Appeal to revoke 12% withholding property tax

di-ve.com report by Vanessa Macdonald

A leading real estate agent is appealing to the Finance Minister to revoke the 12 per cent withholding tax on property sales, saying that the current scenario meant it no longer made sense.

Dhalia business development director Chris Grech said the tax had been introduced in the Budget for 2006 at a time when property prices were rising fast.

Until then, Capital Gains Tax was paid on the sale of property based on set tax rates of 35 per cent on the profit made on the sale. The Finance Minister had hoped the withholding tax would circumvent the under-declaration on the value of the sale in order to reduce the amount of tax paid.

The Final Withholding Tax (FWT) was set at 12 per cent on the market value of the property sold, without allowing for expenses and other related exemptions which used to apply under the Capital Gains Tax system, and was applied upon contract of sale.

In February, 2006, Parliamentary Secretary Tonio Fenech (as he then was) unveiled a number of amendments to the property tax in an attempt to head off criticism, including a clause giving people the option of either paying tax under the old capital tax regime or the new final withholding tax, as long as a property was sold within 5 years.

Additionally, if no profit has been made on the property, then no tax has to be paid, subject to the approval of the Commissioner of Inland Revenue.

However, after 5 years, the only option is to pay the final withholding tax of 12 per cent of the sale price – whether a profit has been made on the sale or not.

Mr Grech said that the FWT came in to force at a time when the market was very buoyant and properties sold much quicker. Now, however, the glut of properties on the market means it could take much longer to sell – and anyone selling a property that he has held for more than 5 years will have no option but to pay the FWT of 12 per cent, no matter what profit he makes on the sale, if any.

“The FWT was a good idea when it was first mooted in 2005 but it needs to be reviewed in the light of the present circumstances. In the pre-Budget document, the Finance Minister should consider removing it and reverting to the previous system.

"He needs to wake up and realise that the world has changed. As it is, you could have developers who will not even be left with enough money after the sale and tax to pay off their loans,” he said.

The Central Bank of Malta reported earlier this month that there had been an annual decline of 4.4 per cent in residential property prices.

In 2005, the number of applications for development of residential properties rocketed from the annual average that hovered around 6,500 to over 9,000. Since 2005, there were applications to build over 37,600 properties.

When Bubbles Burst

Editorial Times of Malta

Wednesday 13th May 2009

There are few subjects guaranteed to stir emotions of many Maltese as the one on the future of the property market. The love affair of the Maltese with property ownership is only matched in intensity by the almost dogmatic belief of many that investing in property is practically risk-free, at least in the long term........Read the full editorial by clicking here.

New Building Regulations in the Pipeline - Launch of Consultation Documents

The much awaited Building Regulations Act moves one step closer today, with the launch of the Consultation Documents. These will regulate the avoidance of damage to third party properties.

Resources Minister George Pullicino said the law will pave the way for the creation of a Building Regulations Office under his ministry, and ensure future buildings will be built according to technical specifications. Before the demolition, excavation and construction of a site, a methodological statement outlining the method of construction would have to be made public. Also obligatory would be the classification of contractors according to their size, expertise and capabilities.

Methodological statements and insurance covering third parties would be obligatory.

The documents will soon be available at www.mra.gov.mt. Meanwhile submissions may be made to buildingregulations@mrra.gov.mt.

Central Bank of Malta on Property Prices

Property prices down 2.7% in 2008

by di-ve.com - editorial@di-ve.com
Current Affairs -- 09 April 2009 -- 11:45CEST
Property prices in 2008 fell by 2.7 per cent, according to the Central Bank of Malta, but some categories did better than others.
Advertised asking prices for flats in shell form and in finished form, which together make up over half of the sample, were down by 2 per cent and 5.4 per cent, respectively, while those for villas and terraced houses
declined by 3.7 per cent and 1.8 per cent.

On the other hand, higher prices were asked for 2 other categories. Prices of maisonettes in shell form
were up by 2.6 per cent, while those of town houses, which account for 5.4 per cent of sampled properties and display a high degree of volatility, increased by 10.4 per cent. Meanwhile, prices of finished maisonettes and houses of character remained roughly unchanged from 2007.

The sector seems to be self-adjusting to the oversupply resulting from the building frenzy of the past few years. The number of permits issued in 2008 for dwellings dropped by 39.7 per cent to 6,836.

The decline was spread across all major categories including flats, the predominant category, and maisonettes, which fell by 39.7 per cent and 48.1 per cent, respectively.

Permits for the redevelopment of old houses into blocks of flats or maisonettes also declined, thus reversing the recent rising trend.

New conditions for redemption of groundrent on government properties

The government is to introduce new conditions to a scheme for the redemption of the groundrent of government properties so as to deter speculation, Parliamentary Secretary Jason Azzopardi said this morning.
He said the scheme was suspended at the end of January in order to clear a backlog of applications and introduce new measures to prevent abuse and speculation.
The scheme was originally introduced for former Church-owned property and then extended to all government-owned properties used as residences.
Since its announcement in 2002, the scheme attracted more than 2000 applications and in view of the extensive verifications needed, there is currently a backlog of 3,000.
“For this reason, the scheme has been temporarily suspended and no new applications are being received,” Dr Azzopardi said.

He said the Government Property Division was using this opportunity to create a database of the pending applications in chronological order.
The pending applications would be considered according to new parameters, including increased checks to ensure that the properties were really used for residential purposes. The controls would include evidence from the electoral register, water and electricity bills and inspections.

In terms of another new condition, the property must continue to be used as a residence by the owner for 20 years after the sale or redemption of the ground rent and there cannot be any speculative development,” Dr Azzopardi said.
Should a property be sold, a percentage of the proceeds would have to be given to the Government Property Division. That percentage would follow a scale according to the time that would have passed since the emphyteusis would have been redeemed. The percentage would vary from 10% to 25%.

Dr Azzopardi said the reform’s ultimate aim was for greater efficiency and to discourage speculation of government property. It would also ensure that the Church-State agreement on the transfer of Church property to the State could be fully respected. The agreement had laid down that Church property was being transferred to the state for social purposes.

The above article was published on The Times of Malta online: Thursday, 26th February 2009 - 10:43CET