Developers Association calls for joint action to stabilise property market

The Malta Developers Association has unveiled a set of 10 proposals for the reinvigoration of the development and property market while warning that the sector is being held back by several factors that are prompting developers to hold back from undertaking new developments and which could lead to an "exaggerated drop in property prices".

It set that it had communicated its proposals to the Government and the Labour Party last June, and added that the proposals were received positively by both parties. It appealed to Maltese politicians for joint action on areas where there is common agreement.

"We should not waste more time because of political issues which have nothing to do with the widespread wish to see the stabilisation of Malta's property market and added economic growth," the MDA insisted.

"These proposals are aimed to stabilise the property market and to bring it out of its current recession without encouraging additional construction in non-developed areas and without drastically reducing Government income," the MDA said.

"We believe that with these measures, property purchase would increase, and the resulting Government income from taxation would similarly increase."

The MDA added that it is informed that, following a number of meetings, one of its proposals (see point 1 below) is being considered for inclusion in the Government's upcoming budget. "However given the current political uncertainty, there is the eventuality that what is announced in the Budget does not come to pass as the country might have early elections," it added.

In its statement, the Malta Developers Association warned that developers are facing a situation which discourages them from undertaking new investment, especially with regards to the construction of residential units.

The MDA said that the majority of developers "are opting to consolidate their position and not take on additional bank loans as they feel that it is no longer viable to expand their businesses," the association said. "This attitude will lead to greater deterioration in the market, in some localities more than others.

"While it is undesirable that property prices become artificially inflated, it is equally undesirable for the economy that properties stop being considered an investment, especially given how Maltese families go to considerable lengths to invest in their homes."

The MDA said a situation where couples or individuals looking to buy their first property find themselves investing in a property that depreciates in value, rather than becoming more valuable, would be harmful to the economy.

"An exaggerated drop in property prices could lead to such an undesirable state of affairs," it insisted.

The association also expressed concern regarding the renewal of existing permits already-issued by MEPA, and said it met with MEPA several times to discuss the issue, and noted that there are a number of developers who find themselves in the quandary as they are unwilling to undertake developments given the current unfavourable market scenario.

At the same time, they are concerned that should their permits expire without them having carried out the development, they have no assurances of being able to obtain permits for the same development in future.

"This is leading to a situation where developments are started but left unfinished," the MDA said, adding that the MDA had successfully convinced MEPA to draft a policy on permit renewal which will be published for consultation shortly.

The association also expressed concern regarding the renewal of existing permits already-issued by MEPA, and said it met with MEPA several times to discuss the issue.

The association urged MEPA to encourage those developers holding permits to seek to amend their permits to reflect the current situation, and insisted that developers should have to pay the tariff discrepancy between when the first application was made, and when the renewal was filed.

The MDA's budget proposals are as follows:

1.       In the light of how many sellers are opting to sell property with a profit of less than 51%, the MDA proposed that that property sellers be given the option to choose between paying tax on the actual value of the sale as part of income tax payments, or pay the Final Withholding Tax of 12% on property sale prices.

2.       That a one-time concession be given first time buyers exempting them from duty tax for one year.

3.       Those wishing to finance property purchases by means of a bank load should be able to to reduce the loan interests from their income for the purposes of income tax. Should the money be owed to the seller, the interests on the debt should be taxable by 15% withholding tax. Taxation on the unpaid amount should be paced with income.

4.       Foreign property owners should be allowed to rent their properties as holiday premises to attract more foreigners to buy property in Malta. Such purchases should be facilitates without excessive restrictions, with the condition that a contract is entered into with Government specifying that said foreign buyers cannot seek free education, and must pay for health care.  There should be a limited period during which foreigners are not limited in how many properties they can buy.

5.       Income from rent should be taxed by a Final Withholding Tax of 12% (which means 15% on received rent, from which 20% maintenance tax is reduced) to encourage then rented property market.

6.       There should be a significant reduction in MEPA tariffs on applications for improvements and rehabilitation of existing dilapidated properties in Urban Conservation Areas (UCA) and overall rundown areas.

7.       The purchase and rehabilitation of dilapidated buildings in UCAs as a profitable investment should be encouraged by means of the introduction of a 5% Final Withholding Tax on the value of the sale when these are resold following rehabilitation.

8.       UCAs should all be considered Special Designated Areas to stimulate property sales in such areas.

9.       Swapping of properties should no longer be considered a process upon which profit should be taxed as if it were a sale.

10.   For taxation purposes, the Government should begin accept the value of property sold as that which is indicated by means of official valuation which architects conduct as part of the contract of sale.