Real estate investment

A plethora of investors are closely supervising Malta. It has a strong expat community, the economy is booming, and the CBI and RBI programs require investing in real estate.

All this means Malta has a dynamic real estate with strong investment returns for those willing to invest in the market.

Find a home that fits your needs and of your family is a must in Malta. For its size, the country has a deeply diversified market, with luxurious seaside properties, comfortable villas, and downtown apartments close to the business centers in Valletta.

You can buy a luxurious villa at a walking distance from some of the more gorgeous heavenly beaches of the Mediterranean, at a fraction of their cost in Southern France or Greece.

What if you already have a home in Malta or don’t want to relocate there? Well, the real estate market is booming and offers impressive options for investors willing to invest in the real estate business for wealth management purposes.

However, investing in real estate in Malta has its particularities. Buying and selling property has some specific taxes, and your nationality may be a factor to consider regarding the procedure for buying property in Malta.

But it’s worth the bet. The real estate prices can go up as much as 15 % per year, which is terrific for investors. Malta real estate is widely considered as one of the best investments you can make across the EU. The market isn’t growing because the government eased conditions for buying properties or for getting credit. The rise is due to the overall economic growth of Malta, fueled by its sound macroeconomic policies, job creation, and an influx of expats.

After this overview, where should you buy real estate in Malta, and what are the best investments?

There are plenty of brand-new furnished apartments in Special Designated Areas (more on that ahead), which are the best areas for foreign investors to get into the real estate markets. Some of them are located in Valletta top suburbs such as Sliema and Gzira, which has seen the highest rises in prices in the last few years. Some of them also have luxury complexes, which are the favorites for those applying to the RBI and CBI programs.

Nonetheless, one may ask: is Malta amid a real estate bubble? That’s a fair question.

One may say that prices are being inflated because the demand is outpacing a limited supply. That’s partially true. The island is incredibly densely populated, and Valletta doesn’t have much more space where to build, but still, most of the largest companies are in the city. Homeownership in Malta sits at 80 %, which means that those willing to sell may obtain significant revenues. Thus, speculation may be getting off-limits and inflating a real estate bubble.

However, on the other hand, Malta has a meager unemployment rate that doesn’t even reach 4 % and a ton of skilled expats living on the island. The island is seeing an unprecedented economic development fueled by a pro-business government that is applying a stable macroeconomic policy, a diversified industry, and a substantial growth of the financial services industry.

Real estate bubbles are usually driven by dreadful mortgage lending policies conducted by banks. That’s what happened in the US during the 2008 financial crisis.

That’s not the case in Malta. They usually require a down payment between 10 % and 30 % of the mortgage loan.

However, in the next few years, we’ll probably see a minor decrease in the price growth rate in the Special Designated Areas unless the government reduces restrictions for foreign investors, which could lead to another boom.

After reviewing the general estate of the business, you’re probably asking yourself what you need to buy property in Malta.

The steps to buying property in Malta are:

1)    Hiring a notary and a real estate lawyer (this is optional, but is probably the best way to go)

2)    Negotiate the details with the seller. When you reach an agreement, you’ll need to sign a written contract of promise of sale that includes

a.     Agreed sale price

b.    Ground rent conditions (if applicable)

c.     Repairs and updates to be done before the sale

d.    Furniture and goods to be included in the sale

e.     The time that shall pass until the conditions have to be met to close the deal

f.      Conditions that would exempt the buyer from his obligation

3)    Pay the deposit and a fifth of the stamp duty. We will explain this later, but is a 5 % tax over the agreed purchase price

4)    Due diligence over the legal title of the property

5)    The final agreement is signed, and the buyer pays for the property

6)    Seller pays the taxes he may owe for the property

7)    Buyer pays the remainder of the stamp duty and the notary fee

Step 2 doesn’t always apply, but it started when the Maltese government made large plots of land available for housing and stated that new owners should pay a yearly fee. That means the buyer must pay the seller an annual rent and requires them to improve the overall conditions of the house, or it may limit their freedom to alter the house without approval. These arrangements are temporary or permanent. The land that is sold without that condition is called freehold land. Ground rent can be the same every year, or the contract can set it out on a schedule. According to the law, a buyer can release from permanent ground rent by paying the seller 20 times the annual ground rent.

Now, what should foreigners know about acquiring property in Malta? The government implements a particular set of rules over foreigners to even the demand across the country.

If you are an EU citizen that hasn’t lived in Malta for the past five years, certain restrictions apply:

Ø  You must receive an Acquisition of Immovable Property Permit for a second home, including vocational real estate. There are no restrictions for EU citizens purchasing a first home.

Ø  That permit only allows you to purchase apartments of maisonettes of at least €121k or townhouses and villas of at least €203k.

Similar conditions apply for non-EU citizens in Malta. However, all non-EU nationals must apply for an AIP permit for all property purchases they make, even primary residences.

To get an AIP, applicants must follow this procedure:

Ø  Complete the application form

Ø  Attach a copy of the notarized promise of sale with two passport-sized photos, and a copy of your passport

Ø  Pay the fee (€233)

Ø  The permit is issued in around a month

However, if you buy a property with an AIP, there are further conditions:

Ø  They cannot be rented out

Ø  They cannot be divided for subletting and must be used as a residence for the applicant and his family

Ø  It can only be used as a residence

You see all this, and you’re probably wondering: then what’s the point on investing in real estate in Malta if there are so many restrictions?

This is when Special Designated Areas come. They are developments with a mixture of residential and commercial spaces that were built to give new life to zones that weren’t in much use and meet the demand for homes and offices driven by professional expats relocating in Malta. In these areas, there are no restrictions on buying; foreigners can buy as many properties as they want and can rent them. The government frequently adds new SDAs to its list, meaning there are plenty of opportunities in them.

Malta doesn’t have an annual property tax. However, it applies taxes over property transfers in two forms. As we mentioned, there’s a stamp duty tax of 5 %, of which a fifth (1 %) must be paid when signing the promise of sale.

However, in some instances, buyers pay a reduced rate:

Ø  If it’s the buyer’s first real estate purchase (worldwide), the first €150k of the purchase is exempt. Only above that the 5 % duty is paid.

Ø  Properties located in Urban Conservation Areas are subject to a reduced 2.5 % stamp duty

Ø  Properties in Gozo (one of the three islands of Malta) have a 2 % stamp duty

Property sellers pay an 8 % withholding tax over the purchase price. This rate has a few exceptions:

Ø  If the seller bought the property before 2004, they must pay a 10 % withholding tax

Ø  Property bought to build a principal residence from scratch and sold within three years is taxed at 2 %

Ø  If the property is in an Urban Conservation Area, the tax rate may be reduced to 5 %

Ø  Certain transfers made within five years of the property acquisition qualify for a 5 % tax

Do you want to invest in real estate in Malta? Contact our experts!