Former housing chief: Budget 2017 schemes will inflate property prices

Albert Buttigieg warns that tax-evading landlords would in all likelihood compensate for their new tax burden by increasing rental prices

Albert Buttigieg insists tenants should not bear the brunt of new tax burdens that could be imposed on their landlords
Albert Buttigieg insists tenants should not bear the brunt of new tax burdens that could be imposed on their landlords

Schemes announced in the 2017 Budget risk backfiring and inflating the property market further, former Housing Authority chief Albert Buttigieg has warned. 

Speaking to MaltaToday, Buttigieg – now a St Julian’s councillor and PN election candidate – highlighted three schemes that could see property prices continue to rise –the doubling of rent subsidies, the extension of the first-time buyers’ scheme and a stamp duty cut on property purchases in Gozo.

He also warned that a pilot project to encourage landlords to rent properties to low-income earners on seven-year contracts risks fuelling fears that the government will eventually requisition private property.   

In an attempt to ease the burden of inflated rent prices, the government will as of next year double rent subsidies for low-income earners living in private properties – from a monthly maximum of €83 to €166. The means test to assess who qualifies for the scheme will also be “drastically revised”, rendering eligible for the scheme even those people who have over €10,000 in bank deposits. This is expected to see some 2,800 people qualify for the scheme, double that of the current 1,400. In an attempt to clamp down on tax evasion of rental income, the doubled subsidies will only be eligible to tenants who present copies of their rental contracts. 

Moreover, the government will next year introduce a “system” that will require all new or renewed rental contracts for three months or over to be registered with the Department of Inland Revenue. Landlords who fail to register their contracts will be subjected to fines contemplated in the income tax legislation.  

However, Buttigieg warned that tax-evading landlords would in all likelihood compensate for their new tax burden by increasing rental prices, thereby negating the doubled subsidy. 

“There’s a risk that the scheme will backfire. Developers love money and schemes such as doubling rent subsidies entice them to raise prices. While I disagree with the black economy, I also disagree that tenants should be made to shoulder this new tax burden on landlords.”  

Prime Minister Joseph Muscat has admitted that the scheme could incentivize landlords to kick up their prices, but insisted that all rental contracts should be registered with the IRD, as promise-of-sale agreements are.  

Buttigieg has also warned that the property market is being inflated by a tax exemption scheme for first time buyers that will be extended for a third consecutive year in 2017. Indeed, the Central Bank recently identified the scheme – along with the Individual Investment Programme that requires new Maltese citizens to invest at least €350,000 in property – as one of two main triggers for the recent rapid rise of property prices. The bank’s data shows that property prices have shot up by an average of 24.8% between 2013 and the first quarter of 2016.

“Essentially, developers have realized that first-time buyers are now saving up to €5,000 in stamp duty and are raising the prices of property,” he said. “The tax savings are not being absorbed by consumers, but by the developers.”

Buttigieg recounted how, as Housing Authority CEO, he had actually turned down a call by the Malta Developers’ Association to introduce the first-time buyers’ scheme out of concerns that it could contribute to inflation in the property market. Rather, the government at the time opted to subsidise a portion of the bank loan’s interest for first-time buyers. 

“First-time buyers had saved up to €14,500 on this scheme, more than they are saving through the current scheme, and it didn’t inflate the property market as it bypassed the developers entirely,” he said. 

Buttigieg also warned that another Budget scheme to slash stamp duty on all property sales in Gozo, from 5% to 2% throughout 2017 risks heralding frenetic constriction on the sister island. 

“The scheme will increase property prices in Gozo, but could also ruin its character. Now that Malta has been fully built up, eyes are turning onto Gozo. The Gozitan economy shouldn’t be based on construction, but rather on tourism.”

In the Budget, the government also announced a pilot project to encourage landlords to rent their properties out to low-income earners on fixed seven-year contracts in return for a reduced 5% tax on rent income. However, Buttigieg warned that there will be landlords who are likely to look at this scheme as being one step away from the return of requisition orders.

“That mentality exists among landlords, particularly those of a certain age who remember the requisitions, and there’s a great risk that these people will start refusing to rent out their properties to Maltese people.”

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