional 5% (of property value) stamp tax, which is half of what is due on the transaction. You would also be expected to pay your own legal fees which range from 1% to 2 ½%. Everything is ultimately negotiable but as a general rule, I encourage buyers to allow for an additional 7 1/2% on top of the sale price when they are figuring out their finances, to cover closing costs.

When selling a property in the Bahamas – closing costs would typically be the same 7 ½% (half of stamp tax and your own legal fees) Plus the real estate commission (link to real estate commission info on separate page).

Ongoing Property Taxes

One of the few taxes a non-Bahamian will come across in the Bahamas is (annual) Real Property Tax (RPT). The taxable amount is generally based on the purchase price of the property. Just about every incoming political administration feels the need to be constantly tweaking the various percentages and progressive scale but as of the financial budget for 2018/2019 –

Standard (developed) residential property

$0-$250,000 is exempt from RPT

$250,000 to $500,000 is 5/8%

$500,000 and up is 1%

Please note that undeveloped/vacant land owned by non-Bahamians is 1 ½%

Other Considerations

 

Financing

It is extremely difficult to get financing in the Bahamas, especially for a non-resident. Unfortunately, the saying goes here “if you need financing, you won’t get it, if you don’t need financing, you will get it”. Bahamians are really bad at paying back their loans and the government keeps trying to interfere with the banking system by protecting bad borrowers and so the banks just keep making it tougher and tougher to borrow. There is also no central credit bureau which has led to further abuse of the lending system by local borrowers. And there has also been no shortage of foreign borrowers that have disappeared back overseas when things have gotten upside down, so the banks all play an incredibly defensive game.

There are some large Canadian retail banks here that do offer to finance to non-resident borrowers. If you have an excellent credit rating at home and can show a great record of income, they will consider loans. Terms and conditions vary widely but a typical arrangement may be 20% to 30% down payment with balance amortized over 15 years. Rates right now are between 4% and 7% depending on the banks’ evaluation of risk

Tax Advantages

There is little in the way of income tax in The Bahamas. There are NO taxes on Capital gains, personal income, inheritance or dividends. This applies not only to individuals, but also to *corporations, partnerships, and trusts. These tax advantages do not require that property owners remain in The Bahamas for any specific length of time in a given year but you may have to declare this income where you are actually residing, so is always a very good idea to educate yourself on matters to do with tax. We work with various experts from around the world and can connect you with individuals and firms that specialize in specific countries tax codes such as the USA, Switzerland, EU, Brazil, etc as well as  advising people on the use of Bahamian (offshore) financial mechanisms

*Note that the Bahamian Government differentiates between docile corporations and companies that are actually carrying out business within the Bahamas. Local businesses are subject to a business license fee which is effectively a % tax on gross earnings

International Finance Center

In recent years the global community has been putting a lot of pressure on the ‘offshore’ and  ‘tax free’ financial centers such as the Bahamas to clean up their acts. Tax avoidance and tax evasion are now closely associated with ‘money laundering’ and the ‘financing of terrorism’ and the Bahamas has had to reposition itself as more of a legitimate financial center versus the days of old when you could show up with a suitcase full of cash and hide it here. The government has now entered in to treaties with many nations, to agree to share information with regard to foreign nationals and their holdings within Bahamian banks, which has curtailed a lot of the benefits of hiding money here. There are still however a whole host of benefits and potential ‘tax minimization’ strategies available here an the little island of Nassau still hosts hundreds of private banks and trust companies managing billions of dollars in assets

Visit The Bahamas Investor for more information

Residency

The right to permanently reside within the Bahamas is not taken lightly. Under normal circumstances, it may take 20 years to be granted the right to live here permanently, and that still may not automatically entitle you to work or vote. Fortunately, as with a lot of countries that are now encouraging ‘economic’ immigration, the Bahamas offers a fast track to permanent residency for individuals (and families) that make significant investments in the country. The benchmark as of July 2018 is a real property purchase of over $750,000 or a significant business investment ($1mm plus) that benefits the Bahamas (creates jobs, such as a hotel or manufacturing facility). For purchasers that do not make the benchmark, there are other options such as annual residency cards, however, I do like to point out, that unless there is an underlying strategy (to do with taxes) there is not a whole lot of benefits to becoming a resident here, even as a homeowner. For most foreigners buying second homes here, travel in and out of the country as a ‘tourist’ can make for a far simpler existence here. See also our Residency section.

Be sure to pick up a copy of our latest book Escape to the Bahamas: A Guide to Relocating to and Living in the Bahamas, where we go in-depth on topics such as

  • Which island is right for you
  • History, culture & landscape
  • Buying or bringing your vehicle & getting around
  • Renting
  • Buying property
  • Building in the Bahamas
  • Establishing residency
  • Supporting yourself financially
  • Health care
  • Crime and safety
  • And many more topics!

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