Property market vs the economy

There is no doubt that the property market is a major factor which drives the economy anywhere in the world, a factor that does not only have economic implications but has a fundamental bearing on our daily lives. One needs to see the prevailing crisis in the property markets in the US and the UK, a crisis which is having a disastrous effect on the economy of these countries and its people. A crisis which has led the governments of these countries to put in motion drastic measures to help reduce the negative impact that the situation is having on the economy. In the US, you have the government buying out the two largest mortgage companies in the country and in the UK, the government is waiving stamp duty mainly to assist the first-time buyer market among other measures.

The situation in Malta, thankfully, is nothing compared to that prevailing in these countries. However, I feel that the government can play a major role in helping to boost the local economy through measures intended to create a sustainable property market.

The first-time buyer market is undoubtedly the market which should be given priority. Although the government and local banks are doing a lot to help in this area, our young couples are still finding difficulty in getting into the market. Notwithstanding that today's prices have stabilised and a good selection of affordable property is available, I believe that the re-introduction of the Equity Sharing Scheme and measures to release property on the rental market will go a long way to boost this very important market.

Another measure which the government should seriously consider introducing is the extension of the five-year period to at least 10 years by which time vendors have the option to choose whether they wish to be subjected to the old regime of capital gains tax or to the final withholding sales tax of 12 per cent.

This tax, unfortunately, is forcing vendors to place their property on the market before the five-year period in order to save paying the tax, thus effectively increasing the supply of property on the market as well as chasing away demand by local or foreign investors.

There is presently a very good demand for rented property both by foreigners and by locals, particularly first-time buyers who cannot afford to purchase for the time being. This demand is bound to increase once the amendments to our rent laws, presently being discussed, come into effect.

Unfortunately, the licence fees and tax levied on these properties renders the renting of the property unfeasible. When one considers the cost to maintain these properties in addition to, in some cases, bank interest and other costs, it simply does not make economic sense to rent the property out but rather leave it vacant. I believe that it is extremely important to consider the introduction of a final withholding tax on rentals and the removal or reduction in licence fees. I am convinced that such a measure will release much-needed property on the rental market and attract more investment.

Unfortunately, in our country we seem to fail to appreciate the benefits that we can reap through the marketing of our islands as a retirement destination or as a place where a foreign investor can invest his millions of euros in sustainable developments. While other countries roll out the "red carpet" for these people and spend millions of euros to attract them, we constantly impose restrictions to chase them away. These range from restrictions to rent their property to bureaucratic red tape and inconvenience to take up residency in our islands. Why are we so afraid to open up to so much investment coming into our islands? The irony is that Maltese investors are, meanwhile, investing millions of euros in property overseas. Is this what we really want?

Do we really want to continue to see eyesores such as the abandoned derelict buildings at White Rocks which can be turned into a luxury golf development attracting world-class golfers to our shores? Are we happy with simply getting some cruise liner visitors to spend a few hundred euros on souvenirs during a brief stay in Gozo when we can have owners of super luxury yachts spending thousands of euros while berthing their yachts throughout the year in a much-needed marina development that can be built instead of an abandoned quarry presently used as a rubbish dump?

I believe that this is what the Prime Minister was talking about a few days ago when he said one has to strike a balance between development and the protection of our environment. These sites are presently a scar on our environment and should be removed as soon as possible. This can be done by attracting more foreign investment. Just look at what we have managed to do at the Valletta and Cottonera waterfronts and at Portomaso, all buzzing with economic activity. Imagine what SmartCity and Manoel Island are going to look like when completed.

Our islands can truly be a jewel in the Mediterranean!

This is what we should be talking about and not about surplus vacant properties and spiralling property prices, instilling fear in whoever wishes to invest in our islands. We should be finding ways and means of boosting our growing economy and not slow it down, not only for our well-being but also for a bright future for our children.

Mr Lupi is managing director of Frank Salt Real Estate Ltd.