Kingston, Jamaica – Jamaica real estate capitalization rates are expected to double in 2010 with the rollback of stamp duty and transfer tax by the government.
Colin Scott VP of RealEstateInJamaica.Com.Jm cites that the result will increase the supply of housing solutions in the country and annex its closest rival in profitable returns on property investment in the Caribbean.
“It is the best move by the Golding Administration since they took office in September 2007,” said Scott as he outlined the clear benefits of the tax rollback. Before 2007 buying real estate in Jamaica for short term investment purposes was both lengthy and costly. However since that time the government in its bid to boost overseas investment in property in the country has been steadily reducing the cumbersome taxes associated with divestment of real estate in the country. Coupled with a simultaneous improvement in the processing of registered titles the latest reduction in the tax levy will make Jamaica the most lucrative location to buy and sell realty in the Caribbean.
On January 1, 2010 transfer taxes and stamp duty of property will be reduced from 5% to 4% and 4.5% to 3% respectively. The move is expected to catapult real estate investment in the island to levels never before seen.
At today’s existing rates a home for sale in Jamaica yields a total of 9.5% in government taxes. As a result, the real cost of property acquisition and divestment is much higher than the actual sale price. This was a burden to the purchaser and eroded the vendors’ profits. “Though capital gains tax is common in most countries with respect to profits made on real estate sales, taxes levied by the Jamaican government is a major deterrent for foreign real estate investors”, cited Colin Scott VP of RealEstateInJamaica.Com.Jm.
The average capitalization rate for a home in Jamaica is approximately 7% per annum. Residential Jamaica real estate can be sold for JMD$5,000,000 and will yield just over JMD$360,000 in annual rental income revenue. The roll back of the stamp duty and transfer tax will reduce overall costs to both parties in the transaction and improve the capitalization rate on the property. This at a time when Jamaica property prices are trending downward as over-supply of housing solutions in the market and the inability to access affordable credit have taken its toll.
Simultaneously inflation in the economy has incrementally increased rental rates across the island. The cumulative effect of increased rental income, lower property acquisition costs and lowered taxes of Jamaica real estate transactions is expected to push the capitalization rate to well above 12% particularly for homes in Kingston Jamaica. Such a high annual return will topple the rates enjoyed by Houston, Texas, Los Angeles and San Francisco in California and New York City, New York all listed in the top ten best places in the world for real estate investment by Forbes Magazine.
Jamaican Prime Minister Bruce Golding stated in opening the 2009 Budget Debate in Parliament that “substantial foreign investments over the last decade and a half, have not generated a commensurate level of growth in the economy”, precipitating the move by the government to roll back the stamp duty and transfer taxes. “Economists have agreed that the availability of more houses for sale in Jamaica indicated excess supply of housing solutions and would lead to an obvious reduction in prices and new investment opportunities” said Scott, “This is a good thing for major players in the Jamaica real estate market like our company that are promoting middle to low income housing”.
