August 2009

Real estate purchase – without the hassle

Finding a property that meets your requirements can be quite frustrating. Finding one that meets your requirements, within your price range which also meets the lender’s requirements for adequate security, is indeed a challenge! Purchasing real estate can sometimes be a very complex process – especially if it becomes necessary to borrow to assist with the purchase. To alleviate much of the pressures involved in the purchase, particularly if it is for a home, a price range for the purchase particularly if it is for a home, a price range for the purchase should be established before starting to look at properties. If you need to borrow, a quick call to your lender of choice will inform you of the borrowing limits of that particular institution. Or, you could call mortgage broker who will give you loan information from the entire market. Many purchasers often forget to include Legal fees and Stamp Duty in their budget. Read more

Real estate duties, taxes and fees in Trinidad and Tobago

AREA welcomes the Government’s much needed adjustment to the Stamp Duty regulations. Previously the threshold for exemption from Duty was $450,000 but with the dramatic increase in house values, this threshold was far too low to be effective in giving relief even at the low end of the property market.

The new threshold has been raised to $850,000 which will make a significant difference to closing costs, particularly since the Government has also adjusted the percentages of Duty paid on the sliding scale of charges.

The details of the new Stamp Duty calculations are included in the following document – Click Here

Foreign Investment Act 1990

The Foreign Investment Act of 1990 allows a foreigner or a foreign company or non-resident to purchase up to one acre of residential land and/or up to five acres of commercial land in Trinidad & Tobago, without applying for a license. It is very difficult to locate land along the beach frontage in either island unless one is buying with development opportunity in mind. Most real estate along our coasts is owned as large estates ranging from 100 acres to 300 acres.

Owners are not willing to subdivide the real estate to sell. A number of these estates, however, have recently changed hands and quite a few projects came on stream in Tobago within the year, that would include sale of lands, townhouses, hotel sites.

AREA – Past, Present and Future

The Association of Real Estate Agents, AREA, was officially launched in 1990. This was finally accomplished after more than 10 years and numerous unsuccessful attempts to create an Association of Agents who were working on a full time basis within the Real Estate Industry. As far back as the mid- to late-1950’s, a number of attempts were made to establish some sort of co-operation between people actively involved in the selling of Real Estate, and acting as sales agents for owners of property. Back then, there were probably not more than five Real Estate Agents in the Port of Spain are actively involved in the real estate business, even fewer in San Fernando, and numerous “house agents” scattered around the country, who were assisting property owners to either sell, rent or manage their property.

Well-intentioned as they all were at that time, nothing ever seemed to take hold. In those days there were not as many properties for sale on the open market as is the case today. It was not a common to tradition move and upgrade homes. When you bought your home back in the 1930’s and 1940’s, inevitably you were probably set for life in that home. This is where the family grew up, went to school and eventually only left the roost to get married.

OIL BOOM

As the late sixties rolled in, and the windfalls of the oil boom (known as the oil crisis in oil-importing countries) started to filter in through the various communities, financial security improved in nearly all areas of the country, and the demand for housing increased. One inevitably saw a number of people jumping into the Real Estate business and acting as “Agents.” It was inevitable that among those that got into the business, there were going to be some who saw it as an opportunity to capitalize on the uninformed and in many cases, the majority of those who were badly hurt were the least able to afford it. Until the formation of AREA, there were no rules by which a Real Estate Agent was governed. Even the numerous well-intentioned and ethical agents were all playing by different rules. There were virtually no two agents who practiced in the same manner.

It was the context of this situation and the numerous complaints from the general public that it was felt that some sort of structural organization and direction was needed. Even today, anyone wishing to get into business of virtually any sort in Trinidad and Tobago can do so without the need for a license, regardless of whether they were qualified to handle that business or not. Additionally, with the number of agents growing, it was felt that if real estate agents themselves did not make an attempt to improve the situation, chaos was inevitable. In response to this, the Association met and an agenda was established. Some of the priorities that were listed were:

1. Standardise contractual forms, documents and agreements.
2. Set up a system for sharing information among Real Estate Agents.
3. Establish Educational programmes.
4. Establish legislative models which could be used to regulate the local industry.

When AREA was officially launched in 1990, the membership comprised 6 to 8 of the most active Real Estate Companies covering about 25 sales people. Today, there are more than 51 brokers, 30 sales associates and 18 corporate members. The multiple listing service includes hundreds of residential and commercial properties.

The Trinidad and Tobago Real Estate Market – An Overview

Real estate prices in Trinidad have increased substantially since the recession of the 1980’s. With the opening up of the economy the Trinbagonian entrepreneur is more confident in the economy and has taken full advantage of the tax benefits implemented in recent years. There has also been an influx of foreign investment that have come to Trinidad mainly in the petrochemical industry.

