There are about 53,000 vacant properties littered across Malta and Gozo with a combined value of €7 billion, according to the head of the real estate section of the Malta Chamber of Commerce, Enterprise and Industry.
Trafford Busuttil said that if the sum was invested in the economy, it would receive a boost of about €350 million annually, equivalent to seven per cent of the country’s GDP.
But with a degree of acerbic frankness, Finance Minister Tonio Fenech told property developers – gathered for a business breakfast at The Palace, Sliema, to discuss the future construction and property industries – that several apartments built over the years were simply not up to scratch.
“There are many developments that are lacking in quality and are far too small. Buyers are not interested in such properties. I simply don’t know how they will ever sell.” Developers, Mr Fenech said, had to adapt to the modern market and adopt a “new mindset”. It was useless incentivising the development of new buildings if these did not meet buyers’ needs.
Topics raised during the event were many, varying from the use of vacant property to bureaucratic and financial hurdles. There was even a fiery rebuke by Mr Fenech of criticism of the new permanent residence scheme (see box below).
Vincent Cassar, representing the Chamber of Architects, noted that a number of vacant properties were essentially unsellable because they did not comply with modern-day sanitary or planning regulations.
The president of the Malta Development Association, Michael Falzon suggested that redeveloping or rebuilding such properties could form part of Malta’s sustainable development strategy. Recycling such derelict properties would mean developing less virgin land, he noted.
Both Mr Busuttil and Mr Falzon suggested introducing a 10 per cent withholding tax on residential properties to encourage owners of vacant properties to put them on the market.The government and the Malta Environment and Planning Authority drew considerable flak.
“The property industry is not a cash cow for government taxation,” Mr Falzon said. He insisted that development permit tariffs, which, he said, “have simply become another tax,”, had to be revised. Malta’s rate of capital gains tax, Mr Falzon continued, was among the highest in Europe. He suggested cutting it to seven per cent for buildings that complied with EU energy efficiency guidelines, developments in village cores and to first-time buyers.
Mr Falzon insisted the association was not after hand-outs or subsidies. “We don’t want bureaucratic hurdles,” he said.
Mr Cassar agreed. Bureaucracy was “weighing Mepa down” and discouraging property developmentPlanning fees for new developments had more than quadrupled over the past decade. In 1996, a development permit for a commercial property with an area of 2,200 square metres cost €27,000. The same permit today costs €120,000.
Addressing complaints about the government-appointed architect system, Mr Fenech admitted he was “not happy” with it, adding he had yet to come across a better one. “We’ve made some changes but let’s remember that the system exists because of abuse in valuations.”
Under the current system, a government-appointed architect is dispatched in about 30 per cent of property sales to assess the value. If the government architect’s valuation is higher than the original estimate, the property is taxed accordingly.
Detractors charge that the system is arbitrary because it relies on the architect’s assessment of the property’s market value and say it discourages deals by introducing a further tax at the point of sale.
Criticism of residence scheme
The permanent residence scheme announced last month came under criticism by a number of speakers because of what they believed were the overly high financial thresholds it set.
Finance Minister Tonio Fenech, however, was in no mood to take the criticism lying down. “EU nationals who simply wish to buy property in Malta are free to do so. Non-EU nationals just need to get an acquisition of immoveable property permit. The new scheme has absolutely nothing to do with those who only wish to buy property here.”
Of the 6,000 properties sold to foreigners over the past three years, only 123 were bought by individuals wishing to become Maltese residents.
The government, Mr Fenech said, was not interested in attracting foreigners if these were not going to live here and contribute to the economy.
Under the previous scheme, foreigners could acquire Maltese residence – with all the taxation, EU mobility and social welfare benefits that entailed – by paying a yearly minimum of €4,230 in tax and the same amount in rent. It did not require individuals to spend any amount of time in Malta or even purchase property.
“I am not willing to risk sullying Malta’s international reputation and having it declared a tax haven simply to sell more property,” Mr Fenech said.
He dismissed suggestions that the thresholds for non-EU nationals wishing to enter the scheme were too high. To enter the scheme, non-EU individuals must pay a €500,000 deposit and €150,000 for each of their dependents.
“The government is interested in attracting truly high net-worth individuals to Malta. What sort of high net-worth individuals cannot afford a €500,000 deposit,” he asked.
The minister had one parting shot for developers. It was true Cyprus did not have such an onerous scheme, he said, but Cyprus was not part of the EU Schengen area. Individuals who bought into Malta’s residence scheme, he said, were buying the right to move freely within 25 European countries. “Why don’t you try and sell Malta for the benefits it offers?” he encouraged the audience.