Property crisis looming

The property market is stagnant and could reach crisis point if the government does not give first-time buyers incentives, the Chamber of Small and Medium Enterprises - GRTU is warning.

The GRTU says its recommendations are aimed at cushioning an anticipated "hard landing" by drawing back into the market buyers who are playing a waiting game.

The proposals include the re-direction of the €20.9 million, envisaged for the construction of about 300 social housing units, to more appropriate incentives.

The president of the GRTU's property section, Sandro Chetcuti said he could not understand the need to invest more money in social housing, pointing out that this would continue to kill the property market and create an economic crisis.

In certain cases, Housing Authority prices were higher than the private sector's, Mr Chetcuti maintained.

GRTU surveys show that there is an oversupply of residential developments, which, coupled with stringent banking conditions and a more cautious approach to loans, is contributing to lower affordability and indecision by prospective buyers. As a result the market is adjusting.

The downward market correction vis-à-vis property prices and the government's indecision on undelivered electoral promises on housing were sending out the wrong signals to prospective buyers, he warned.

The uncertainty could lead to a credit crunch for developers, businesses, contractors and other industry stakeholders.

Explaining today's scenario, Mr Chetcuti said that, while the property supply grew, the demand did not. Prices had stopped rising in 2007 and 2008 was seeing the stabilisation of what were inflated prices.

"We want to move towards property becoming an investment, without the excessive increase in prices," he said.

Today is a buyer's market, Mr Chetcuti claimed. But the problem was these buyers "feared" it was a sliding market and were holding back, losing opportunities and aggravating the situation.

He insisted there was a limit as to how much prices could continue to drop, discouraging waiting.

"When the price is good, go and grab it," Mr Chetcuti said, admitting that some developers were still dreaming and prices had to be corrected.

To tackle the indecision, the GRTU strongly recommended a six-month moratorium on the payment of stamp duty on property purchased by first-time buyers, including foreigners, on prices of up to €116,468.

It is also recommending the allocation of funds for the introduction of the government's pre-electoral promise on the shared ownership scheme - €23,300 per couple to first-time buyers - which would kick-start the economy.

Money used for social housing could be re-directed towards the scheme, which, if boosted, would lift the stagnation, result in an increased sale of property and end the apathy, Mr Chetcuti said.

The GRTU also encouraged the government to incentivise the rental and emphyteutical concessions by introducing a flat tax rate to owners - separating revenue on investment from that on income and trading - and tax credits to first-time buyers for a number of years.

Tax credits should be granted to buyers who decided to rent property instead, the GRTU insisted.

It was also proposing extending the five-year option granted on final withholding tax to eight years to save a substantial number of developers, who acquired land at a high price, from a serious credit crunch as the market is going through a deflation period.

The GRTU called for the elimination of double taxation in connection with final withholding tax on VAT payments, explaining that developers were paying VAT on furnishings and another 12 per cent on them when selling.

Moreover, final withholding tax, or capital gains, should be paid on the real selling price and not based on the subjective valuation of the government's architects who sometimes inflate the market, with buyers being fined unnecessarily, the GRTU said.

It proposed the setting up of a task force to examine practical ways of addressing excess supply of housing units through the introduction of mixed-use zoning, given the growing demand for commercial premises.

The government should wake up and issue a legal notice to permit commercial operations, such as offices and small showrooms, in residential areas, it said. Otherwise, it would be assisting in the onset of a crisis.

The GRTU also proposed the setting up of a fund to aid stakeholders in the implementation of the Energy Directive, which comes into force on January 1 and is expected to cause chaos as no one has understood what is required and it has not been marketed adequately.