Construction & Real Estate

Author: Dr Ramona Galea
Published: 1^st November 2023
Real Estate Unit

The Malta Budget 2024 was presented to Parliament by the Minister for Finance and Employment on the 30^th October 2023. In his budget speech the Minister set out a number of budget proposals which, once approved by Parliament, will have a direct impact on the immovable property market in the Maltese islands in the coming year.

This report will highlight the main relevant budget proposals affecting the real estate sector.

1. Incentives to Property Buyers – Malta & Gozo

First-time property buyers shall, as in 2023, continue to benefit from an annual government grant of €1,000 for a period of 10 years. This programme is aimed at encouraging first time buyers to get on the property ladder in a market which has seen property prices increase substantially over the last years.

In addition, all property purchasers (and not just first time buyers) will continue to benefit from an income tax and stamp duty exemption on the first €750,000 of the higher of the value of or consideration paid for the acquired property if:

1. the property has been constructed for a period of 20 years or more before the property transfer date; and
2. has been vacant for more than 7 continuous years immediately preceding the property transfer date; or
3. the property is situated in an Urban Conservation Area (“UCA”).

This incentive will therefore continue to apply both to properties within UCAs on the one hand or to properties which have been built for twenty years + and remained continuously vacant for the last seven years, on the other.

2. Property Restoration schemes for Homeowners – Malta & Gozo

The incentive to preserve our national heritage shall continue to be implemented as, for an additional year, homeowners of qualifying properties (that is, properties which have been constructed for 20 years or more, have been vacant for 7 continuous years and are situated in an UCA) will be able to benefit from a refund of Vat on expenses incurred (up to the amount of €54,000 on the first €300,000 of the property’s total purchase price). This means that homeowners, shall be entitled to a refund of Vat on restoration costs, such as construction materials and rental equipment, including but not limited to, administrative expenses such as architect’s fees, project management fees and planning permit fees, amongst others. This scheme encourages homeowners to invest in the conservation of Malta’s oldest buildings and preserve the country’s cultural heritage.

This “property restoration” incentive is further enhanced by the fact that first-time buyers of a UCA or vacant property in Gozo shall also be able to benefit from an additional grant of €10,000 totalling the amount to €40,000. The equivalent grant for either a UCA or vacant property situated in Malta shall remain unchanged from the previous year amounting to €15,000.

3. Removal of Tax Incentive for Properties Purchased in Gozo

Last year’s Budget 2023 had introduced a reduction of stamp duty on property purchases outside a UCA in Gozo from a rate of 5% to an incentivized rate of 2%. The underlying purpose of this incentive was to strengthen the economic activity in Gozo, especially following the dip experienced during the pandemic, but various NGOs raised serious concerns about the effect that this was having on the development and increase in sales of holiday or buy-to-rent apartments by buyers not based in Gozo and in localities which were sensitive to this type of development.

This incentive will now cease on the 31^st of December and revert to a rate of stamp duty of 5% payable by property purchasers, with effect from the 1^st January 2024. Although this may be seen as a step in the right direction to stem the tide of overdevelopment in Gozo, the re-implementation of the standard 5% rate may potentially see an unprecedented increase of buyers rushing to sign promise of sale agreements by the end of the current year – not to miss the proverbial boat.

4. Transfers of Rented Properties – Malta & Gozo

Another proposal put forward in this year’s budget introduces a Housing Authority scheme which will benefit property owners who:

• have leased their property to the Housing Authority for a set number of years or have otherwise paid subsidised rent; and
• have decided to transfer the same property to their tenants.

Qualifying private property owners will, in terms of this proposal, benefit from a complete removal on the tax on capital gains and stamp duty applicable on the first €200,000 of the rented property value. The social objective of this programme is to provide tenants who acquire the properties leased to them with some stability in their lives by continuing to live within the same community whilst giving property owners an incentive to let go of their occupied residential properties for good value without having to suffer any taxes on the property transfer.

5. Real Estate Investment Trusts

The Budget 2024 has also sounded out the Government’s intention to release a number of fiscal incentives applicable to Real Estate Investment Trusts with a view to strengthening the existing regulations. The purpose behind these incentives is to allow small investors to be given the opportunity to invest in company shares that hold a portfolio of rental property and which bind themselves to distribute an amount of not less than 85% of their profits in dividends every year.

The planned fiscal incentives which the Government will be introducing remain to be seen and we will be closely following this interesting development in the REIT sector.

The information provided in this Insight does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only. This Insight may not constitute the most up-to-date legal information and you are advised to seek updated advice.