John Leiba | Expediting real estate transactions
The junior minister in the Ministry of Finance and the Public Service, Fayval Williams, commented at a seminar hosted by Sterling Assets Management on June 23 that Jamaica is rated 186 out of 226 countries in the time it takes to complete a real estate transaction.
New Zealand is rated number one.
Jamaica's relative rating is borne out by experience. On average, local real estate transactions take in excess of 120 days to complete. The slow speed of doing real-estate transactions is rightly regarded as a hindrance to economic development.
However, this was not always the case. Over the years, there has been a gradual increase in the time it takes to complete real estate transactions. Within the relatively recent span of the last 10 years, the transaction time as usually agreed by the parties in contract has increased from 60 days to 90 days and, eventually, to 120 days, which is the current standard.
Although not an everyday event, in the 1960s and '70s, it was possible to complete a real estate transaction in one day. The document could be stamped then taken to the Registrar of Titles office and the transaction completed the same day. The question is what has happened since then to make the completion of real estate transactions so protracted.
The slowdown began in the 1980s with the amending of the Stamp Duty Act, increasing stamp duty from 2.5 per cent to five per cent, and the introduction of the Transfer Tax Act.
An important element in the Transfer Tax Act is that the stamp commissioner has the power to impose a value on the transaction higher than the one submitted. This was the beginning of the painful delay which is now common.
In effect, the stamp commissioner has the power to hold the transaction in order to satisfy himself or herself that the value is acceptable or to impose an assessed value.
The result is that in many instances, transaction documents take more than three weeks to be stamped. This is not acceptable.
Certainly, holding a document for assessment should be the exception and not the rule. If we are to improve the time it takes to complete land transactions, the bottleneck of stamping has to be removed.
Solutions to the problem
We are now in the era of pre-qualification for mortgages. To short-circuit the process, it should be possible to notify the stamp office of a proposed sale, which would allow the office to visit the premises and determine its value before the document arrives for stamping.
Another solution would be to remove transfer tax and impose stamp duty of five per cent across the board. The potential revenue loss might well be worth the benefit of moving transactions more expeditiously through the system.
The huge tax cost involved in large transactions is also of concern as it holds out a great incentive for the parties to find creative means of effecting transfers. An overall reduction of transactional costs must be a consideration.
A further bottleneck is posed by the requirement that all National Housing Trust (NHT) mortgages must be registered by the NHT. Most legal practitioners have experienced delays as a result of this mandatory process. Consideration should be given to allowing mortgagors to elect which system they wish to use.
One positive is the introduction of the Land Administration and Management Programme (LAMP), especially regarding unregistered land and the requirement for probate and subdivision approval before transfer. The big drawback in the programme is that it is understaffed and therefore a number of the benefits are undermined because the process is not moving as fast as it should.
However, there is a ray of hope in the Titles Office and the National Land Agency. While by no means perfect, they have benefited from the introduction of the expedition process where, for a fee, subdivision plans can be expedited and also land transfers can be done in a day.
These offices have also benefited from competent leadership, particularly in the person of Cherice Walcott and Elizabeth Steer, respectively.
The solutions proposed here are by no means comprehensive. It is noteworthy that New Zealand has abolished its stamp duty and replaced it with a sales tax of 12.5 per cent. This suggests that perhaps a careful study of the model followed by our fellow Commonwealth country would be a good place to start.
John Leiba is an attorney in the Kingston office of law firm DunnCox.