Building and Selling

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The closely linked construction and real estate sectors are, along with tourism and the financial services sector, the main pillars of the Bahamas' economy.

Recent estimates put the construction sector's contribution to the economy at around 10% of Gross Domestic Product (GDP), though this may shrink as new tourism developments are put on hold following the impact of the global economic slowdown.

The Bahamian construction industry enjoys a degree of state protection, with tight restrictions on foreign contractors entering the market. Overseas construction firms are only allowed to work on projects if local firms are unable to meet the required standards.

This policy was reaffirmed in May last year, when State Minister for Finance Zhivargo Laing told local media, "The Bahamas does not intend to open the construction sector to foreign competition".

Although this stance does offer some protection to domestic contractors, the sector has struggled due to a shortage of skilled labour. The government has sought to bridge this gap, announcing increased funding for vocational education, including for tradespersons, in the 2008-09 budget handed down in late May.

The recent slowdown in the tourism industry - with visitor numbers predicted to decline by 6% in 2009, according to government estimates - will undoubtedly impact the construction sector, but the state is seeking to take up some of the slack.

The budget for the current fiscal year allocated $250m for capital expenditure, with much of it going towards infrastructure projects, including $87m to the Department of Public Works. Among these projects are road improvements, the initial stage of the $400m renovation to Lynden Pindling International Airport and the construction of new public housing units and administrative buildings. Labour and Social Development Minister Dion Foulkes told local media on December 17 that the projects would create over 3,100 new jobs.

Real estate is also a prime mover in the Bahamian economy. Like the construction industry, the sector is closely intertwined with tourism, as the Bahamas promotes itself heavily as a destination for retirement and holiday property investment. According to the Bahamas Real Estate Association (BREA), there are more than 600 licensed property realtors in the country.

The sector has also been affected by recent trends in the international market. In an address to the nation on November 10, Prime Minister Hubert Ingraham said that while the first half of 2008 had seen a 15% increase in loans for new home construction and renovations, both loan activity and building work were now subsiding.

This view was supported by Terrell Rolle, a branch manager of the Bahamas Mortgage Corporation, one of the country's leading lenders, who said the domestic real estate sector has been hit by the global economic crisis.

There has been a decline in the numbers of applications for loans since July, as the first effects of the economic crisis began to be felt, Rolle told the local news on January 9.

"We have seen a slowing down in people coming to borrow. I think many people are just holding back and wanting to see what's going to happen with the economy," he said.

In the most recent budget, the government moved to encourage home ownership among locals, raising the ceiling for property tax exemption for first homebuyers from $250,000 to $500,000, and with the exemption valid for five years. The stipulation also provided stamp tax exemption for buyers purchasing a lot zoned for residential development for the purpose of building a primary dwelling place, as well as for those purchasing a newly constructed home.

Additionally, the budget lowered the tax rate for owner-occupied properties valued at more than $5m from 1% to 0.75%, a decision that is expected to benefit wealthy foreign residents in particular as well as increase the Bahamas' appeal to overseas buyers.

Though welcomed by many, BREA has warned there is a hidden bite in the budget, as the maximum tax cap of $35,000 was also removed. Even with the reduction in rate, owners of high-end properties will end up paying far more in property taxes.

BREA President William Wong told the local press in early January that unless the tax ceiling was reintroduced, the real estate sector could see sales fall, especially in the luxury bracket and in the second home market.

With the real estate and construction sectors highly dependent on tourism as a driving force, both industries could be in for a slower time in 2009, though state initiatives to offer support could offset this to some degree.

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