The High Net Worth Individuals scheme that came in force in September 2011 was always controversial because many thought the Government had gone one step too far to curb abuse of the old system. They believed that, through the onerous conditions linked to the new scheme, the Administration was throwing out the baby with the bath water.
One of the first initiatives taken by the new Government was the announcement in Parliament that the Permanent Resident Scheme would be revived. Many of those involved in the property industry welcomed this move as they believe this will be one way of instilling some life in a sluggish market.
The multiplier effect caused by new wealthy people taking up residence in Malta may in fact be even more important than the actual sale of property as money spent by such residents permeates in the whole economy.
By increasing the minimum spend on property bought by prospective residents from €116,000 to €400,000, the influx of new residents was practically stopped partly causing a slump in the property market.
Kick-starting a sluggish economy through local initiatives is one sure way of not having to wait for a revival in the euro area economies to reap some benefits.
While sectors of the economy, like financial services, continue to grow at a steady rate, others, including the property market, are experiencing more volatility. Thus, focusing on measures aimed at instilling life in these sluggish sectors is a priority.
The easing of conditions attached to the Permanent Residents Scheme will not on its own reverse the fortunes of the property industry. But it will certainly increase demand for properties in the higher end of the market where, ironically, many estate agents argue that there is actually a shortage of high quality property often demanded by wealthy new residents.
Those not directly involved in the property market may have been less sanguine about these changes.
It is a fact that the old Permanent Residents Scheme had some fundamental weaknesses that needed to be addressed even, perhaps, not as drastically as they were.
Some bought property simply as a speculative investment and never took up residence here. These absent residents left very little long-term benefit to the real economy.
Others looked at Malta as a means to gain entry into the wider EU. We all know what happened in Cyprus with the influx of wealthy Russians that were partly the reason behind the collapse of their banking system. The new scheme must be structured in a way that discourages similar developments in Malta.
But what seemed to have sparked off the changes by the previous Government was the abuse of the health system by certain residents with health problems who exploited the national health service simply by claiming they were local residents.
The country’s health system has enough challenges ahead of it not to have to deal with these health migrants that leave very little benefit to the Maltese economy.
The new conditions need to be crafted in a way that the economy, and not just the property market, benefits from an influx of new residents who do not compete for jobs or free health services with locals.
While there is undoubtedly a sense of urgency to bring about change in this sector, it is essential that a proper assessment is made as to how the new scheme will impact different sectors of the economy.