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Businessman Frank Salt had a good word to say about government’s new tax regime on the sale of property. Here he explains further about the new capital “pains” 
It had been a quiet week for Frank Salt, whose wisdom of late started gracing the back page of the Times with more frequency. Estate agents offer the unlikeliest of nuggets: here was the 61-year-old businessman dispensing energy-saving tips to his readers, noticing whether the lights had been left on in the dog’s room at his house (one bulb, no more… if any of you have spare rooms for your dogs, go easy on the lampshades), and how much energy was being wasted in households every year. Thank the stars for the “old saying” of a brick in the toilet cistern that saves a litre of water each time the toilet is flushed, Salt wrote, as he cautioned the public into being more frugal with their energy consumption.
Then all changed in a matter of weeks: budget day comes with a ridiculous proposition for a 12 per cent withholding tax on the value of sold properties, to replace the 35 per cent tax on capital gains. Salt’s incensed pen delivers a furious barrage of equations stripping down the new capital “pains” tax: “what does this mean? I’ll tell you what it means,” Salt wrote. “It means that if a property is sold for Lm100,000 then the new tax would be 12 per cent of the sales value, that is Lm12,000,” rather than the 35 per cent on the profit registered.
Government’s brainwave was happily accepted by few members if any from the general public. Within a week, changes had already been proposed to the new tax. It looked like a non-starter from the very start. Government now has proposed two tax regimes in cases where homeowners had to sell off their homes quickly after purchasing it, or after a break-up with their partners. As originally proposed, a separated couple who sell of their newly-purchased home within say a year, would have to pay a 12 per cent tax on sale value that would not even net them a profit. In fact they would have to pay even more tax for selling: under the 12 per cent regime, Salt calculated, nobody would be able to get a cent unless they secured a 54 per cent profit, practically impossible in the short-term for low-cost properties.
“If the two tax regimes run concurrently it makes a lot of common sense, definitely a lot of political sense,” Salt says.
But still, the 12 per cent regime is in fact, overly disadvantageous: “it is not good for people who recently purchased a property, or who are thinking of buying in the future if this is not their permanent home, a second home, or an investment property for rental purposes. They will either have to sell within five years or hold on to it for very long until it appreciates sufficiently for the 12 per cent tax to be equal to the 35 per cent capital gains, after deducting expenses. It is not good for foreigners, or for commercial premises which only appreciate by the increases in their rental income, normally going up by 10 per cent every three years.
“In fact, it is not good for the future of the Maltese property market, and those people who are just starting out on the property ladder. It is only good for the past, and those people who can take advantage of the past.”
According to Salt, the new law assumes, and is based on the fact that, as some properties have gone up in value by large percentages each year for the past years, then these properties as well as all the other properties in Malta and Gozo will do the same in the foreseeable future.
“This is an amazing assumption and is very wrong, especially as the law applies to all properties in Malta and Gozo, and not just the special high quality properties that may still increase in value at a higher rate than the normal. Some properties in Malta have gone up very little, if at all during the last year.”
How far then, have property dealers been pushing up the prices on property? Salt disagrees with popular conceptions of agents’ direct pressure on the prices. “Nothing could be further from the truth. We go and see a property and the owner tells us what they want for that property. We might tell them they may get Lm80,000 – they say they want Lm150,000. We have a choice: either taking it on or not. In most cases we take it on and the price gradually goes down. I can tell you that if a property goes on the market at the correct price it goes within a week. If it goes at a price which is higher by even five or 10 per cent, it stays on the market until the market catches up with it. It’s not in the estate agent’s interests to put it below the market price and certainly to put it above the market price. This is a total fallacy: the prices in Malta are not dictated by the agents but by the owners. Their expectations are too high in too many cases because they see the prices in the street and think they can get more.”
