Taxpayer better off with new residency scheme

Few things stir the emotions of business people in Malta more than the prospects of the property market. For decades the sale of property has been considered as the main motor of the economy as the multiplier effect of this industry permeates most strata of our economy. Since independence, different administrations relied on the property development industry to kick start the economy whenever it showed signs of sluggishness.

After nine months of gestation the new rules on how foreign nationals can obtain residency rights through the purchase of property have been published by the Ministry of Finance. Labelled the Special Tax Status for High Net Worth Individuals Scheme, the new rules have stoked economic and social controversy especially among the real estate agents community.

The government made it clear that residency rights would in future only be granted to “truly desirable” people who could bring about significant economic benefits when they bought property here. A leading estate agent labelled the latest scheme as “one of the very worst decisions taken by the authorities in the last few years” and warned against “messing with the economic motor” of the economy.

More independent observers of the social and economic scene were less dismissive of the new rules that will determine residency rights for foreign property owners. They argue that Malta is an overpopulated island that cannot afford to adopt an open door policy to anyone desiring to set up residency here by buying any property that one can afford. Since residency rights include the right to the same level of social benefits enjoyed by local taxpayers, the cost-benefit analysis of owning property in Malta from the perspective of local taxpayers has to be based on the real costs and benefits accruing to the local economy.

With an estimated 70,000 properties in Malta unoccupied and potentially available for sale, the operators in the property market are understandably keen to see the renewal of schemes that make the sale of local property to foreign buyers attractive. But many question whether the government is really responsible for rescuing those who underestimated the risks of over-investing in the property industry. Shouldn’t the cost of providing residency rights including free health and education be taken in consideration when deciding at what level of affluence a foreigner wanting to buy property in Malta becomes “truly desirable”?

The conditions tied to the scheme leave no doubt that the government has made its cost-benefit analysis with due diligence to really capture the economic advantages and the cost of attracting foreign property buyers to take up residence in Malta. The fact that the minimum price of property that can be bought by those seeking local residency has been upped to €400,000 indicates that anyone not affording to buy such property was unlikely to contribute sufficiently to the local economy. The other conditions including the requirement to live here for at least 90 days in a year was also clearly aimed at ensuring real economic benefit that goes beyond the initial positive impact enjoyed by those selling property to foreigners.

Many agree with the government’s statement that “the potential future liabilities associated with granting residency rights to foreign owners of local property were big and detrimental to the country”. Undoubtedly, the property market needs to be supported in a sustainable way. But this implies that such support is provided at the least possible cost to local taxpayers.