The suspension of a scheme enticing foreigners to buy or rent property in Malta, which last year injected €35 million into the economy, has thrown real estate contracts for non-EU nationals into limbo.

Some foreigners who had taken advantage of the scheme and who had already made preliminary agreements to buy property do not know if they will still receive the tax incentives they expected.

The Permanent Residency Scheme was suspended last December because of what the Finance Ministry described as “a level of incorrectness and abuse of the system”.

But three months later, real estate agents, developers, investors and potential buyers remain in the dark on the scheme‘s future.

Ian Casolani, chairman of the real estate business section of the Malta Chamber of Commerce, Enterprise and Industry, voiced his concern about the scheme which he said had been suspended “without warning or consultation”.

While agreeing the government had valid concerns, Mr Casolani disagreed with the suspension. He said the section had held four meetings with the ministry following the suspension in which it made proposals for the scheme to be fine-tuned and certain loopholes closed. However, the government had not given any feedback.

Among others, he mentioned the minimum annual rental fee of €4,192 which was too small. This is proposed to be raised to between €10,000 and €12,000. Moreover, the minimum purchase value of €60,000 was also too low and did not even reflect the price of a garage, he said. The section proposed this also be raised.

Last year alone, 151 non-EU nationals had taken advantage of the scheme with a total value of €35 million, apart from the spillover effects it had on the economy in terms of the provision of services. Mr Casolani insisted this scheme was one of the main elements that kept the country‘s economy ticking.

“These people not only buy property but spend money on furnishing and doing it up, they visit Malta regularly, spend money on entertainment and bring friends and family over. So many people benefit: the furniture industry, builders, carpenters, restaurants and entertainment venues, just to mention a few,” Mr Casolani said.

He said the government‘s concern was that, after five years, scheme holders became long-term residents and could avail themselves of the country‘s social services.

The section proposed restrictions on this eligibility while obliging applicants to have a substantial health insurance cover.

Mr Casolani said the section had been “reliably informed” that the government was considering increasing the €60,000 minimum purchase price to €500,000, which he said would be as damaging to the economy as closing down the scheme altogether.

He said that during this three-month limbo, potential buyers were resorting to alternative destinations, exposing the economy to a number of risks, including around 12,000 jobs directly related to the construction and real estate sectors.

“Malta‘s reputation as a serious financial services centre is also at risk, especially in a situation where the goalposts can be changed or even removed without any notification,” he said.

“The irony is that during 2010, the government, through Malta Enterprise, financially supported those who went abroad to attract permanent residents to Malta,” Mr Casolani said.

Asked whether the government had given concrete evidence of the abuse it was claiming, Mr Casolani said it had mentioned just one EU national who had raised a substantial healthcare claim. He said this person was not even a permanent residence permit holder.