Walk into any bank branch to request a home loan or talk to any real estate agent and you will immediately realise that the first-time buyer market is passing through a period of boom and flurry.

Undoubtedly, the stamp duty exemption whereby first-time buyers do not pay anything for the first €150,000 of their purchase, which equates to a maximum saving of €5,250, is a good enough motivator to encourage many young people to take that bold step in sourcing and committing themselves to their first investment in real estate.

The Malta Developers’ Association has actively lobbied for this exemption, which applies to all qualifying contracts of acquisition of residential property entered into by the end of 2014. The government included it among the various fiscal measures announced in the 2014 Budget.

The characteristics of the exemption, targeting first-time buyers for a limited period of time, has indeed achieved the desired effect of boosting demand for property within or around the €150,000 price range.

As the year-end deadline rapidly approaches, bottlenecks are fast accumulating at bank home loan desks and notary offices, with property negotiators being busier than usual showing potential first-time buyers around the various options available.

The fact that this exemption was allowed a definite time window of 12 months was intended to give a clear message to potential first-time buyers: act now and do not leave it too late because you might miss the bus.

First-time buyers might throw caution to the wind to qualify for the exemption

As with any tool, this exemption has been used carefully and diligently by various interested parties that have taken the opportunity to secure their first home, encouraged also by the not insignificant saving on the contract closure costs. It has also helped serious property developers to sell some of their stock.

However, as with any tool, some vendors, notably certain unscrupulous developers, are using the mechanics of this scheme and the sword of Damocles that is the scheme’s fast approaching end-of-year deadline, to concoct highly speculative scenarios that, unfortunately, can be disastrous for the unsophisticated, usually young and inexperienced, first-time buyer.

I have recently assisted one such first-time buyer in securing bank finance for his first home.

Following a period of intensive searches, the choice fell on a 190-square-metre penthouse, still on plan, in a desirable location in the northern part of Malta. The price, at €165,000, for a fully finished penthouse with beautiful common parts, including lift, made the proposal very attractive.

The snags?

The permit is yet to be issued and the payment terms required by the vendor were for the contract for the purchase of the airspace to be entered into immediately the permit is issued.

At that point, the contract for the sale of the airspace will be entered into, in which the amount of about €98,000, representing the cost of the airspace and equivalent to a hefty 60 per cent of the total purchase price of the property, is to be paid to the vendor by the buyer.

At that stage, of course, the buyer will qualify for the stamp duty exemption but, probably unsuspectingly, will start paying his bank loan interest and life insurance premium now for a property that will be completed within 15 months’ time if the vendor adheres to the agreed completion schedule.

Of course, the buyer here exposes himself to the project completion time overrun risk, the incidence of which is quite high in Malta, as also to the counterparty risk, where, in the event of default on the part of the vendor, the buyer will end up with a probably useless penthouse airspace.

So the stamp duty savings and any possible capital appreciation during the period from contract date to completion date must necessarily be weighed against the bank loan interest and life insurance premium, which the buyer will be paying during the completion period, as also to the various inherent risks including those mentioned above.

I believe that such arrangements are heavily loaded against the unsuspecting and usually inexperienced first-time buyer, who is being blinded by the rush being caused by the approaching deadline of this stamp duty exemption scheme.

I am sure that, at the inception stage, it was not the objective of the lobbyists or those who implemented the scheme to expose the first-time buyer to this buying pressure. However, as the deadline approaches, I am afraid that certain first-time buyers will throw caution to the wind and enter into arrangements such as the one I have described above and rush into concluding the property purchase before the year-end deadline to qualify for the exemption.

At this stage, therefore, I strongly suggest that the government intervenes by extending the scheme indefinitely as soon as possible.This would deflate the bubble that is being created and that has already led to price increases being seen over the past months with regard to properties under or around the €150,000 scheme ceiling.

Such a measure will also act as a consumer protection measure and tranquilise the many first-time buyers into taking rational and unrushed decisions with regard to the purchase of their first home.

It will also bring order to an otherwise chaotic market situation in the run up to the end-of-year scheme deadline.

spiteri.mario@gmail.com

Mario Spiteri is a certified public accountant and a real estate agent