Vacant properties could stimulate market

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Article by Paul cachia - pcachia@di-ve.com 10/10/2008

Federation of Estate Agents President Trevor Busutill addressing the media

The collapse of Lehman Brothers and Northern Rock could be a boon for the local real estate, economist Gordon Cordina said on Friday.

“The current international crises open up immense opportunities for the real estate sector as it makes property in Malta a better and sounder investment offering for foreigners,” he explained.

Dr Cordina was presenting to the media proposals made by the Federation of Real Estate Agents (FEA) to the government for the 2009 Budget as part of the consultation process.

The FEA is proposing 3 policy measures in order to exploit opportunities for the real estate sector and for the Maltese economy and society. These include a reconsideration of the system of taxation of capital gains on real estate transactions, a change in the regulatory framework concerning the letting of property in Malta by foreigners and a change in other conditions governing the real estate rental market in Malta.

For commercial real estate agents it is truly the best of times and the worst of times.

A moderate decline in activity was noted in the recent years in a period of correction featuring moderate price increases following the 2005 peak. On the other hand, they are scrambling to find spaces for foreigners coming to work in Malta.

Dr Cordina explained that the real estate sector in Malta generated around 12.5 per cent of the Gross Domestic Product and 7 per cent of employment directly and through closely related activities.

Real estate agents are targeting vacant properties as a way to expand the market. Dr Cordina said that some 53,000 properties - excluding summer residences – had remained unutilised for a considerable time.

“The significant amount of vacant properties in Malta may underpin a decline in the price of real estate in Malta which would have serious adverse consequences not only on the sector but on the economy as a whole,” he explained.

If sold, all these properties taken together would generate around €535 million per annum, that is 10 per cent of the GDP.

According to Dr Cordina’s workings, if vacant residences in holiday areas were to sold over a period of 15 years, this would generate inflows from abroad averaging around €250 million per year.

“Such inflows would have important positive multiplier effects in the Maltese economy, affecting government revenues,” Dr Cordina explained.

In order to secure a properly functioning market which is attractive to the investors, the government has to be ready to lose capital gains. In fact, the FEA is recommending that the system of capital gains on real estate needs to be subject to a flat 15 per cent on realised profits. The capital gains brings €70 million a year into government’s coffers.

“While these measures may have a considerable negative effect on government revenue from a static perspective, they present a significant potential for beneficial longer run effects, particularly arising out of the sale of vacant property to foreigner,” he added.