LAND TAX VALUATIONS AND TRENDS IN THE MARKET

By: Property Consultancy Services Inc.

The Land Tax Department of Barbados is charged with the responsibility to collect land tax from all property owners in Barbados. In order to do so they need to carry out an assessment of value of every property in Barbados, every three years.

As notices of valuation have been received, a number of property owners have expressed their concern with the accuracy of the assessed values issued by the department, which in some cases have increased by as much a 50%, resulting in a significant increase in the tax payable.

The last valuation period was in 2008 and as stipulated, every three years the Commissioner of Land Tax is required by The Law of Barbados Cap 229A Section 10 to assess the value of all properties in Barbados (with the exception of properties owned by the Crown. The previous valuation period was considered the historical peak of real estate value in Barbados by industry practitioners. The property-driven worldwide recession, which started in 2008, impacted values negatively and in general, values have not recovered those losses fully. So how then can the department justify increases over 2008 values when the market has met so many challenges in the past three years?

Assessed value is value attributed to a property by a public tax assessor for purposes of taxation. It is not the same as Fair Market Value, although in some jurisdictions market value forms the basis of assessment. Fair Market Value is defined as the highest probable price in terms of money which the property will achieve if exposed for sale on the open market with reasonable time allowed to find a purchaser who is purchasing having all the knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used. The Commissioner had been quoted as saying that "we have simply been carrying out our assessments on values in the market place". This does not necessarily mean that he is assessing fair market value.

Over the last two years, Barbados has experienced a weak real estate market. Transaction volumes have plunged from the high points of pre-2008 with listing prices of property dropping significantly in an effort to stimulate demand. The reason is the general uncertainty surrounding the length and expected impact of the recession; buyers have become more cautious with their financial exploits. Using the number of change of ownership forms filed per year as a measure of transaction volume, the number of transactions per year has fallen from 4,100 in 2008 to 3,176 in 2010 (last available full year).

The Luxury Market

The price points that were once achieved for some of the luxury properties found across the island are no longer being achieved. Research suggests that this is because of tighter credit markets, a weak pound sterling and euro, and an oversupply in some segments of the market. To illustrate this point, actual sales data assimilated by PCS' research department indicates that condo prices in 2007 and 2008 beachfront condominiums on the west coast were selling at prices over US$1,000 per square foot, while the most recent transactions have been in the range of US$700 to $900 per square foot. This means that on average this property type is 20% cheaper than the last valuation year, 2008.

Based on a sample of approximately 200 luxury properties, the notices of valuation record no reductions in assessed value of properties in this market, and 25% of assessed values were increased.

FREQUENTLY ASKED QUESTIONS

What if I don't agree with my assessment?

You must lodge an objection in writing within thirty (30) days from the date of the notice. The final date for objection is July 22nd.

There are four grounds that can act as the basis for an objection:

1. The lands which should be included in one valuation have been valued separately;
2. The land which should be valued separately has been included in one valuation;
3. The values assessed are too high or too low;
4. The person named in the notice is not the owner of the land.

Simply stating that the taxes are too high or low is not grounds for objections.

If I lodge an objection, am I still expected to pay the tax bill when it becomes due?

Yes. Although an objection is lodged, you are still required to pay the taxes. This however, would not apply if you stated that you are not the owner of the land in question. After the decision of the objection has been given and it is in your favour, you will be refunded any excess monies paid.

N.B. > If the tax bill is paid within thirty days of the issue date of the bill, you are entitled a 10% discount. If the bill is paid after 30 days have expired but before 60 days, you are then entitled to a 5% discount.

Is there any recourse to me if I don't agree with the decision of the objection?

Yes. You can appeal further to the Land Valuation Board within thirty days of the service of the notice of decision. Provisions are also in place for you to appeal to the High Court within 21 days of the service of the decision.

 

Commercial Properties

With the recent increases in VAT, utility expenses, insurance and the overall operational expenses, many commercial properties have found it difficult to recognise any significant increase in net income. Since commercial property values, particularly for offices, are driven almost entirely by their income generating potential, it would be hard to justify any increase in value. In the B class office market most rents remained static or rose by less than 5% over a three year period, but expenses also rose, putting pressure on yields.

Sales of commercial properties have also slowed due to tighter credit markets and dampened expectations of rental yields. Market data indicates that capitalization rates for businesses in Bridgetown and other areas have increased to compensate for economic uncertainty, and investment risk. In addition, tenant migration from lower grades to A-Class office spaces has resulted in significant vacancy in many areas particularly in the B class office market in Bridgetown.

While several new A class office buildings have been built in the past few years, supported by strong demand for space in such buildings and excellent rents being achieved, the remainder of the commercial market is left with severe challenges. High levels of vacancy, and rental increases not being large enough to offset increases in operating expenses for landlords, there is strong argument for overall decline in values for these markets. Furthermore, with consumer spending declining both locally and from the tourist market, retailers have met with challenges, which is reflected in stable rents for many retail properties.

Based on our research, there have been few increases in land tax assessed values of commercial properties except in the Warrens area, but no decreases in value. The Warrens commercial properties have seen increases in site assessed values of up to 70%; with commercial rental yields being tightened we find it challenging to accept that this should translate to increases in overall property values.

Lower – Middle Income Markets

Despite the Commissioner's statements that land has been selling for $25 per square foot this price point is not indicative of the entire market and values vary significantly by the size of the lots. The largest volume of transactions in the past three years has been in small residential lots of less than 9,000 square feet and large agricultural lots usually in the region of 2 to 2.5 acres in rural locations. Prices have ranged from $9 - $25 per square foot. In general, the larger the parcel of land, the lower per square foot value that is achieved, and vice versa.

In conclusion, our research indicates that property values across all sectors have either fallen or remained relatively static. This considered, it is difficult to conceive how the Land Tax Department has assessed increases for some properties of 40% or 50% in a depressed market. Similarly, the Land Tax Department should recognise reductions in property values in their assessments wherever there is evidence of such. The following table summarises the approximately reduction in value in various categories since 2008.

Property Type % Change
Local Residential Land (14%)
Local Residential Homes (16%)
High-end Residential Land (24%)
High-end Residential Homes (18%)
Beachfront Development Sites (20%)
Beachfront Condominiums (20%)
Commercial Property (excluding A Class) 0%
Agricultural Land 0%
If after considering the information provided you do not agree with your assessment you can lodge an objection. For this process a professional valuation is not required. However, it should help your objection to support it with a valuation prepared by a competent valuer (as described in the objection form). A careful assessment should be made of the cost of the valuation versus the potential savings. We would be happy to help you decide whether to proceed with a valuation if required. Please call Tania Wardle or Terry Hanton on (246) 432-8912 or email tania.wardle@altmanbarbados.com
Property Consultancy Services' (PCS) has over 20 years of experience in residential, commercial, industrial and agricultural property valuation, operating throughout the Eastern Caribbean.

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