Editorial | A bold reform that requires monitoring

The rent reform law released by the government yesterday is a bold attempt at trying to regulate a sector that has grown exponentially over the past few years.

The rental market has boomed as a result of the growing demand from foreign nationals, who have made Malta their home and workplace.

This sudden expansion brought with it a significant upward market correction in rental prices to reflect the higher demand.

But while the upward correction was to be expected, the rapidity with which it occurred shocked the economy and society.

Gaming companies have raised the alarm bells over exaggerated rental accommodation prices, which risk undermining Malta’s competitiveness.

At the same time, the exorbitant rent increases outpaced annual wage hikes, creating new burdens for Maltese people who lived in rented accommodation.

Moreover, the sector largely operated in the black market with hardly any tax being paid on rental income despite the introduction of a 15% withholding tax a couple of years ago.

This created a distorted market, caused instability for tenants and left bona fide landlords biting their fist.

Within this context, regulation is good news, even if it may require tweaking.

The proposed law has avoided setting rental payments or imposing a cap on them. This is a wise move because it avoids the heavy-handed approach in a sector that has a bad experience with past government intervention.

This means that landlords can set prices as they please when entering into a residential contract with a tenant. This may not entirely solve the social problems created by rent increases but this leader believes that the market could eventually correct itself with a bigger supply coming on board.

The reform tries to incentivise landlords to opt for longer term contracts by offering tax credits.

Whether the tax credits are attractive enough is debatable. As things stand, it is this leader’s impression that it could be more lucrative for landlords to forfeit tax credits and enter into one-year contracts that will allow them to reset the rent at a higher level, each year.

To this extent, it may be wise to include in the law the creation of a monitoring committee within the Housing Authority to track developments over the next three years and determine whether the tax credits are generous enough to leave the anticipated impact.

At the end of the three-year period, the government will be able to review the law accordingly.

The mandatory registration of all rental contracts is also a positive move because it helps cut down on tax evasion and creates a transparent market.

Tenants living in rented accommodation without a contract will be protected at law from eviction if their landlord refuses to draw up a contract and register it.

In these cases, the Housing Authority can step in on behalf of the tenant and impose a three-year lease agreement at 75% of the market value.

Enforcement will play a key part in bringing rogue landlords in line. This leader hopes that the Housing Authority’s resources will be boosted in line with its bigger functions.