Uncertainty Over Whether Rent Reform Will Bring Stability

President of the Estate Agents Section (EAS) within the Malta Developers’ Association (MDA), Douglas Salt says that the rental market had already been “correcting itself”.

Parliamentary Secretary for Social Housing, Roderick Galdes, who has overseen the rent reform guidelines announced in July, and President of the Estate Agents Section (EAS) within the Malta Developers’ Association (MDA), Douglas Salt, are at odds over the level of stability that these could bring to the rental market.

This year saw the Government finally announce the measures it has been working on to regulate the rental market. These include regulations limiting by how much the rent can increase – at a maximum of 5% per year though they do not prescribe how much a landlord can initially charge a tenant; the new reform also requires landlords to register all rental contracts, while it provides time restrictions on when tenants and landlords are allowed to opt out of their rental contract.

Earlier this month Parliament unanimously passed the proposed reform on the rental property market in the Second Reading. During the summer months, the reform will be evaluated at Committee stage, with the new rules set to come into force as of January 2020. Moreover, as from January 2021, lease agreements will have to be registered with the Housing Authority.

Criticism has long been levelled at the way the rental market operates in Malta, with tenants complaining that they are on the incorrect water and electricity tariffs; that it is very difficult to get a deposit back; or about the price hikes between one year and the next.

In contrast, Finance Minister Edward Scicluna had stressed that there is no crisis in the rental market and that over 80% of Maltese are homeowners, with rent issues affecting a minority of people.

Yet, last September, the Malta Employers’ Association sounded the alarm over property and rent costs being the main drivers of wage inflation. The lobby stressed that this is putting too much pressure on companies to raise their wages, as many foreign workers were not able to afford the rent hikes.

“Rent reform is all about stability,” said Mr Galdes when responding to a request for comment about the effects on the labour market brought about by the reform. “Greater housing stability for foreign workers will also result in greater employment stability,” he added.

He said that meetings and consultations were held with various industry stakeholders, such as those in the gaming and finance sectors, throughout the formulation of the new guidelines. When asked about the feedback Government and Mr Galdes’ office has received from landlords in response to the new guidelines, Mr Galdes said that he was informed by the Housing Authority that “it appears the majority of landlords are aware of the need to professionalise the sector and make it more just and fair.”

However, Mr Salt, EAS President within the MDA, as the point of communication between tenants and landlords, cautioned that “pedantic rules” being brought into place through the rent reform will result in people thinking twice about making an investment in a rental property, ultimately limiting supply. “Ironically this could lead to hindering what you depend on,” he argued. Mr Salt insisted that the rental market had already been “correcting itself” when asked about whether the revised rules will bring stability to the growing job sector.

“There was a sudden rush of people entering the island, pushing demand for rental property, and a lack of supply to meet that demand. Many properties were then bought on plan, with a lack of construction workers in the industry to swiftly develop those properties. This resulted in longer waiting times. However, supply has slowly caught up and I believe that prices will stabilise, if not return to their value from a few years ago in certain areas of the island,” Mr Salt explained.

Asked about what landlords had to say in reaction to the reforms, Mr Salt explained that “[the reforms] are not very popular because they’ve gone completely the other way and they exclusively protect the tenant.” Under the proposed reforms, tenants are free to terminate their contract with two months’ notice, should they be under a two-year contract. For a one-year contract, it is illegal for tenants to default on their contract in the first two months, while landlords must give three months’ notice on termination of the contract.

As a result, Mr Salt cautioned, landlords are unable to “plan ahead”. Turning to the cap on rent increase of 5% per year for contracts of one year or longer, Mr Salt stated that unless a landlord can get a certain return on their investment, it is simply not worth the cost and effort to rent out their apartment.

Yet, as a bonus for landlords and, as an incentive to register rental income, landlords will be eligible for tax incentives if they have longer-term tenants. For a two-year contract on a one-bedroom apartment, landlords will receive €200 in tax credits; €300 for three-bedroom apartments; and €400 for units of three bedrooms and more. Looking back on the many stories which have appeared in the media over the years dealing with the hardships of renting, Mr Salt stated categorically that “these tragic cases you hear about in the media will not be solved by the proposed rent reform. I’m sorry to say that these are social cases that require a different set of issues to be addressed.”

This initially appeared in the July edition of The Malta Business Observer.

 

 

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