Real Estate Market incentives in 2020

In October 2019, Malta’s Finance Minister, Professor Edward Scicluna, presented the Malta Government’s budget for 2020. Among its broader objectives and incentives, the budget also inevitably impacts Malta’s real estate sector. Following the latest episode of the Real Estate Conversation, JEFFREY BUTTIGIEG, COO of RE/MAX Malta, sits down with JESSICA AZZOPARDI, corporate tax partner at Finanzi Limited, to discuss how Budget2020 will affect the real estate industry in Malta.

As we venture into the coming year, the chatter around shifts in the Maltese real estate sector is palpable. There are claims that rents have become unaffordable and first-time buyers are finding it increasingly difficult to get a foot onto the property ladder. This comes after years of growth in the Maltese economy and a booming property market. In fact, in 2020, Malta’s GDP is set to rise by 4.3 per cent with a surplus of 1.4 per cent – a markedly positive projection but nevertheless a rate of growth that is lower than previous years. So where does this leave Malta’s real estate industry?

First and Second-time Buyers in Malta

Overall, the property measures that were unveiled in the annual budget are positive. First and foremost are the threshold amendments made to the first-time and second- time buyers’ schemes – both of which are crucial for buyers and sellers throughout Malta.

“When buying real estate, the standard rate of stamp duty is 5 per cent,” explains Ms Jessica Azzopardi. “However, the law provides some exemptions, and that’s where the buyers’ schemes come in. First-time buyers will now be exempt from paying stamp duty on the first €175,000, and after that, they’ll pay a reduced rate of 3.5 per cent.” To put this into perspective, the 3.5 per cent rate has been there for many years. The new change is the threshold increase of €25,000 from €150,000. Ms Azzopardi goes on to explain, however, that there are very precise terms and conditions that accompany this programme.

“It specifically says that the property must be your first immovable one. So, for example, if you own a garage before buying your first residential property, you won’t be eligible for the first-time buyer’s scheme. This is because even though the garage is not a residential property, it is still an immovable property.

“However, in cases such as this – where it is your first residential property, but not your first immovable one – you can still benefit from a reduced stamp duty rate of 3.5 per cent on the first €175,000, after which you’ll pay the full rate of 5 per cent.”

A commonly asked question, though, is whether the scheme applies to a person selling their first and only residential property to upgrade their home. “The first-time buyers’ scheme is very clearly only for your first ever immovable property for residential purposes,” Ms Azzopardi points out.

“In this case, the person will be eligible for the second-time buyers’ scheme, through which one initially pays the stamp duty rate of 5 per cent on the property’s value, but then receives a refund of 3.5 per cent on the first €86,000. Importantly, the scheme is only applicable if you sell and replace your former immovable property within a year.”

Inherited Property Scheme

As well as the buyers’ schemes, the budget also targeted inherited properties. Ms Azzopardi explains the stamp duty rate of 3.5 per cent has been extended to the first €175,000 on the value of inherited properties – also a threshold increase of €25,000. As would be expected, however, there is some fine print that comes attached.

“It all depends on whether or not the inherited property was the ordinary residence of the deceased,” she clarifies. “If it was and it is being inherited by the spouse or children, then the inheritors will be totally exempt from paying stamp duty. However, if it wasn’t the deceased’s ordinary residence but it is the residence of the person inheriting the property, then the person living there and inheriting it as his/her own residence can claim the reduced stamp duty rate of 3.5 per cent on the first €175,000.”

Selling on Konvenju

Ms Azzopardi also highlights that the budget’s measures affect instances where there is the transfer of a ‘promise of sale’ – or konvenju. This is a situation in which you are in the process of buying a property and it is still on konvenju – so, you have not actually signed the contract yet. For whatever reason, you decide not to go through with the purchase and you want to sell on. What are the tax implications?

“Currently, the law says that you must pay 7 per cent provisional tax on the profit from the transfer of the konvenju,” says Ms Azzopardi. “However, the government has announced that, as from 1 January 2020, there will instead be a new rate of 15 per cent final withholding tax on the first €100,000 profits. Unfortunately, however, we’re still waiting for the legal notice with regulations and further details about this change.” Interest Free Loans for Under 40’s.

Besides the changes highlighted by Ms Azzopardi, there are also interest-free loans for first-time buyers under 40, as well as reductions in the duty paid by buyers of property in urban conservation areas. All in all, Budget2020 has been advantageous for the real estate market. These positive impacts, spurred on by Malta’s growing economy, will continue to resonate across Malta’s real estate industry in the upcoming economic cycle.