The promise of sale date must guide property valuations

During the general election campaign and the period leading up to it, I observed several systemic injustices. Many of these stem from anomalies that grant subjective powers. A key example is the current structure of the Maltese Property Valuation and Duty Assessment System.

This system requires reform to build public confidence and protect low- to middle-income individuals from undue financial burdens. Under the Duty on Documents and Transfers Act, government-appointed architects inspect properties to ensure declared prices match market value. While I support efforts to prevent tax evasion through undervaluation, the process is often inconsistent due to anomalies and subjectivity. For example, if a declared value is less than 85% of the actual market value, authorities assess additional duty and interest, though taxpayers retain the right to appeal. Historically, widespread property undervaluation led to significant government revenue losses. Although the system has existed for years, critics, including myself, argue it is now flawed due to rising property prices, subjective valuations, and the financial strain on honest buyers.

The construction and property markets have expanded significantly under the PL government. The stability and growth of Malta’s property market depend on transparent and fair tax assessment systems. For real estate to continue driving economic and social progress, buyers must trust that duties are predictable and reflect actual market conditions. Arbitrary financial burdens or outdated assessments undermine confidence and place unnecessary pressure on families. Surely, improvements should include using the Promise of Sale (POS) date for all valuations and exempting bank-financed residential purchases from mandatory inspections. Banks already conduct their own valuations to protect their collateral, making price manipulation unlikely, as they also have their own architects. I am a banker myself, so I know how the system works.

The current legal framework gives the Commissioner broad oversight and enforcement powers to ensure duty is collected on the true property market value. The Commissioner or authorised architects have unrestricted access to properties when undervaluation is suspected. Well, I support efforts to prevent under-declaration and promote fairness. However, implementing these powers has introduced operational challenges that impact the system’s efficiency and fairness. Property prices in Malta have grown steadily, averaging 8% to 10% annually. Under the Duty on Documents and Transfers Rules, the valuation date is typically the POS date. However, specific rules state that if improvements are made between the POS and the final contract, the valuation date shifts to the date of transfer. In practice, even without improvements, government-appointed architects often inspect properties up to 12 months, and at times even more, after the contract, basing valuations on the inspection date rather than the POS date. This approach fails to account for rapid price appreciation during the intervening period, particularly affecting first-time buyers facing inflation and market volatility. This surely happened between 2022 and 2025 due to the war in Ukraine and the period of high inflation.

The system faces expertise gaps, relying mainly on government-appointed architects whose market valuations are often subjective. These architects may overlook factors that lower prices, such as urgent sales or legal restrictions. While purchasers can submit private valuations, the authorities have full discretion to accept or reject them, often favouring internal assessments over qualified private reports. The current system places hidden burdens on honest buyers, especially those already financially stretched. Many, particularly first-time buyers, depend on bank financing and have no incentive to under-declare, as banks require accurate valuations for loan security and collateral protection. When the Capital Transfer Duty department issues assessments months or years after the transaction, buyers face significant additional duty and interest, threatening their financial stability and contradicting election promises of support. These systemic issues require fundamental policy reform.

For example, I encountered a case involving a class 4C shop that a buyer intended to convert into a flatlet. The 80-square-metre property was priced at nearly €150,000, with an additional €60,000 needed for essential upgrades. After contesting an initial penalty of over €10,000, the purchaser still paid more than €4,000. The issue arose because the appointed architect valued the property as commercial, despite its approved conversion to residential use, highlighting the system’s subjectivity and errors. Besides, the uncertainty exerted on purchasers leaves them without proper planning, waiting at the discretion of the tax authorities. It is truly unjust.

A modern duty assessment system should prioritise predictability, transparency, and the elimination of arbitrary discretion. The POS date must serve as the consistent valuation benchmark to ensure buyers are taxed on the agreed value. Certainly, to address annual price increases, a mandatory reduction should apply to assessed values if inspections occur more than three months after the POS date. Properties with bank valuations, especially for first-time buyers and primary residences, should be exempt from government inspections. Recognising bank valuations for tax purposes would reduce administrative burdens and protect honest buyers from unexpected financial strain.

Besides, the authorities can explore the Public Duty Database model. A transparent public portal would allow purchasers to enter a property’s address to see the exact duty payable before committing to a purchase. Similar systems are applied in France to check the physical and transition risks of climate. We can use it as part of our collateral valuation systems too. Crucially, under this model, duty would be payable based on the database value irrespective of the price declared in the contract. And it can also consider other specificities that are not subjective. Certainly, it removes administrative discretion, provides absolute certainty for purchasers, clarity, and eliminates the motive for under-declaration.

Surely, for the average citizen, these reforms provide a critical social safety net. They ensure that families and first-time buyers are protected from unexpected additional duties and interest caused by systemic delays or inaccurate valuations. When purchasing a property, it is important to understand that the final decision-making authority lies with other parties rather than the buyer.