Unsurprisingly, he also disagrees on the agents’ five per cent commission rates being too high for the average buyer: “The majority of people selling their property will either sell it at the same price with or without the estate agent’s commission. Do you think they are going to knock the price down if they sell it privately? That they will knock five per cent off their price? No, they will ask exactly for the same price, but if they sell it through an agent they have to sell it with a five per cent commission. We as agents can probably get you a much better price because you are not clever enough to negotiate on your own. We know the value of the properties next door and behind the house, and we know how prices have gone up, which you don’t. We can explain to the owner what is a good offer, whilst you can accept a higher price because you don’t know the situation as it really is.”
As prices rocket sky-high, at least to the average first-time buyer, Salt warns that they have to look at areas in which prices are still low before going on to their ideal homes. Limited land has pushed up prices enormously. Salt says a plot of land in St Andrews in the 70s would have cost Lm1,000 – today it is Lm100,000.
“When I first came into the property business in 1966, there weren’t any properties for sale anyway. All of them were on 17-year leases. But people in Sliema couldn’t find 17-year leases in Sliema. They would have to go to Fgura, Zabbar, Tarxien and Msida. They were spread all over the place until they could afford to buy their property where they wanted it. Today it’s the same – if somebody is starting out and wants to buy the place where they want, they have to be prepared to buy it at a high price and take on a hefty mortgage. Or else they can opt for cheaper areas: if you want to live in Swieqi you could get an Lm80,000 apartment which might cost Lm30,000 somewhere in Msida. The difference is the area. It’s a free choice. The thing is: you cannot start up the ladder wanting the very best. It’s as simple as that.”
Still, he believes that unlocking the huge supply of rent-controlled houses and other empty dwellings will do little to appease the increasing property prices. “If the properties do come back on the market, they will either be sold or given to their children – but the unlocking of supply will not be huge, and won’t even push prices down.”
Salt agrees the pre-1995 rent laws have to be changed: “We have people who have been in properties for a very long time at a very low rent, and it is socially unacceptable to throw them out. However I don’t think it is socially unacceptable to stop these properties being inherited by family members.”
He doubts that the average Maltese can afford a suitable rent in a liberalised rental market: “the rent the Maltese can pay is so low in proportion to the value in the property that it won’t put these properties back on the market for rental. Say for instance a property comes back on the market in Zebbug: a house of character which the owner can get Lm80,000 for it. If he had to rent it out, he would only get anything between Lm200 or Lm400 a year. He would much rather sell it than rent it out.
“I don’t think the wages of the Maltese people are anywhere as sufficient to a pay a rent that is anywhere near a good investment for anyone who owns a property. What rent can an average Maltese pay for a property? Lm180 a month? That is Lm2,680 a year, divided by 6 per cent – that is the equivalent of someone investing Lm36,000 at six per cent return. Are they going to pay Lm180 a month for a property worth Lm36,000? They will pay that rent for a property worth Lm72,000 – and why should the owner get a three per cent return then for their property? So I don’t think that all these properties which are empty will be put straight away on the rental market.”
Staunchly against regulation of the market, Salt says he wants to see more “Portomasos” on the island, with more foreigners pouring in money for permanent residences. Although there hasn’t been any tremendous increase in interest after EU accession, mainly because so many other new member states had even cheaper properties on offer, he is hopeful an English pension scheme can result in great business for the island.
“In England there is this Special Invested Pension Plan, which allows people to personally invest their own funds in their pension plan. On the 6 April of 2006, the British government will allow owners of these pension plans to also buy their own house or holiday home in England or abroad through the SIPP trust. Now Malta is one of the few countries in Europe if not the world which allows property to be purchased through a trust, but only in the specially designated areas such as Tigné, Manoel Island, Selmun, Cottonera, Chambray and Portomaso. Now if we want to take advantage of this GBP4 billion that can be utilised to buy these homes, then all Malta has to do is keep the same regulations and restrictions for foreigners, but allow them to buy in a trust outside of the specially designated areas, in which case we would be in a very good position to get all this business which we really need.”
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