Ways to invest in Malta’s real estate market
Investing in real estate in Malta has tended to be a lucrative step, generating good returns for investors over generations. That does not mean that there is no risk involved so in this article, to help you succeed, we’ll be giving you some tips to keep in mind.
A shift to tap into
Up to a couple of decades ago, the most common type of investment was buying a property in a seaside village like Marsaskala, Bugibba and St Paul’s Bay to be used as a summer home, commonly referred to as a villeggjatura. Around the turn of the millennium, the trend was to buy a place in Gozo. Again, these investments were mainly focused on acquiring property for leisure use by the owners during weekends and summer holidays, rather than generating income.
Rapid economic and population growth in more recent years has changed the dynamic of these seaside villages. Offering comparably affordable property prices, these locations have transformed from seasonal hotspots to places of permanent residence, bustling with activity all year round. The growing demand for property pushed prices up and while many did sell, others began to realise that renting their property out or even developing their property for rent could be an attractive option. The opportunity to turn investing in property into an income-generating venture grew with the increasing number of expats making Malta their long-term but not necessarily permanent home. To a large extent, this is still the situation today. Many properties in seaside towns and villages are put up for rent – mostly long-term – as owners seek to hold on to their assets and generate income from them.
Of course, buying to rent doesn’t just make sense in seaside villages. People live anywhere, the closer to office hubs and educational institutions it is, the better the chances of renting it out. Therefore, it makes sense to buy a property to rent out to students in Msida and in places like Swatar, San Gwann and Swieqi if you would prefer to rent out to families. These are locations which are close to many people’s workplace and social activities but still offer reachable prices. Similarly, towns like Hamrun and Marsa, and further to the south like Tarxien, for instance, are attracting plenty of interest, not least of single expats who are looking for more affordable areas and are also willing to live in multiple tenancy properties. This is a win-win situation for both investor and tenant alike.
One way of buying a property for less, especially if you are investing to rent, is to buy on plan. The prices are usually cheaper to lure buyers into paying a deposit, which is in turn much needed by the property developer to fund the building project. It will naturally take longer for you begin earning an income when compared to buying a property that is ready. However, the value of the property will have already accrued by the time the property is in your hands.
As long as Malta remains an attractive country for people from all over the world to live and work in, a healthy demand for rental properties will continue to exist, continuing to generate income for investors even as increasing number of Maltese also opt to rent rather than buy a property.
Renovate to sell
If you’d rather not become a landlord but still wish to invest in property, you could consider buying unconverted old properties, like houses of character and town houses, which usually sell at lower prices, and then selling them once completely renovated. The value of the property rises significantly once it is converted to modern standards. And of course you are in total control of the level and standard of finishes. You could decide whether to just have the electricity and plumbing installed and flooring done, or to also have soffits and internal doors in place as well. The amount you are willing to invest is directly proportionate to the return you will make.
Know the law
Whether you buy to renovate and sell, or to rent out, there are certain laws and regulations one needs to be aware of.
In general, there is one final withholding rate of 8% on the final value of the property transferred. This new system came into effect in 2015. However, there are exceptions as this rate does not apply in all circumstances. In the case of properties found within Urban Conservation Areas (UCAs) which were renovated according to the permits issued by the Maltese building regulator, the Planning Authority, there is a final withholding tax of 5%. The same rate applies to properties which were acquired and then transferred again within a 5 year window. Properties acquired before 1st January 2004, will be subjected to a 10% rate if sold now (this came into effect from the 17th November 2014)
People who do not reside in Malta but reside abroad for tax purposes and wish to sell a property in Malta, are exempt from paying the final withholding tax in Malta provided that they produce a declaration proving that they will pay tax on the capital gains made from the sale of the property in Malta.
Get in touch
These are just a few examples of rates applicable to the transfer of property. If you would like to learn more you can check out our article ‘The Home Selling Process’ and 'The Important Rules and Regulations All Landlords Must Know About'. Should you wish a more direct answer to your question, our real estate agents at Zanzi Homes can brief you on the fine print.