Estate agents yesterday expressed mixed feelings over the government's announcement of changes to the property sales tax scheme which had been unveiled in the budget speech last week, upsetting the industry.

Although the amendments were considered to be "much better" and the "the fairest way out" of what had been proposed, it was pointed out that they would still penalise those who sold their property after five years with a much higher tax rate.

Frank Salt, chairman of Frank Salt real Estate Ltd, questioned why a property owner should have to sell within five years, or if not, pay a tax penalty?

"We do not need a lot more new properties on the market as there are plenty at the moment and thousands more in the pipeline.

"We must all be trying to keep property prices reasonable and the market free of restrictions. Only that way would it continue to prosper," Mr Salt told The Times.

According to the fine-tuning measures announced on Wednesday, when a taxable property is sold within five years of its acquisition, the vendor can opt to either pay the new 12 per cent final withholding tax on the sale price, or come under the former regime at 35 per cent on capital gains.

This choice would also be given for the first transfer of developments in special designated areas where it would not be bound to the five-year limit. In the case of engaged couples, who jointly owned a property and broke up, the transfer of the share of a property from one of the parties to the other would be exempt from the new system.

For Cassar & Cooper (Real Estate) Ltd general manager Michael De Maria, an "injustice has been rectified". He had categorically described the withholding tax as "unjust" in that whoever sold at a small profit, or none at all, would still have to pay 12 per cent of the selling price. "We are very pleased to see that the government has realised that there is a sector of the market that would have been hit and would, in certain instances, have been paying a higher tax than the maximum rate of 35 per cent," Mr De Maria told The Times.

"If the present trends in capital appreciation continue at the same rate, after five years the 12 per cent withholding tax should amount to approximately the same as would have been paid under the old regime.

"The difference is that the method of payment and collection would be much cleaner and clearer now," he said. There was no denying that the 12 per cent withholding tax was a "clean" process for both the vendor and the government.

"You pay it once and forget about it; otherwise, it involved a lengthy process," he pointed out.

Mr De Maria said the new change would be safeguarding those who needed to sell quickly and were cash-strapped. Those who were not making a profit would not be paying tax.

"People who have had property for a long time are going to enjoy an advantage. But that was the whole idea anyway - to free up hoarded property," he said.

But while Mr De Maria envisaged that, after five years, property appreciation should cover the 12 per cent withholding tax, Mr Salt was of another opinion.

"What the government is assuming is that, within five years, property prices will go up in value to compensate for the extra tax. But this may not be case," he stated. "In fact, we hope it will not be the case because we do not want prices to increase too much."

Estate agents and the property market have been trying to keep price increases as low as they could because it was not good for the property market if they went up too much, Mr Salt said.

In the case of a normal purchase of a second property, either as a rental investment, a home for the children or as a holiday home, the chances are that the money would be borrowed, he said, adding that interest rates depended on the different banks.

However, if a property was purchased today and sold after 10 years, giving a 10 per cent increase per annum, which was considered to be high, and taking all expenses, including interest, into account, the 12 per cent withholding tax would be equivalent to a 57 per cent tax on the real profit.

According to his calculations, if the property were sold after 15 years under the same conditions, the 12 per cent withholding tax would be equivalent to 42 per cent of the real profit.

"Why should someone have to sell a property within five years? Why can't they sell when they want? If, after five years, something happens and they have to sell it, they are going to be penalised by the high tax."

According to Mr Salt's calculations, property owners would either have to sell before five years, or after 15.

"Although this moratorium is good and much better than before, it still means that if someone sells his property one day after five years, he would have to pay a very high tax. And this is not right!"

Prime Minister Lawrence Gonzi told Parliament on Wednesday that the introduction of the final withholding tax on properties had been very well received by those who had inherited property.

Indeed, the purpose of the measure of introducing the withholding tax, instead of paying 35 per cent on the profit of the sale, was to encourage these property owners to put their properties on the market, so that the increase in supply would dampen prices, which had been rising over the past few years.