What are the Costs Involved in Land Transactions in Jamaica?

Land in this context refers to raw land or land with building.In either instance, the cost of transacting remains the same. However the most pertinent difference would be the value of each as the costs are in most cases calculated on the basis of the value of the land. This discussion is also applicable to both commercial and residential properties.

Cost of the Land

The initial cost is the cost to acquire the land. If the property is advertised for sale, the interested purchaser must first determine their ability to purchaseeither with their own cash resources or by way of a mortgage. Prior to pursuing and determining the acquisition cost it would be crucial to determine if the selling pricelisted ismarket value or above. A purchaser should enquire whether the seller has a recent valuation (preferably within 6 months) or an appraisal to guide the purchase decision. Determining value is one of the most critical elements in the purchase decision and it is for this reason that a real estate agent or broker should be engagedgiven their awareness of the market trends and what comparable propertieshave sold for.

The transaction costs discussed will take into consideration whether the land is being purchased with actual cash or by way of a mortgage.

Cash Transaction

Whether cash or Mortgage, there are certain government fees that have to be paid apart from just the property purchase price. The government imposes stamp duty of 4% which is shared equally  between the seller and the purchaser so the purchaser’scost is 2% stamp duty. There is also a title registration fee of 1/2 % which is shared between the purchaser and the seller. This means the purchaser pays one quarter of 1% or 0.25%. Therefore, the total purchase cost would be 2.25% and these charges do not attract General Consumption Tax (GCT). Notabley the seller pays transfer tax of 5% and bears this cost enterirely. It is not a shared expnse. Other fees would be attorney fees and these vary from 1 to 3% depending on the cost of the land and the complexities involved, such as whether there is a mortgage involved or if there are caveats or any restrictions on title that could affect the time spent on the transaction. An attorney may therefore choose to charge more because of the extra work involved.

Mortgage Transaction

Apart from the costs mentioned above, there will be additional expensesif a mortgage is needed. The purchaser should speak directly to a mortgage company or to a mortgage broker who will be able to assist in identifying the mortgage institution whose requirements may best fit the purchaser’s credit profile. Once this assessment is made the mortgage broker will be able to identify the costs involved. The mortgage company has its own application and other processing fees.There is also the fee for having the collateral assigned to the lender and this also includes government fees to stamp the mortgage security of 0.625%. This is a separate stamping fee from the 2% that was discussed earlier that is incurred for the land transfer. If National Housing Trust (“NHT”) is the mortgage provider, then there are certain costs implicit in that purchase transaction and those should be determined beforehand. With mortgage companies, it is important that the purchaser identify more than one institutions and compare the varying costs.

Costs after Purchase

After purchasing the land, other costs should also be considered, such as those related to improvement and renovation. These can be undertaken at the purchaser’s discretion and in their own time.

The adage “buy more property than you can afford” is generally good advice as overtime the cost of home ownership becomes more manageable. However, a purchaser must first take steps to determine very early in the process the transaction costs outside of the purchase price of the land. In Jamaica, the general rule of thumb is that the transaction costs associated with the purchase is generally in the range of 10 % – 12 %.