|Published Articles on Real Estate - Anguilla Life Magazine|
It is essential for the well being of Anguilla that the local real estate market be properly regulated--a market as finite and as fragile as Anguilla's requires prudent protection. However, whereas the necessity of regulation is--I believe--beyond dispute, discourse becomes interesting when one considers the proper methods and true objectives of regulation.
In the context of this article, I shall not focus on regulation in terms of requiring projects to obtain planning permission, or to meet certain ecological standards, or to receive building permit approval--instead, I shall focus on regulation as it directly impacts the value and liquidity of real estate.
The fundamental factor affecting the liquidity of Anguilla's real estate--affecting real estate's ability to be converted into cash-is the Alien Land Holding Licence. Whereas I do believe (as stated in a previous article) that the Alien Land Holding Licence concept is fundamentally sound, I also am convinced that the core of the law should be amended to allow for Licenses to be issued on a non-site specific basis.
However, with the fore going reservation in mind, the fundamental factor relating to the acceptance of the principal of the Alien Land Holding Licence requirement is a willingness to accept two different categories of land owner--Belonger and non-Belonger. While I accept the dual category concept, I do believe that two particular conditions currently imposed on the non-Belonger are not in Anguilla's true interest.
These two onerous real estate conditions which fundamentally decrease market liquidity and, therefore, decrease value are:
The additional transfer tax stifles indigenous development due to the fact that the tax is calculated and payable on the value of the land to be transferred plus any improvements thereon. Therefore, a purchaser is less inclined to buy a house already built, or a condo project already approved--and more inclined to purchase raw land--because of the substantial tax savings involved.
The performance payment, on the other hand, stifles interest in raw land. Due to the fact that Alien Land Holding Licence conditions impose penalties for non-performance, it is essential that the off Island purchaser maintain flexibility in pursuing completion. The necessity of paying substantial sums into an inactive Government account prior to title transfer--when significant amounts of money are already being paid by the purchaser to the vendor--increases the strain of compliance.
These lump sum taxes and payments decrease the value of land--they drive away potential consumers, or result in discounted land and development prices, because they substantially increase the cost of the transaction. This is not to say that Government should not reap additional revenue from the non-Belonger, nor does it mean that Government should not protect Anguilla from the land speculator. However there are more creative methods available, methods that do not depress the land market.
First--instead of an onerous additional 10% lump sum transfer tax, the annual property tax which is levied on all improved property should be levied at some percentage higher for the non-Belonger. Such a policy would make it easier for a non-Belonger to successfully enter the land market--and would make it easier to sell or re-sell developed property--by replacing the difficult one time lump sum payment with easier annual payments. In addition such a policy would assure Government of a long term tax stream, would raise more revenue over the long term, and would even out budgetary bulges caused by irregular one time payments, thereby making annual economic forecasting more reliable.
Second--instead of a 10% performance payment required in cash prior to title transfer, a non-Belonger should have the option of posting a bond to cover the 10% requested. Such a system is currently in place with regard to the importation of perishable goods by Anguillian businesses. By accepting bonds rather than demanding cash payments, the Government would be guaranteed access to funds in case penalties are to be applied, yet would be freed from the potential for facing a cash call (and potential short fall) caused by the necessity of issuing a refund upon investor compliance. In addition, such a policy would allow the purchaser to invest the 10% that would have been paid to Government into productive use developing his land to assure compliance.
By creatively addressing those issues which hinder liquidity in the real estate market, more transactions will take place, more revenue will be realized, more economic activity will result. Amazingly, all of these benefits can be realized without the loss of proper control.
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