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Property Investment for Expats in Malta

Submitted: November 2013

Property investment in Malta is restricted, though it is largely possible for expats to buy a home there. Round-trip property transaction costs are moderately low by international standards (around 9%).

The Maltese like to own their home. Malta’s homeownership rate (77%) contrasts with Germany (46%). Like many other countries in the world, the expansion of credit has caused a housing boom prior to the 2008 downturn. However, this boom and bust cycle was limited in Malta.

Foreign investment restrictions

Malta’s property investment restrictions can remind of some jurisdictions in the Asia-Pacific region, such as Australia or Singapore.

As a general rule, foreign nationals must apply for an Acquisition of Immoveable Property (AIP) permit, subject to minimum investments of €103,906 (flats or maisonettes) or €173,129 (others). Exemptions may apply in Special Designated Areas (SDAs).  SDAs are designed to cover prime property only and they are free of any foreign investment restrictions. The detailed rules are available here.

On an AIP permit, you can buy one property only. It must be for a residential purpose, i.e. you cannot rent it out. Malta tends to welcome foreign investment and an AIP permit will most likely just cost you a €233 application fee.

As a result of on-going negotiations with Brussels, EU nationals with permanent resident status (after 5 years) may also enjoy the same rights as resident Maltese citizens. Otherwise, they are treated like non-EU nationals.

Maltese housing market generally

Malta has become quite cheap with regard to housing. You can generally expect home prices to range between €2,200 and €2,800 per sqm.

Property prices had nearly doubled in the first half of the last decade, before going south in 2006. In nominal terms, prices are still around 10% below the 2006 peak. In real terms, that should be closer to 30%. Prices are not expected to substantially bounce back any time soon because of the Euro-zone crisis, but they seem to have stabilised.

Unlike the neighbouring countries, Malta’s GDP growth has remained quite resilient throughout the Euro-zone crisis (1.7%). Regarding housing supply, the output is generally between 1,000 and 1,500 per year. There is no significant housing shortage in Malta, at least not at the moment.

An assessment of the Maltese housing market must include many other macroeconomic factors, including:

  • Mortgage availability
  • Interest rate variations (if they go up, property prices go down)
  • Demographic trends (e.g. migration flows)
  • Tax policy, and
  • Psychological factors

Mortgaging

Get your documentation right before applying for a mortgage, and do it early to avoid disappointment. Basically, you can expect interest rates to be between 3 and 4% if intend to be owner-occupier. On a buy-to-let mortgage, this should be closer to 5%, which is virtually uninteresting given Malta’s poor rental yields.

From a financial point of view, remember that:

  • your net borrowing costs include not only interest but also additional mortgage-related fees and taxes
  • interest rates may go up in the future, but they have some room to shrink further as well
  • homeownership costs are not solely about financing costs (you may to plan for other costs, such as maintenance).

For more information on mortgages in Malta, see ACCOMMODATION – Mortgages for Expats in Malta.

Property taxes

There are no property taxes in Malta. Financially, this could justify accepting lower rental yields.

In theory, low property taxes should mean higher home prices. As property prices are moderate anyway, this makes Malta a relatively cheap jurisdiction.

Letting your property

Many expats cannot lease real estate in Malta because of foreign investment restrictions (see above).

Gross rental yields are very low (3 to 4%). Rents can be freely agreed and they may rise further in the future. Rent increases can be expected to at least match inflation over the long-term.

Do check the applicable landlord and tenant law prior to leasing property. In Malta, it is much better to have a reliable tenant than to require court enforcement. Do not attempt to evict a tenant illegally, as illegal eviction may be a criminal offence.

Financial returns

From a financial point of view, the return on property investment comprises of:

  • net rental yields (or rent that you don’t pay), and
  • net capital gains

If rents are to rise (e.g. because of inflation), you are more likely to make capital gains over the long run, i.e. without taking into account medium-term fluctuations, such as mortgage availability.

Don’t be lured too much by expected capital gains. There is definitely some capital gains potential in Malta, but excessive speculation might be a risky business.

 

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