Six weeks after the Budget, real estate agents are still anxiously waiting for news on the government’s plans to introduce a flat 15 per cent tax rate on property rentals.
“The property rental market is presently going through a positive stage with rising demand for long-term (six-month to two-year) rentals. However, all landlords are asking the same question: Is there a system in place, as we are still awaiting for complete information from the authorities?” Dhalia chairman and CEO Chris Grech queried.
One of the main issues awaiting clarification is whether the 15 per cent would be paid on gross rental income or whether landlords would be able to deduct expenses such as agents’ fees, furniture – which depreciates – and so on.
Real estate agents are convinced that the 15 per cent tax initiative will attract a good number of property investors, which cannot come a moment too soon. Frank Salt managing director Joe Lupi told The Sunday Times of Malta that demand for long-let rentals was increasing every year, particularly from the i-gaming and financial services sector.
“The Federation of Estate Agents has for a number of years been requesting the reduction of tax and licence fees in respect of rental accommodation. When one considers the tax, fees, agents fees, breakages and in some instances bank interest, it was no longer feasible to rent out property. Although it is still very early to say, the reduction to a flat rate of tax to 15 per cent should make a difference, as owners will now be more inclined to declare their rental income,” he said. He warned, however, that some landlords might be tempted to increase rentals by 15 per cent to cover the tax.
One problem is that the i-gaming and financial sectors want good quality properties and the supply is quite limited in popular locations like Sliema, St Julian’s, Gżira, Msida, as well as St Paul’s Bay and Marsacala.
“The long-let market is very competitive and only good quality property fetches good rent. Thankfully, owners have realised this and consequently the market need not be regulated in as far as standards are concerned,” Mr Lupi said.
However, the law of unintended consequences has come into play as recent stories about rental of unlicensed property, and undeclared income has scared some landlords away from the black economy. But rather than staying in the short-let/holiday rental sector, Mr Grech believes they may now opt to rent their properties for long lets, boosting supply.
“The licensing system for holiday and short-term rentals involve high fees paid to the Malta Tourism Authority, so we anticipate that most landlords will revert back to long-term rentals, especially when landlords know where they stand vis-à-vis the 15 per cent tax rate scheme.”
Mr Grech believes that the next step is to encourage banks to realise the potential of the rental market and to approve more loans than they do at present – and at more competitive rates.
“Banks see borrow-to-rent as a risky proposition. This is not the case abroad where there is a formula which covers the anticipated occupancy, fees and so on. Such a formula should be developed for Malta,” he said.
Sara Grech, CEO of Sara Grech Ltd, said that the average sale price for a buy-to-rent property is €130,000, while her brother Chris estimates that investors are often willing to put up 30-40 per cent of the money themselves.
Mr Lupi agrees there is scope for investment: “Sales of property as a rental investment is also increasing, both by local and foreign buyers, and indications show that this demand is bound to continue increasing in the future,” he said.
In the meantime, Ms Grech had a cautionary word for landlords: “Clients have to realise that when a property stays on the market for longer than six weeks, then the price is wrong.
“The mentality has to change; prices cannot be based on personal needs but on what the market can give. The saying ‘I am not in any hurry’ should be put off the radar.
“It’s totally unacceptable to put a property on the market with the wrong price because you are not in a hurry. A property is put on the market to sell or rent, simple as that.”