Lino Briguglio, a veteran economist, has warned of a probable surge in property prices after the government linked the acquisition of citizenship to the purchase or rental of property in Malta.
However, Malta Developers Association president Michael Falzon dismisses these concerns, pointing out that there is already an oversupply of mid-range apartments.
Acquiring Maltese citizenship now needs, in addition to a €650,000 gift, €100,000 in government stocks and the purchase of a house worth at least €350,000 or the rental of a property for €16,000 per year under the new Individual Investor Programme guidelines.
Applicants will be contractually obligated to keep the property for at least five years in both circumstances.
The scheme, which is limited to 1,800 candidates and their dependents, which may include children, spouses, spouse parents, and grandparents, is likely to increase demand for property. “If it works, the programme would have an effect on the property market by increasing demand for property… even if the scheme appears to be primarily targeted at increasing money into government coffers,” economist Lino Briguglio told MaltaToday.
According to the seasoned economist, growing demand for real estate will have both positives and problems.
“The benefits include greater income for estate agents and contractors and employees, the majority of whom will be immigrants,” Briguglio said.
Income can also be created as a result of property purchasers visiting Malta, and even more so if they invest in Malta.
But he also warns that the drawbacks include increased environmental damage and more disturbance of neighbourhoods as a result of the “cowboy mentality of developers”. Moreover, there could also be inflationary pressures on the property market, “to the prejudice, primarily, of young couples who are first-time purchasers”.
One risk highlighted by a real estate agent who spoke to this newspaper is that, in the absence of any obligation to actually reside in Malta, prospective citizens with a lot of money to spend but little interest in living in Malta may be willing to pay higher prices than Maltese buyers who can currently afford to buy mid-range priced property.
“The scheme is undoubtedly beneficial to the property market, but there is a risk that some of these clients will be willing to pay more than Maltese merely because their primary goal is to obtain citizenship rather than property.Purchasing property will be a means to an end for them rather than an end in itself “MaltaToday spoke with the real estate agent.
However, Malta Developers Association president Michael Falzon believes that any inflationary effect will be limited to medium-priced properties.
This is due to the suggested minimum value (€350,000 in the case of a sale and an annual rent of €16,000) being significantly higher than the lower end of the property market and the average value of property purchased by first-time purchasers.
“If there is an inflationary effect from the IIP, it will be limited to medium-priced properties. However, because there appears to be more supply than demand in this range, the inflationary effect will most likely be minimal.”
However, IIP citizens may be tempted to sell their properties immediately after the five-year term in which they are prohibited from doing so expires.
Falzon downplays the risks that after the five-year period expires, many may sell their residences again, adding to a price crash caused by an overstock of properties in the market.
“It is absurd to anticipate that a big number of properties will be purchased on day one and then sold on day one after the five-year period has expired. Property is constantly being sold and purchased, and the IIP should result in an increase in the volume of sales.”
Gordon Cordina, an economist, criticised the dearth of research on the potential effects of increased property demand on property prices.
“Credible estimations to create conclusions to address your queries necessitate extensive research. However, your questions highlight the necessity for such studies, as well as, perhaps more crucially, additional policies and procedures to support the Programme in order to maximise possible advantages while avoiding problems.”
Questions made to the government on whether any studies had been conducted to analyse the impact of the scheme on property remained unanswered at the time of publication.
The IIP was developed in collaboration with the Federation of Estate Agents and the Chamber of Commerce, both of which were present during the scheme’s debut.
Falzon also concedes that it is very difficult to estimate the impact on the property market as a result of IIP being made conditional to the purchase or renting of property, “primarily because one cannot forecast how successful the IIP will be as there is no model on which to base expectations”.
