Land Tax and the Law of Gravity
The effect of the global recession on the local market has been significant, characterised by substantial reductions in transaction volume and demonstrably longer exposure periods across all property segments.
Continued economic challenges have prolonged the sluggish conditions such that we are seeing an increasing supply of distressed residential properties, primarily in the low and middle-income segments of the market, where financial institutions are implementing measures to recover on their lending. This situation has been further compounded by an over supply of residential land, which despite prices declining since 2014 (as discussed and demonstrated in the Terra Land Price Index shown on page 98), appears to demonstrate a decline in appetite for real estate.
These factors directly impact the property tax revenue to be earned by the Government as the tax is calculated based on property type and value, with some classes given special rebates or exemptions once the required criteria have been met. The Barbados Revenue Authority (BRA), reassess property values on a triennial basis, and the most recent re-valuation was conducted in 2017.
Every parish is segmented into land tax reference areas. During the revaluation exercise, Officers within the Land Valuations & Assessment section at the BRA conduct checks of properties (land and built) in each land tax reference area, and examine recent sales transactions for similar properties in the same reference area. Two officers are assigned to each parish. Property values are then determined based on the analysis performed, and the relevant tax assessed based on the final value. Of note, the tax rates and bands did not change in the 2017 re-valuation, however while some taxpayers noted little or no change, others reported increases in the range of 10% – 100% in the assessed site and/or improved values, resulting in substantial increases in their property tax obligation.
Taxpayers are required to pay the tax due or risk incurring penalties and interest, but are also allowed to file an objection in writing to the Revenue Commissioner, within 30 days of the tax assessment issue date. The BRA reviews objections received and for built properties the Officers will conduct a full inspection, including measuring and photographing the property (residential), inspecting or using the income approach to value (commercial), and again reviewing comparable sales transactions. On completion of their analysis, the Officer either reduces the site/property value and therefore the property tax is assessed (resulting in a refund to the taxpayer), or the objection is overruled.
Interestingly, the revaluation process utilises a “mass appraisal” approach to assess trends in large volumes of data, which while a widely accepted tool for the valuation of property for taxation purposes, differs from techniques used by Valuers focusing on individual properties.
“BRA REASSESSES PROPERTY VALUES ON A TRIENNIAL BASIS THE MOST RECENT RE-VALUATION WAS CONDUCTED IN 2017.”
One would anticipate declining property prices as noted above would translate to reduced values on which tax is assessed. However, with recovery actions taken by financial institutions in compressed market periods, recent sale transactions may not reflect the true market value of a property.
Historically, however, real estate in Barbados has been considered a reliable investment, so if the saying “what goes up must come down” is correct, then the opposite (hopefully) should hold true. Consider though, that future rises in property values may well equal an increase in property tax in the 2020 revaluation.