Home' Trinidad and Tobago Guardian : January 17th 2016 Contents In analysing the Varinstall mortgage
product introduced to the local market
by the Workers Bank in the late 1970s,
the Central Bank, in its 2007 Public
Education Pamphlet, titled "The Res-
idential Mortgage Market in T&T,"
states: "The onset of recessionary conditions
in the economy in the latter half of the 1980s
severely affected property values as well as
personal incomes and created unusual stresses
for the product."
The Varinstall Mortgage, which started with
a low initial mortgage instalment, was based
on the assumption that the incomes and prop-
erty values of homeowners would continue
It was felt that if the incomes of homeowners
rose over time then he, she or they would have
been able to pay the higher instalments of
both principal and interest, which kicked in
after a few years.
The 1980s recession, which was caused by
a collapse in oil prices similar to today, inval-
idated many of the assumptions that were
made 30 years ago.
The recession then meant that the Workers
Bank "eventually faced severe problems of
loan default," leading to about 90 per cent of
their entire mortgage portfolio being in arrears
in April 1989 when the institution was in
"technical insolvency," according to the Central
The story of people locking up their homes
and handing the keys to their bankers may be
apocryphal, but there is probably an element
of truth to it.
The contention here is that if the middle-
income families are not very careful, the hol-
lowing out of the residential housing market
that occurred in the 1980s---with such dev-
astating social, economic and financial
impacts---can very well occur again.
That assessment is based on a December
2011 paper entitled "Housing Finance Policy
under Dutch Disease Pressure: the mortgage
market in T&T."
One of the conclusions of the Inter-Amer-
ican Development Bank paper, which is co-
authored by deputy Central Bank Governor
Sandra Sookram, is that "the price of housing
in T&T is very highly correlated with the inter-
national price of oil."
By that I think the authors mean that if a
recession lasts long enough, it leads to
retrenchment, static or declining salaries and
reduced discretionary income caused by higher
taxes and a fall in transfers and subsidies.
All of that may make it more difficult for
middle-income families to keep up with their
If the ownership of homes by middle-
income households is threatened by the reces-
sion, is there anyway those families can
Here are some suggestions:
1) Have a discussion with your mortgage
lender about whether you are paying a higher
instalment than you should. Some of lenders
will not lower your mortgage interest rate
unless you specifically ask them;
2) Find out if your mortgage is rated under
the Mortgage Market Reference Rate, which
is the interest rate benchmark against which
mortgages are to be priced and repriced. That
rate, which was supposed to increase the dis-
closure and transparency of the mortgage mar-
ket, was introduced in September 2011. It was
supposed to include all new and existing res-
idential real estate, but clearly it does not;
3) If you have a lump sum set aside to but-
tress your retirement savings, give serious
thought to making a downpayment on your
mortgage. This is especially useful given the
fact that mortgage rates are likely to increase
in the near future.
JANUARY 17 • 2016 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
Does the recession
threaten your home?
In a letter to the editor of the Express
published on Thursday, Arnold Corneal of
Maracas Valley, outlined a scenario that is
likely to be repeated again and again in the
future as the country comes to terms with
the imposition of the new property tax
The story that he told was of a 79-year-
old man and his wife, retired public servants,
with a house in one of Trinidad s picturesque
valleys that now has an appraised value of
$1.8 million but who live on joint pension
income of about $6,000 a month.
Mr Corneal asks what can such a family
afford when being asked to pay a property
tax and what would be considered to be a
fair taxation rate, determined by an equitable
By the examples he gave, it would appear
that the letter writer believes that the prop-
erty tax is based on the value of the property
as he concludes that if a tax of 0.3 per cent
of the property value of $1.8 million is used,
the cost to the homeowner would be $5,400
annually or $450 a month.
He also writes that if the tax is 1 per cent,
the annual cost to the retired couple would
be $18,000 a year or $1,500 a month.
Mr Corneal is wrong to assume that the
property tax is based on the market value
of the property. It is not. The property tax
regime is based on the the annual rental
value of the property
The 2009 Property Tax Act makes it the
responsibility of the Board of Inland Revenue
to prepare a roll of all lands liable for taxation
under the act, the valuation of which is to
be done by the Commissioner of Valuations.
According to section 11 of the Act: The tax
payable on land shall, in respect of the
annual taxable value of the land, be based
on the percentages set out in Schedule I."
Schedule I makes it clear that the rate of
tax on a residential property is 3 per cent,
on commercial property is 5 per cent, indus-
trial property is 6 and 3 per cent, while
agricultural property is 1 per cent.
If it is determined that the annual rental
value of a house with a market value of $1.8
million is $8,000 a month, then the annual
rental value of the house is $96,000 a year
($8,000 X 12 months).
The annual rental value of the property
is defined as its rental value as determined
by the Commissioner of Valuations under
the Valuations of Land Act.
Section 14 of the Property Tax Act states:
"The Board of Inland Revenue, in assessing
any land for the purposes of this Act, may
make deductions and allowances in respect
of voids and loss of rent equivalent to ten
per cent of the annual rental value given in
respect of the land in the Valuation Roll."
This means that ten per cent of the annual
rental value of the house is subtracted to
arrive at the annual taxable value ($96,000-
9,600=$86,400), which then attracts the
residential property tax of 3 per cent. Three
per cent of $86,400 is $2,592, which works
out to be $216 a month.
One would assume that the sum of $216
a month on a house with a market value
of $1.8 million can be managed even by a
retired couple with a monthly income of
The property tax to be paid on a house
can be determined by finding out what is
the annual rental value, deducting 10 per
cent and then calculating what is 3 per cent
of that. Or just calculate 2.7 per cent of the
annual rental value.
What is noteworthy is that the Property
Tax Act makes clear the properties that are
exempt from the tax. These include: houses
of worship, schools, properties owned by
incorporated charitable institutions, land
belonging to the state, statutory authorities
or state enterprises controlled by the State,
hospitals, UWI and other tertiary education
institutions and lands belonging to foreign
governments and international institutions.
It is also noteworthy that the Act allows
for objections, relief, revaluations and
For example, at section 22, the act allows
a property owner to object to assessments
on grounds that include:
• that the annual rental value of any land
appearing in the Valuation Roll is incorrect
or unfair having regard to other annual rental
• that land should not have been included
in the Valuation Roll;
• that land omitted from the Valuation
Roll should be included therein;
• the assessed tax is incorrect; and
• that the Valuation Roll is incorrect in
some other material particular.
How onerous will property tax be?
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