The newly introduced scheme whereby first-time buyers will receive a €10,000 grant (for a couple) spread over 10 years is not expected to make a real splash in demand for housing and property prices, according to property insiders and economists.
They argue that the real impact will largely be felt on a household level, with money gained from the scheme likely to be seen as a welcome addition to first-time property buyers’ disposable income, rather than anything having a material impact on their home ownership journey.
Perhaps most importantly, at a time where loan limits – determined by income – are a major hurdle for those hoping to get onto the housing ladder, the grant will not be taken into account by banks.
In comments made to this newsroom, BOV confirmed that the scheme “will not impact the loan amount eligibility”.
This grant will not be subject to any means test, and the Housing Authority will be issuing annual payments during June by means of a bank transfer directly into the applicant’s bank account, if the applicant is the sole beneficiary, or into a joint account, if the applicant is a couple.
“It is always positive to help first-time buyers get onto the property ladder,” says Steve Mercieca, co-founder and CEO of real estate agencies QuickLets and Zanzi Homes.
He does not think that the grant will lead to inflation in property values, especially given the limitations of the first-time buyer market.
Earlier this month, at the scheme’s unveiling, Prime Minister Robert Abela urged property sector stakeholders not to “shoot themselves in the foot” by raising property prices.
Asked if there is the possibility that property sellers might give agents instructions to negotiate down to different amounts, after finding out if the prospective buyer might benefit from the scheme, Mr Mercieca says that homes in the price range typical of first-time-buyers do not generally negotiate such significant differences.
“A €210,000 property would not go down to €200,000,” he says, explaining that room for negotiation at that price is limited.
Contacted for comment, a representative of the Central Bank of Malta (CBM) tells BusinessNow.mt that “it is difficult for sellers to price in this amount, given that the grant is spread over 10 years and only effects first-time buyers” – who make up but a portion of the property market.
CBM governor Edward Scicluna admits that “it is hard to tell” just how the market will react.
“According to the theory of subsidies, the advantage is split according to the market structure. So it all depends on how the market is at that particular point. It is a question of price elasticity in part determined by whether real estate is a buyer’s or seller’s market.”
Prof. Scicluna agrees that the spreading out of the grant allocation over 10 years makes it doubtful that sellers will feel capable of taking advantage by asking for higher amounts, since it will not have a direct effect on buyers’ budgets.
“If the grant were given as a lump sum, that would be one thing, but that’s not how the scheme is designed.”
The sentiment is shared by Michael Bonello, CEO of real estate agency Alliance, who says the grant is expected to “help buyers in their day-to-day budgeting, but it will not have a substantial impact on the choice of properties being purchased by these people”.
Responding to a question on whether the grant might spur first-time buyers to enter the market earlier than they otherwise would have, Mr Bonello is sceptical.
“I’m sure everyone eligible will welcome the €500/person grant of that year as part of their income, but let’s face it, while it could be a helpful contribution to make ends meet, or for a capricious spend to improve their lifestyle, it’s not such a large cash injection that will influence when you can afford to buy your property.”
Philip von Brockdorff, deputy dean at the University of Malta’s Faculty of Economics, Management and Accountancy, says that the grant should be seen as an extension of the previous first-time buyer scheme, which eliminated stamp duty on the first €200,000 of a property’s value.
This means that, for a property worth that amount, first-time buyers would both save €7,000 in taxes, but also receive €10,000 over 10 years.
Prof. von Brockdorff argues that the grant cannot be considered in isolation, but must be analysed in conjunction with the tax exemption.
Understood so, he believes that “such schemes boost both the supply-side and the demand-side of the property market, with the main beneficiaries being property developers and real estate agents, where the gross value added is the highest in the Maltese economy.”
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