Property controversies in Malta, old and new

Schemes to try to attract foreign residents to reside here and to buy residential property go back several decades and have always been controversial, for one reason or another. It is only the nature of the controversies that has changed, at witnessed by the reactions to the new parameters announced by the Ministry of Finance a week ago under a new scheme intended to replace the one suspended nine months back.

In summary, the new scheme is intended for ‘desirable’ high net worth individuals- Lino Spiteri

In the 1960s the controversy centred on two principal objections. One regarded the preferential tax rate granted to expatriates given permission to settle here. I recall being part of those who labelled those expatriates “six-penny settlers” and criticised Prime Minister George Borg Olivier for doing them the favour.

The reply to that criticism was that the settlers would spend a considerable amount of money in Malta, creating employment of sorts and with a multiplier effect. The second objection was that we were selling Malta to foreigners. This objection incensed many of the idealistic young, from right across the political spectrum.

Times have changed. The permanent residents’ scheme had been in force for 25 years before it was suspended. No howls against it were heard. Rather the opposite, in fact. Widespread grunting criticism was levelled when it was suspended, again from across the political spectrum, attributing to that decision the lull which took hold of the property market.

The suspension had been indeed abrupt. It caught in midstream impending deals still at the promise-of-sale stage. It created uncertainty in a particular sector of the market, even if the government came out with a number of reasons for its decision. Among other things it said, rather insincerely, that selling property to foreigners was not its objective.

Attributing the lull in the property market to the suspension of the scheme was an over-reaction. It ignored the fact that the latest property boom had been sparked and fed by the multiple schemes introduced by the government intended to lure undeclared foreign capital back to Malta.

Both those who responded legally and paid the penalty involved in repatriating, as well as those who were scared of the warnings that all would be discovered through the EU savings directive and illegally sought an outlet for their repatriated liquidity, were hungry for alternative assets. One main outlet was property. Prices responded to the new massed demand.

Once the inflow of foreign capital eased off, demand for property dropped back to its normal components, being mostly first-time buyers and existing owners who wanted and were able to upgrade their residence.

Be all that as it may, it all showed the changed attitudes to selling property to foreigners. Some resentment is still expressed that the government is offering a preferential rate of tax of 15 per cent (against an effective rate of close to 35 per cent to not-so-high high net worth Maltese residents). Yet there is a widespread welcome to permanent residents who buy property in Malta.

If the Ministry of Finance is being criticised at all it is for a setting a relatively high minimum property benchmark for new permanent residents to be added to the 718 who had a permit to live here.

There are aspects of the new scheme I do not agree with. The price benchmark is not one of them, since I believe that if we are to sell property to foreigners we should ensure that is higher end units. Contrary to part of the voiced criticism, that will not raise the demanded price level for average locals.

In summary, the new scheme is intended for “desirable” high net worth individuals. It stipulates a price benchmark of €400,000. EU applicants will have to pay minimum tax of €20,000 annually, plus €2,500 for each additional family member.

Non-EU members have to pay a minimum of €25,000 in tax. They also have to put up a bond of €500,000, plus €150,000 for each additional family member.

I appreciate the ministry’s intention to do its utmost to allow in only “desirable” permanent residents, and therefore charging an initial fee (a steep €6,000) to cover searches to determine if the applicant is a fit and proper person. But the bond is much too high.

On the other hand, the requirement that a resident spends at 90 days per year in Malta seems to be on the low side, as is the minimum tax, which does not quite tally with the objective to attract only high net-worth individuals.

The proof of the efficacy of the scheme will lie, as always, in its outcome. Representatives of property developers and others are not agreeing in their comments.

Some see the benchmark price as too high. Others fear it will push property further out reach of domestic residents.

The bond for non-EU residents is particularly frowned upon, though the requirement to renew visas regularly and the objective to sift applicants to try to ensure that only desirables are allowed in is understood.

All of which means that, while the controversies of old are no more, new ones are not scarce. In the context of them all the authorities would do well to keep an open mind to fine tune the new scheme parameters in reaction to its reality tests.