Malta property boom
Residential construction levels and the price of property in Malta boomed between 2003 and 2004, recording price increases of 20.3% and 13.3% respectively, after a 2003 referendum voted in favour of Malta joining the European Union on 1 January 2004.
Located in southern Europe just off the coast of Sicily, properties in Malta, which comprises an archipelago of seven islands, with a population of 400,000 inhabitants, have long appealed to overseas nationals. This is not just because of the Malta’s intense Mediterranean climate, but also owed to the country’s tax-efficient status; Maltese residents enjoy one of the lowest levels of income tax in Europe.
Demand for property in Malta
But international demand for homes in Malta, which primarily comes from the UK and Scandinavia, has waned over the past year or so. This is particularly the case with “British buyers” largely due to “the fall in the UK pound’s value” against the euro and Maltese lira, says Paul Hay of Malta Homes. The decline in sterling’s worth has significantly increased the cost of buying property in Malta.
Although property prices have fallen, the downturn has been nowhere near as drastic as most other European markets,” adds Hay. However, domestic demand for homes in Malta has been “surprisingly resilient”, says James Vassallo, senior manager, Tigne Point property development.
Vassallo continues: “Reduced interest rates have encouraged fence sitters to engage [in housing transactions] and have made those occasional bargains that much more attractive.”
Malta property prices start to stabilise
Although housing values are still falling in some areas, they have already stabilised in other regions, mainly because most Malta property owners are not so highly leveraged through borrowed money, as say those residing in the UK.
Despite the short-term market slowdown, the Malta property sector could find itself flying high in the medium to long-term, buoyed by growing tourism levels and an ever-increasing number of low-budget airlines.
Malta homes flying high
In 2008, EasyJet, Ryanair and Scandinavian Airlines, all either introduced or increased its direct routes from the UK and Sweden to Malta.
Vassallo adds: “The increased air traffic is certainly good for the island especially in these trying times. Malta is strategically placed between the west and east and the growing importance of North Africa. It appeals to businesses looking to relocate to the Med and over the years business travel has constantly grown.”
Rental investment properties in Malta
While there may have been a fall in foreign demand for Malta homes to buy, Hay says that greater tourism levels are increasing the requirements for holiday homes in Malta to rent.
“From a holiday letting point of view, 2009 appears to be looking healthy, when taking into account the global economic situation, says Hay. “In fact Air Malta recorded one of its most successful flight occupancies for the first quarter of 2009 for some years.”
Vassallo says that some of the best rental returns, albeit it at relatively low yields – approximately 4% – an be achieved by buying property in Sliema, property in St Julians, property in Valletta and property in St Paul’s Bay.
However, it is worth nothing that any foreigner wishing to lease their Malta home out, would have to register their property with the Hotel and Catering Establishments Board, and it can only be rented out on a short-term lease agreement.
Furthermore, non-nationals can only purchase a single Malta property, and usually only for owner-occupancy purposes, unless they buy property in a ‘Special Designated Area (SDA)’ permitting them to buy property in Tigne Point, property in Portomaso, property in Manoel Island, property in Chambray, and property in Cottoenra.
Malta Properties located in a SDA do not face some of the stringent restraints placed on foreigners otherwise wishing to let their Malta homes.
Residency in Malta
One way to overcome the confines placed on overseas nationals is to become a Maltese resident, which would also offer average earners a genuine opportunity to cut their tax bill.
Malta charges no capital gains tax on property sales after three years of ownership, but any local or overseas income brought into Malta is taxable at a rate of up to 35 per cent. However, residents can take advantage of The Maltese Residence Scheme, which charges a flat tax rate of 15 per cent, subject to a minimum tax liability of EUR4,200 (£3,630).
In order to qualify for residency in Malta, Mark Hollingsworth of Hollingsworth International, explains that an individual would have to own assets worth in the region of at least EUR350,000 (£303,000) or earn an annual income of approximately EUR23,500 (£20,400) outside of Malta.
Foreigners moving to Malta have to “remit a minimum of EUR13,950 (£12,00) plus EUR2,300 (£2,000) for each dependent to the [country’s authorities], not engage in any form of business activities in Malta and either purchase or rent property in Malta. A minimum of EUR116,000 (£100,000) would have to be spent on buying a house or EUR69,000 (£60,000) paid for an apartment, otherwise an annual rent of at least EUR4,150 (£3,600) would have to be spent on leasing a home.”
The process of buying Malta property
Anyone who actually goes ahead with a Malta property purchase should find the buying process pretty straightforward. The legal purchasing system in the country presents a relatively safe buying environment.
Deeds are presented upon completion of the property purchase, while the legally binding contracts are presented in English.