How to liberalise the property market

Further to my article "Sense must prevail sooner rather than later" (July 16), internal discussions have continued relentlessly in an effort to seek plausible solutions to recommend to the government for a possible timely liberalisation of local rents. To this end, a meeting with representatives of the Building Industry Consultative Council (BICC) sub-committee on property was also held in mid-July.

The Chamber envisages four main steps to be overcome before the property market can be safely described as liberalised.

The first stumbling block to be eliminated is the regulation providing for "security of tenure". For years on end, this provision gave rise to social injustice as it offered protection to relatives of tenants who "abusively" moved in the premises in the twilight of the latter's lives in order to "inherit" favourable rental conditions. The elimination of this unfair protection is deemed both socially and politically friendly. In fact, 58.3 per cent of respondents to an opinion survey published on June 22 in The Sunday Times stated that "low-rent tenancy should not be inherited automatically".

Successfully surmounting this first obstacle would pave the way to the gradual liberalisation of residential rents. The Chamber proposes that a formula acceptable to all parties be devised with a view to hastening the liberalisation process.

Rents could be indexed to the 1939 minimum wage or the retail price index. Although the resulting increases are not envisaged to be prohibitive, a safety-net could be offered to tenants who cannot afford the revised rent.

In such cases, the government may offer subsidies or social assistance that would, ideally, be subject to means testing to prevent abuse as far as possible.

This move could be perceived as less politically neutral although the social injustices inflicted by the current system should not be overlooked especially in cases where the tenants happen to be relatively more affluent than the landlord who could be an old age pensioner relying on rents to supplement a pension.

To add insult to injury, as the law currently stands, the landlord is also obliged to finance any maintenance works required in rented properties.

There are a few serious fiscal anachronisms which also need to be ironed out without further delay. The Chamber contests the anomaly whereby an inherited property is taxed according to the value given to it by the Inland Revenue Department.

This valuation does not usually take account of whether the property is rented or vacant. In the former case, a property would carry a much lower value in the property market if it was rented out according to the 1939 rent laws.

It would be more than fair for the fiscal authorities to take such an important matter into consideration. The Chamber regards this proposal as extremely socially-friendly as no section of the population will be adversely affected. The slight disadvantage would be inflicted on the public coffers but surely our politicians are not shortsighted enough to dismiss the real benefits of eliminating these particular sources of injustice.

The Chamber has made its stand on commercial rents amply clear in the past. Such cases give rise to even greater injustice because here the tenant is exploiting protection from antiquated and unfair legislation to the detriment of the rightful beneficiary of profits. In the case of rent of commercial premises, another injustice arises in that the government enjoys certain rights that private landlords do not.

The Chamber's stand on commercial rents would be in favour of complete liberalisation. This would not merely eliminate the injustice caused but also ensures fair competition between operators of similar businesses in nearby locations but with differing rental agreements. The Chamber is convinced that this change is necessary, just and long overdue even though certain members of the government have recently expressed themselves otherwise.

The Chamber acknowledged that its proposals might not all be politically-friendly because of possible short-term social repercussions. Nevertheless, the status quo continues to impose harsh social injustices to tenants who may be social cases in their own right. Timely solutions are therefore necessary and the "security of tenure" amendment could constitute an ideal start.

Political consensus needs to be urgently struck on the amendments to be made to the local rent laws if these are to have the desired confidence and effect on the market. Unless any changes are made in the next 12-month period, the Chamber fears even longer delays in rectifying the situation. Politicians are notoriously reluctant to act on potentially politically-sensitive issues less than three years away from a possible general election.

The amendments proposed are aimed at restoring social justice to land and property owners. They would enable the rental market to flourish, re-dimensioning rent charges and property prices through liberalisation and market forces.

These amendments would also provide a plausible alternative to young people who at present take out high mortgages to purchase expensive property. They are also conducive to placing properties which are currently vacant and dilapidated back on the rental market. This would benefit the environment through the regeneration of slum areas while at the same time new buildings would not continue to be erected on virgin land.

The Chamber augurs that bold steps are taken in relation to rent laws as well as other areas of national policy where they are required. The country must realise and accept that the few cannot continue to benefit from unfair situations that are causing hardships on the nation at large.

Mr Fava is president of the Chamber of Commerce.