These investors have set up ammonia, iron carbide and methanol plants to rival the size of others all over the world. Most of the offices for these foreign investors are located in Port of Spain, with the petrochemical plants situated at Pt. Lisas, thereby creating a demand for office accommodation at Pt. Lisas and Port of Spain and for housing in the north-western peninsula and San Fernando environs of Trinidad. BPTT has completed the construction of a 60,000 square-foot office building in Port of Spain, that is owned by three of the Country’s largest finance companies who have made a determined thrust as real estate developers.

As a 34% shareholder in the Liquefield Natural Gas Plant (LNG) presently being constructed at Pt. Fortin, Amoco has also commissioned a 20,000 square-foot office building at Pt. Fortin. With this plant being established at Pt. Fortin, together with the mega plants at Pt. Lisas, we have finally seen an improvement in real estate prices in the south, due to housing needs for the LNG plant’s contractors. Market values have finally caught up with replaceable cost values, even though housing is still significantly cheaper than in the north west.

There has been a mini-building boom in the last three years in Trinidad, which has helped to steady prices even though the opening up of the economy has resulted in quite a demand for housing. This building boom was mainly as a result firstly, of a tax incentive implemented that would mean that all rent would be tax exempt, and all rates, taxes, mortgage interest and expenses deductible, once the property was constructed after 1993 and completed by 1996. Secondly, the demand for rental accommodation meant that the average Trinbagonians could buy, build and lease at a great return on his investment, having had the tax break. Thirdly, the entrepreneur was once again confident in the economy of the islands.

Why own a home

Adapted from a presentation by Leslie J Mohammed Managing Director First Citizens Mortgage and Trust Co.

Real estate agents often say that renters only have rent receipts to show for all their years of tenancy. It has also been said that renters are simply too busy or lazy to bother with home repair and maintenance. The home owner must grit his teeth and prepare for a lot of tap repairing, lawn cutting and other disagreeable tasks, which the landlord supplies to the renter. However, as a homeowner, the sense of pride he exudes on the accomplishment can be second to none, and thus one can readily understand the meaning of the phrase “a man’s home is his castle.” A home also satisfies a basic psychological need.

It is something we call our own, relate to, fit up, decorate, add to, play with, even love. Be it ever so humble, or so proud, there is no place like home. But home ownership is not always the proverbial bed of roses. The cost of buying or building is rising and so is the cost of maintenance — and rates and taxes. Perhaps the strongest reason for buying a home, and buying it now, is that housing is not going to get any cheaper. A home is an investment in every sense of the word, and it is an investment even better than stocks and bonds. A recent newspaper advertisement by a bank urged residents to put their savings in deposits. The advertisement showed a man investing $10,000 in the stock market and after 10 years of ups and downs he was right back where he started. The tag line was “There’s gotta be a better way.” Well, the best way for most of us is to buy a home. No other investment equals a home of your own — tax benefits, hedge against inflation, and long term safety.

In addition, the value of the house will certainly increase over the years. For most of us, it is the single biggest and best investment we would make in our lifetime. A house is a true investment. Unless you made a very poor choice, your house will increase in value every year. With reasonable maintenance, houses normally appreciate about 5 percent annually, homes in choice neighbourhoods can rise by 10 percent or more. The concept of equity is one that should be fully grasped by anyone considering home buying. The build up of equity in a home is the biggest single reason for the financial attractiveness of home ownership. Equity build-up come not only from the gradual reduction of the mortgage, but more from the appreciation value. As long as the home is not in a deteriorating neighbourhood or allowed to disintegrate, the inflationary forces at work in the housing market will make your home increasingly valuable. Thus, if you buy a home for $200,000 with a $20,000 down-payment, it is not unreasonable to presume that your house will be worth $270,000 ten years from now. Your stake in the house is now $90,000 instead of $20,000. Add to that the principal repaid over the ten years, say about $15,000, and you have a reasonable nest egg. And as the years go by the equity increases even faster.

In 25-30 years when the payments are completed, the home purchased for $200,000 can sell for more than $400,000. Owning a home is not easy. The initial hurdle is to have the cash available for the initial costs — down-payment, valuation fees, stamp duty and fees paid to the mortgage institution. There is one argument against buying a home now — you don’t have the down-payment. Those who already have a house usually have enough equity for a substantial down-payment, but for the family that is looking for its first home probably will not. In spite of the considerable obstacles, saving money for a down-payment is not an impossibility. Once you become used to some time of regular savings, it is lot less painful, and can even be satisfying. Consider the renter and the home owner, where the rent equals mortgage instalment. At the end, what will the renter have — a mountain of receipts. What will the person who sacrificed to raise the down-payment have — an unencumbered home. Take your pick.