The start of 2011 has been rough for some property owners in Malta:
• Apartments saw a 1% nominal price increase over the year to Q1 2011 but their prices actually fell by 1.5% when adjusted for inflation.
• Maisonettes dropped by 0.2% (-2.7% in real terms) during the year to Q1 2010.
• Terraced houses fell in value by 6.1% (-8.5% in real terms) over the year to Q1 2011.
• “Other houses”, which consisted of townhouses, houses of character and villas, experienced the largest price drop of 12.8% (-15% in real terms) over the year to Q1 2011.
The situation looks somewhat troubling from a residential investor’s perspective – there’s been overbuilding, there are a lot of empty dwellings, and gross rental yields are low (between 3.3% and 3.9%).
In 2010, the total number of new dwelling permits rose by 20.8% to 1,499, according to the Malta Environment and Planning Authority. Yet in 2010, the economy grew by 3.65%, and in 2011 real GDP growth is expected to be 2.5%.
From 2000 to 2007, Malta’s overall house price index rose by 78.9% (53.4% in real terms). Over the same period:
• Terraced houses saw the largest price increase of 105.3% (76% in real terms)
• Apartment prices rose by 83.3% (57.1% in real terms)
• The prices of maisonettes increased by 81.4% (55.5% in real terms)
• The prices of townhouses and villas rose by 71.9% (47.4% in real terms)
However, property prices started to fall in 2008 due to the global financial meltdown. The overall price index dropped by 2.7% (-7.1% in real terms) in 2008 and by 5% (-6.7% in real terms) in 2009 before rising slightly by 1.1% (-0.9% in real terms) in 2010.
There are many restrictions on property ownership in Malta. Foreign nationals and EU citizens can only buy one property in Malta, and usually only for owner-occupancy. But they can buy more properties in ‘specially designated areas’ such as Tigne Point, Portomaso, Cottoenra, Manoel Island, and Chambray.
Properties owned by foreigners can be rented out only if the property is valued over €233,000, it has a swimming pool, and it is registered with the Hotel and Catering Establishments Board. Foreign-owned properties can only be rented out for short-term lease agreements.
Analysis of Malta Residential Property Market »
All the same, gross rental yields on prime location apartments in Malta remain low, at between 3.3% and 3.9%.
Capital Gains: Capital gains are generally taxed at a flat rate of 12%, levied on the transfer value or the selling price of the property.
Inheritance: There are no inheritance taxes in Malta, but there is a transfer duty payable by the heir at 5% of the declared property value.
Residents: Resident citizens are taxed on their worldwide income at progressive rates. Resident foreigners are liable to tax only on their income sourced in Malta.
Nonresidents can only sell their properties in Malta to Maltese citizens. They can only sell to other foreign nationals if they cannot find a buyer who is either a Maltese citizen or an EU citizen.
Rents: Rents and rent increases can be freely negotiated, except for rental agreements entered before 1st June 1995.
Tenant Eviction: Maltese law operates extremely slowly. Hugh Peralta & Associates estimate that a contested eviction could take between 690 and 1,915 days, and the enforcement of a judgment to collect rent could take even longer.
Malta’s economy recovered quickly, with a real GDP growth rate of 3.65% in 2010. This past year’s expansion was supported by a recovery in exports, and to a lesser extent by higher final domestic product. Private consumption and investment also improved.
In the first quarter of 2011, Malta’s annual GDP growth was 2.3%. In 2011, the economy is projected to grow by a modest 2.5%.
Malta’s overall unemployment rate was 6.8% in 2010. The seasonally-adjusted unemployment rate fell to 6.2% by end-Q1 2011, the lowest since Q4 2008, according to the CBM. In 2011, unemployment is expected at 6.4%.
Malta’s inflation rate was 2% in 2011. In July 2011, the inflation rate increased to 2.5%, according to the CBM. Consumer prices are projected to rise by 2.6% this year, driven by price increases of industrial goods.