Hotels and Out-Island Residential Developments

Hotels and residential developments are the government’s favourite and most incentivised target for Foreign Direct Investment (FDI). Purchasing 500 acres on a beach with intentions of building exclusive resorts, golf courses and marinas is likely to get every lawyer, real estate agent and politician in the country smiling like a crocodile. And I am continually amazed at how many seasoned and shrewd developers from the real world come here and get taken to the cleaners. So I will say this once

The big boys come here and take one look at a mile of deserted powder white sandy beach……and lose their minds.

But without doing a business plan or understanding government regulations, local market forces, infrastructure, international supply chains, etc, etc, they drop a small fortune on the land and go back home thinking they can’t possibly lose. And when it comes time to start to build, many of them realize they are in over their heads, they don’t understand what it entails to build in the islands, and inevitably walk away with their tail between their legs after losing millions. 

Foreign Investor Permit

A foreign investor permit is technically required if / when

• You buy a second or additional properties. Each property requires its own application and approval. This process is something your conveyance lawyer usually handles for you during the title transfer process. It is a rubber stamp and registration process more than anything and the only time I have heard of people having the application scrutinized was on their umteenth purchase
• If the (first) property you purchase is undeveloped land that is 5 acres or over
• Your stated intention is to use the property as a commercial enterprise or full-time rental property.

Incentives & Heads of Agreement

There are no official guidelines that I can give you, and the government’s appetite for development (and local job creation) may vary from island to island and community to community, but is not hard to be a big fish in a small pond in the Out Islands. Spending $3mm on a house in one of the exclusive gated communities in Nassau will not get noticed by anyone. However, going to a remote community in one of the out-islands and announcing that you are going to spend $3mm on a state of the art eco-resort with 6 bungalows, may make the local MP your best friend, along with being entitled to import duty tax exemption on building materials, real property tax relief, upgraded community infrastructure, work permits for you and your family and a whole host of other negotiable benefits. On large projects where these benefits are going to have a significant impact on the buildout and operations, they are commonly negotiated with the government before the investors commit to the development and this is all registered in a ‘Heads of Agreement’ which is basically a contract stating the government will do ‘X’ so long as the developer does ‘Y’. And please note, like any government in the world, the incentive for them to be generous decreases once you have bought the land and begun developing, so negotiate everything in advance if you can.

Performance Bonds

Performance bonds are often demanded by the government, especially in the case of new residential subdivisions. Typically the government will require you to fund the equivalent of what it would cost to pave the roads and install utilities. The monies would be kept in an escrow account that you can draw down on when you can verify that various stages and aspects are completed. In a lot of cases, the government will make it very difficult for you to provide clear title to prospective buyers until all of the infrastructure is completed also.

Bribery

Bribery is a dirty word in this country in spite of some perceptions. If anyone reading our content ever has a problem with a corrupt government official, please contact us and we will accompany you to the Prime Minister’s office and get the matter resolved. We are sure there are plenty of favours greasing bureaucratic wheels, but no one should ever feel intimidated or forced to pay a bribe.

Permits and the Environment

There are not a lot of rules here compared to most Western Countries. The government keeps an eye on sensitive areas such as coral reefs and coastal zones which is all common sense when it comes to the wider eco systems and storm surges alike. An environmental impact study is required for any development that affects these sensitive areas but I dare say the government has traditionally been very reasonable with balancing economic activities and the environment. Planning and permitting on any scale should only take a few months here.

Real Property Tax for Commercial Property

Real property tax for commercial properties is higher than residential property tax

Below $500,000 a tax at the rate of 1% per annum of the market value

Over  $500,000 a tax at the rate of 2% of the market value of the Bahamas property.

Usually based on initial purchase price but in the case of developments, the value of a property is the amount the property will receive if it is sold in the open market