Saturday, 11th October 2008
Financial crisis 'immense opportunity' for real estate
Owners of vacant property should be given incentives to put their property on the market, not have their assets taxed, according to the real estate section of the Chamber of Commerce and Enterprise.
Economic consultant Gordon Cordina, who was commissioned to conduct a report on the situation, noted that a decline in real estate prices would have adverse consequences on the sector and the economy, and the significant amount of vacant properties could underpin this threat.
However, this factor could be turned into a notable economic opportunity if there was a specific focus on enticing international demand for property in Malta.
His report said that if vacant residences in holiday areas were sold over 15 years, this would generate inflows from abroad averaging about €150 million a year in the case of flats, and some €250 million a year for all the property taken together.
"Such inflows would have an important multiplier effect in the economy, affecting not least government revenue," Dr Cordina said at a press conference, where chamber section president Trevor Busuttil yesterday presented proposals to the government for the upcoming budget.
The report, which analyses the contribution of the real estate sector to the Maltese economy, proposes a number of policy initiatives.
Mr Busuttil said the section believed that, although the government's proposed rent reform was a step in the right direction, it would not solve the housing affordability situation people faced today.
Presenting his findings, Dr Cordina said the real estate sector in Malta generated around 12.5 per cent of GDP and seven per cent of employment, directly and through activities closely related to it.
He noted that real estate prices had increased significantly in 2004 and 2005, with a period of correction featuring moderate price increases in 2006 and last year. A moderate decline in activity was also noted in recent years.
Dr Cordina said the current financial crisis opened up immense opportunities for the real estate sector, as it made property in Malta a better and sounder investment for both locals and foreigners.
The government, he said, should ensure it keeps supporting and facilitating the property market through the appropriate fiscal and regulatory policies.
A decline in the price of real estate in Malta would have serious adverse consequences not only on the sector but on the economy as a whole, he warned.
Dr Cordina also highlighted the persistent problem of housing affordability, which mainly affects first-time buyers.
While calling for measures directed at this specific segment, the report stressed that these measures should not introduce elements of uncertainty which would further dent the potentially fragile situation of the market.
He emphasised that the development of the international market for real estate in Malta would not impact negatively on housing affordability, because of the separate natures of these two market segments.
Proposals made by the section include a reconsideration of the system of taxation of capital gains on real estate transactions, of the regulatory framework on the letting out of property in Malta by foreigners, and of other conditions governing the real estate rental market in Malta.
In order to secure a properly functioning market that is attractive to investors, including international ones, the section recommended that the system of capital gains on real estate be rendered a flat 15 per cent on realised profits.
Otherwise a second best option that could be contemplated was an extension of the five-year period applying to the option of the use of the profits-based tax system.
Another suggestion is to remove unnecessary fees and restrictions on the letting of real estate by foreigners in Malta.
The introduction of a favourable tax regime in the rental market was also recommended to enhance the efficiency of the real estate sector and its economic contribution.
Dr Cordina said that, while these measures could have a considerable negative effect on government revenue, from a static perspective they presented a significant potential for long-term benefits, particularly arising out of the sale of vacant property to foreigners.
A potential growth in GDP of between 0.8 per cent and 2.9 per cent a year would be expected through the sale of part of the vacant real estate stock to foreigners, together with the creation of between 300 and 1,200 jobs, with government revenue rising by at least €30 million a year on a net basis.
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Comments
To see gain or revenue as the number one priority is short-sighted and a defeat for the people of Malta. Short-term gain, long-term pain. Who does the government serve – the real estate market or the ordinary people who live in the country? The future of the country depends on getting this right.
So here the middle income class is being asked to subsidise (through our taxes) the profit of speculators who took their big bets some years ago. And yes property contributes a lot to GDP, but this is spread among a few businessmen and not across the whole population sector. So to keep our country's balance sheet looking better we will subsidise it even more.
My proposal: Reduce the withholding tax on interest on all income earned from banks and other investments. This will definitely contribute to a healthier multiplier effect on the economy. Money would be released from property and reinvested in the economy coz other investments will be more attractive. Speculators will build less and our state of environment will improve
I would have thought that Dr Cordina reads financial newspapers. The current global financial crisis has its roots in the property market, which was a bubble which finally burst!! He who invests in property right now must be a mad man as I suspect that a similar situation, but on a smaller scale, will happen in Malta! Just look at the big number of vacant property (especially flats and apartments) around the islands, the shrinking demand (including international demand due to the crisis) and the number of banks pressing on contractors to pay their dues + interest. Then you'll see what opportunities are in line for you!
How about cutting on speculation.............
If salaries had increased in tune with the property (soon to burst bubble) no qualms there.
But when salaries remained what they were, for years on end - the normal average wage earner could not afford to acquire a property - unless both partners work for many many years with a part time job each.
Yes let the property crumble - incentives would mean part of our tax contribution going their way. In the USA unoccupied buildings are usually pulled down.
How can someone whose first residence is declining in value by the hour, whose stock exchange investments have halved in value, whose local bank is being nationalised to stave off a collapse, and who is unable to obtain credit, buy a holiday home abroad?
STOP further buildings and the destruction of Malta and our environment greedy misers.
Do NOT remove tax for foreigners since they will exacerbate the problem for our youths who are just starting life and cannot afford to compete with our miserly wages.
With house prices elsewhere now getting into the zone of good value for money and still falling, it seems unlikely that foreigners would flock to Malta to purchase vastly inflated property prices.