The removal of the government’s property valuation system has a number of benefits, ranging from certainty for buyers to the ability to start improvements immediately.
Until now, the Inland Revenue Department would send its architect to value properties being sold and the stamp duty would be based on this amount. If there were a significant difference between the amount declared as the agreed price and the IRD price, then it was assumed that the vendor was underdeclaring and a fine could be imposed.
Buyers will no longer need to get a separate valuation for the bank and for stamp duty, which will also save time and resources.
The procedure was meant to deter underdeclaration but in practice, it had far more detrimental effects. A year ago, the Malta Developers’ Association suggested that it should be scrapped – and last week, Finance Minister Edward Scicluna did just that.
The buyer now has the option of appointing his or her own architect to value the property, or not to appoint one at all, in which case the IRD would carry out a check to ensure that the declared price falls within a certain bracket.
Under the new system, the IRD architect would only be sent in exceptional cases when a very low price raised suspicion of attempted tax evasion. The head of the MDA, Sandro Chetcuti, said that in practice, the IRD architect (there are only a handful of them) was rarely able to check all the properties sold. Even so, in many cases, the valuation was not done till months after the sale was concluded.
“This meant that the purchaser could not make any improvements to the property until after the valuation was done – as otherwise the IRD architect would assess the property on the basis of the improvements that the buyer would have paid for after the sale! Now, at least, improvements can start straight away.
“The system also did not give any clarity – even for people who had no intention of evading tax. For example, if you managed to get a real bargain, perhaps because someone was under pressure to sell quickly, you would declare the price you really paid knowing that the commercial value was higher,” he explained.
“You knew that you would have to pay the stamp duty on the higher value, even though you actually paid less. But you would have no way to know what the IRD architect would consider the commercial value and risked getting fined if you inadvertently underdeclared.
Valuing a property takes many parameters into account
There is nothing which irritates people more than the injustice of being fined when they had no intention of evading tax. People who did evade would never complain about being caught. It is only the innocent who would get upset!”
The new system relies even more heavily on the competence of the architect and Mr Chetcuti said that they should know their own limitations: “Valuing a property takes many parameters into account and it would be wise for architects to decline this job unless they are competent as it could have serious implications for their client.”
The Federation of Estate Agents agrees that the new system will minimise the chance of an unpleasant surprise for the client before or after the contract.
Will the new system be flexible enough to take into account all the context of a property, from location and size, to finishing and views, however?
“There is no real system other than a buyer will have the right to get his own architect to value as was done previously. The architect will take all factors into consideration, location, finishing, size etc.,” federation president Ian Casolani said.
The next step would be to create some sort of index or database which would serve as a guide to property values. This was recommended by the BICC in the past and while the MDA was originally in favour of the concept, Mr Chetcuti said the association said it would only work if it were just used as a benchmark.
Mr Casolani was also cautious about the index.
“That is something different and more complex which is being looked into,” he said.