The Federation of Estate Agents is calling for a flat 15 per cent tax on realised profits to replace the capital gains tax on property sales, saying that this would mitigate a significant slow-down of the property market.
It explained that the impact of the capital gains regime would soon start to be felt as it has been almost 5 years since it was introduced and the full impact of the 5-year option would materialise.
“It is thus expected that the system of capital gains taxation in Malta, if not amended, will give rise to serious flaws in the operation of the real estate market over the coming 2 years,” it said.
The federation, in its pre-budget comments to government, said that the government would lose an estimated €70.5 million in revenue from this proposed revision, based on an average of 10,600 contracts a year, valued at an average of €97,000 each.
However, it calculated how much the government could generate as a result of the change, as it would incentivise the sale of vacant housing, especially to foreigners.
It calculated that annual government revenue would rise by at least €100 million if vacant properties in tourist areas were to be sole to foreigners over a 15-year-period, which would imply a net increase of €30 million.
However, the FEA believes that this alone will not be enough to stimulate the sale of property to foreigners.
It has been calling for some time for the removal of restrictions on foreigners renting out their property – which is only allowed in some specific cases, such as when the property has a swimming pool. It also suggested that any rental income should be taxed at a flat rate of 15 per cent, in line with income from a wide range of financial investments.
The FEA is arguing that vacant property is an inefficient use of resources as it could be used to provide residential services or to generate income from abroad. It said that the 53,000 vacant properties identified in the 2005 Census had a likely value of €7.6 billion.
“Assuming a 7 per cent annual rate of return on this capital stock – the normal rate of return for real estate – an imputed annual income flow from this vacant stock of around €535 million can be estimated, which represents over 10 per cent of the country’s GDP.”
Real estate is estimated to employ 1,637 directly and a total of 12,213 when construction, financial intermediation, and legal and architectural services are taken into account. This represents 7 per cent of the total economy, and 12.5 per cent of the GDP in 2007.
Article by Vanessa MacDonald - 28th October 2008
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