Solution for rent-controlled housing ‘only partial’, say owners seeking better return

Controlled rent rates can’t last forever, revisions only partial solution, property pundits say

The proposed legal amendments would allow owners of rent-controlled properties the right to ask the Rent Regulation Board to revise measly rents upwards, to a maximum of 2% of the freehold value of the property
The proposed legal amendments would allow owners of rent-controlled properties the right to ask the Rent Regulation Board to revise measly rents upwards, to a maximum of 2% of the freehold value of the property

A government proposal to have landlords receive an annual rent of 2% of the value of their rent-controlled properties, has met cautious approval from property owners.

The proposed legal amendments would allow owners of rent-controlled properties the right to ask the Rent Regulation Board to revise measly rents upwards, to a maximum of 2% of the freehold value of the property.

Tenants of such rent-controlled properties have enjoyed low rents thanks to the protection afforded by a 1979 law that converted temporary leases in permanent rental contracts.

But lawyer Cedric Mifsud – who won a landmark Constitutional case related to landlords’ fundamental right to enjoy their property – said the changes come late in the day and were not a not a full solution for landlords who remain limited in how they impose rent on their properties.

Mifsud said it had been irresponsible of the current and previous administrations to have taken so long to come up with a solution. “The 2% rate is definitely an improvement, but it’s still below the usual market rate,” Mifsud said.

“There are, for instance, properties in Mdina which would normally get a 5% increase on the open market, but would have to be limited to less than half of that if they are rent-controlled.

“So, government is still causing a restriction, and the breach of the right to enjoyment of a person’s property persists. This creates a distortion in competition between those who are restricted by the law which converted temporary emphyteusis deeds into a lease on their expiration, and those who aren’t and can rent out at a much higher rate.”

The easiest solution, Mifsud remarked, would be a cut-off date for the 1979 law to be repealed, including a gradual phasing-out period of five to ten years.

Biggest issue is who establishes freehold value

Property market authority Christopher Testaferrata Moroni Viani said he was concerned about who would be charged with carrying out the valuation of the rent-controlled properties, and whether it would be based on the actual value of the property on the open market.

“Let’s say you have a property worth €300,000, but because there is a tenant renting the property who can’t be made to vacate, the property is valued at €50,000. On which figure will the 2% be applied?” he asked. “Or what if there is a property the government had expropriated, which it claims is valued at €70,000, but can be sold for €700,000 on the open market? The owner might go to court, where the value is raised to, say, €100,000, but this still won’t be fair. So who establishes the value of the property?”

Testaferrata said the 2% ‘coupon’ was better than nothing at this stage for landlords, but it all depended on valuation-related factors.

While acknowledging the importance of helping families who need property assistance, he said this should be done through a proper means test and government subsidies, not through the 1979 law.

Amendment only an interim solution

Douglas Salt, head of the Malta Developers’ Association’s real estate section and a director at Frank Salt Real Estate, called the amendments an “interim solution” and a “step in the right direction”, but said they are far from giving landlords a level-playing field.

He said the 2% rate was low but acceptable as long as it was a temporary solution.

“Rent control has been there for a long time, with people riding on landlords’ backs. A number of court cases at local and European level have found the 1979 law to be unjust, and the compensation given has been on the low side. The government has had to come up with a solution – which is still not really fair at this point.”

He described landlords of rent-controlled dwellings as effectively offering social housing for free. “When the law was introduced decades ago, the government was justified in fearing people could end up without homes, since Malta was still recovering from the post-war period.”

While saying it was not right that such a situation persists, Salt admitted that repealing the 1979 law would cause chaos on the housing market.

“However, on the other hand, there are children of landlords who have to buy their own home instead of being able to live in one owned by their family. There’s no easy solution,” he said.

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