The Roaring Buy-To-Let Market: Wise Investments For a Solid Future.
The property market is currently very strong. After the financial crash of 2007/08, real estate has been gathering a constant momentum and we are now feeling the effects of a strong economy in which property prices are peaking every year. We have witnessed a constant average increase in capital gain for the past 3 years (average of 24% increase between 2013 and 2016 throughout the Maltese Islands while the areas between St. Julians and Valletta experienced the highest increases, even up to 60% – KPMG). These latest price hikes are attributed to many factors, including the Individual Investor Programme and also the exemption of stamp duty for first time buyers (CENTRAL BANK).
It is quite evident that investment in the property market has taken on a new strength. Whereas few years ago, residential purchases dominated the property market, nowadays purchasing a property (or two) as a rental investment has become a better and quicker way to make your money work for you, where return on investments can amount to anything from 3.5%-7.5%; with anything over 5% being considered a healthy return amongst most investors. Most people are opting to invest in property rather than leaving money gather dust in a bank account.
The industry has registered a continuous growth in the selling of investment properties, as demand currently manages to exceed supply. Buying properties on plan is also allowing rental investors to purchase at cheaper pre-construction prices and reserving the property against just a 10% deposit until the development is built. This gives the investor the opportunity to save up some money to finish and furnish the property from their own pocket rather than getting a smaller and secondary finishing loan from the bank.
Focusing our attention towards the buy to let market, Investors are putting buying into a ready built or soon to be built property, in order to rent it out to pay off a mortgage while enjoying a passive income from excess rental return. This is driven by a strong rental market, both in long and short lets.
Current trends show that most owners prefer long-let rentals as opposed to short-lets. One must keep in mind that the potential revenue generated from short lets sometimes doubles or triples long-let revenues. There is an ever-increasing number of properties which are rented out for long-let in the winter season, only to switch to the tourism market in the summer months with short-lets.
One of the main reasons residential property prices are on the rise is the large demand for quality and high standard commercial office spaces. Companies relocating and expanding in Malta have expanded the required workforce of both locals and foreigners, resulting in the need of residences, whether it be letting or for purchase. In both cases, the opportunity for investment is high – rental investors rent out their properties and developers sell theirs.
Purchasing an investment property, requires a thorough search. Not all deals are solid investments. Some important questions to ask (or to be asked by a dedicated sales specialist) will include the following:
Am I financially comfortable in committing a 10% Deposit to purchase a property? Do I have some capital left over for a rainy day?
How much capital can I get loaned from the bank? What is the best interest rate I can expect and which bank is offering the best service when it comes to Buy to Let Properties?
For properties that are built, am I getting it at under market value? Do I have to gut it out and modernize it? Am I paying too much and how do I calculate what is a good price?
For properties that are being sold on plan, will I have enough money to finish / furnish the property once the development is built? Will I require another smaller loan to finish it up? How long will it take? Can I save up the money myself?
Am I taking into consideration the extra costs that are associated when purchasing a property? These include taxes, notarial fees, architect fees, etc.
Is the property in a strong rentable area where my rental income can be guaranteed for the foreseeable future?
Top real estate agents will work hand in hand with bank managers, notaries, architects and turnkey contractors to answer all your questions and facilitate your rental investment property purchase. So, finding helpful sales specialists such as myself with connections in the industry is definitely a great place to start.
Once you gather enough information, you are ready to make your move by choosing an investment property.
This mainly depends on the amount of capital you are capable of investing. This will have to be divided amongst the following costs listed below:
- A 10% deposit.
- Renovations / Finishing Costs / Furnishings Costs; When a property is bought in shell form, calculate EU200-EU250 per sqm to bring it from shell to finished (which will include water, electricity, plastering, painting, tiling, aluminium apertures and all works associated with the finishes) and also including bathrooms and internal doors.
- Furniture; between EU7,500-EU15,000, depends whether 1/2/3 bedrooms)
- Taxes; Stamp Duty at 5%
- Notary; between 1-2% of the Sales Price
- Architect; between EU300-EU500.
These calculations are based on my experience in the buy-to-let industry during the past 3 years. Once these costs are calculated, you can decide what purchasing power you afford and which locations you can target according to your budget! Whilst properties in Sliema, St. Julians, Gzira and Valletta are experiencing an all-time high, the occasional good deal is still possible to find.
If property prices in these areas are beyond your budget, other locations such as Msida, Pieta’, Gwardamangia, Swatar, San Gwann and Santa Venera are also experiencing high rental returns, being in close proximity by walk, car and public transport to the island’s main business hubs and attractions.
Although it might seem like a tedious task, the above is necessary to enter this investment with a clear picture of what kind of returns to expect over time. Of course, as per all investments, there is an element of calculated risk but buyers armed with the right information and using the help of a trained and experienced property specialist will be in a better position to make a well-informed decision. Conclusively, with the right property the serious investor will be well on their way to create a future passive income, which might eventually replace the main source of income of the household!
After a strong and busy couple of years helping Zanzi Homes grow (while learning a lot myself in the process), I will be taking a two month break visiting family and friends down under and escaping the cold of the Maltese and Gozitan winter. In my absence, feel free to contact our specialist Jessica on 20108777 / 79301088 for any further information regarding our rental investment properties and I wish you all good luck in your future investments along with a happy and prosperous 2018.
Will be back in March to proceed where I have left off!