Owners of vacant property should be given incentives to put their property on the market, not have their assets taxed, according to the real estate section of the Chamber of Commerce and Enterprise.

Economic consultant Gordon Cordina, who was commissioned to conduct a report on the situation, noted that a decline in real estate prices would have adverse consequences on the sector and the economy, and the significant amount of vacant properties could underpin this threat.

However, this factor could be turned into a notable economic opportunity if there was a specific focus on enticing international demand for property in Malta.

His report said that if vacant residences in holiday areas were sold over 15 years, this would generate inflows from abroad averaging about €150 million a year in the case of flats, and some €250 million a year for all the property taken together.

"Such inflows would have an important multiplier effect in the economy, affecting not least government revenue," Dr Cordina said at a press conference, where chamber section president Trevor Busuttil yesterday presented proposals to the government for the upcoming budget.

The report, which analyses the contribution of the real estate sector to the Maltese economy, proposes a number of policy initiatives.

Mr Busuttil said the section believed that, although the government's proposed rent reform was a step in the right direction, it would not solve the housing affordability situation people faced today.

Presenting his findings, Dr Cordina said the real estate sector in Malta generated around 12.5 per cent of GDP and seven per cent of employment, directly and through activities closely related to it.

He noted that real estate prices had increased significantly in 2004 and 2005, with a period of correction featuring moderate price increases in 2006 and last year. A moderate decline in activity was also noted in recent years.

Dr Cordina said the current financial crisis opened up immense opportunities for the real estate sector, as it made property in Malta a better and sounder investment for both locals and foreigners.

The government, he said, should ensure it keeps supporting and facilitating the property market through the appropriate fiscal and regulatory policies.

A decline in the price of real estate in Malta would have serious adverse consequences not only on the sector but on the economy as a whole, he warned.

Dr Cordina also highlighted the persistent problem of housing affordability, which mainly affects first-time buyers.

While calling for measures directed at this specific segment, the report stressed that these measures should not introduce elements of uncertainty which would further dent the potentially fragile situation of the market.

He emphasised that the development of the international market for real estate in Malta would not impact negatively on housing affordability, because of the separate natures of these two market segments.

Proposals made by the section include a reconsideration of the system of taxation of capital gains on real estate transactions, of the regulatory framework on the letting out of property in Malta by foreigners, and of other conditions governing the real estate rental market in Malta.

In order to secure a properly functioning market that is attractive to investors, including international ones, the section recommended that the system of capital gains on real estate be rendered a flat 15 per cent on realised profits.

Otherwise a second best option that could be contemplated was an extension of the five-year period applying to the option of the use of the profits-based tax system.

Another suggestion is to remove unnecessary fees and restrictions on the letting of real estate by foreigners in Malta.

The introduction of a favourable tax regime in the rental market was also recommended to enhance the efficiency of the real estate sector and its economic contribution.

Dr Cordina said that, while these measures could have a considerable negative effect on government revenue, from a static perspective they presented a significant potential for long-term benefits, particularly arising out of the sale of vacant property to foreigners.

A potential growth in GDP of between 0.8 per cent and 2.9 per cent a year would be expected through the sale of part of the vacant real estate stock to foreigners, together with the creation of between 300 and 1,200 jobs, with government revenue rising by at least €30 million a year on a net basis.