Contents:
1. Preparations for purchasing property
1.1. Foreigners buying properties in Malta
1.2. British living and buying properties in Malta
1.3. Becoming a resident in Malta
2. Screening the property market in Malta
2.1. Buying through real estate agents
2.2. Buying from owners directly
2.3. Difference between freehold and leasehold
2.4. What is airspace and use of roof?
3. The process of buying
3.1. What is the “konvenju”?
3.2. What is a deposit? How much is it?
3.3. What is “the searches”?
3.4. What is the final deed?
3.5. What are the fees involved?
3.6. What is the notary fee? Who pays it?
3.7. What is the stamp duty?
3.8. First-time buyers vs buying second property
3.9 How to apply for a bank loan
Buying property in Malta is a quite laborious and complex issue, just like in any other country. The local real estate market is spiced up with agent fees, duties, contracting a notary; not to mention the phrase soup of konvenju, freehold and airspace. Here is your ultimate guide to buying property in Malta, answering all your questions possible.
1. Preparations for purchasing property
Before you start researching properties for sale in Malta to make an investment, a handful of matters need to be considered. As the Maltese economy is booming spurring new construction, advice comes handier than ever.
1.1. Foreigners buying properties in Malta
Yes, foreigners can purchase properties in Malta. However, the requirements vary based on their originating countries and their ties to Malta.
Non-resident requirements
Non-residents need to obtain an AIP [Acquisition of Immovable Property] permit to qualify for buying a property in Malta. Enquiries need to be submitted to the Inland Revenue Department (IRD). An AIP is usually granted to the applicant in six to eight weeks.
Requirements depend on the value of the property a non-resident would purchase. The minimum value of a property is subject to change every year, affected by the housing index. As a rule of thumb: all non-EU citizens need to obtain the AIP permit to buy any immovable property.
Furthermore, non-EU citizens can only purchase one immovable property with an AIP, unless in designated areas, such as Madliena Village, Madliena; Fort Cambridge, Sliema; Pendergardens, St. Julian’s; Portomaso, St. Julian’s; Tigné Point, Sliema; St. Angelo; Mansions, Vittoriosa; Ta’ Monita Residence, Marsaskala; Tas-Sellum Residences, Mellieħa; Kempinski San Lawrenz, Gozo; Fort Chambray, Gozo; and Vista Point, Gozo.
EU citizens and resident requirements
If EU citizens are buying a primary residence, they can do so without a permit. Also, if an EU citizen has resided in Malta for at least five years, they are not required to obtain any permits for purchasing a property even as a secondary residence.
For couples where one is an EU citizen and the other one is a non-EU citizen, an AIP permit is not required, as long as they are buying the property as their primary residence.
Furthermore, EU citizens are free to buy an immovable property for business purposes without the requirement of obtaining an AIP permit.
However, EU citizens, as well as Maltese citizens, who have not resided in the island nation for at least five years can only purchase a home without a permit as a primary residence. Should they desire to purchase a property as a secondary residence—such as a holiday home—will need to get an AIP permit.
1.2. British living and buying properties in Malta
While the highly uncertain nature of Brexit keeps pundits, politicians and the economy in the dark, UK nationals can adopt peace of mind about living in Malta.
UK nationals already living in Malta, as well as their peers who are looking for an option to live in the European Union while retaining their UK passport, can relocate with an EU residence permit available post-Brexit.
Even in the unlikely event of a no-deal Brexit, UK citizens can apply for a preferential ten-year residence permit, meaning that they would still be allowed to live, work and study in Malta, just as if they were EU nationals. This is backed by the British government too.
Malta also retains its system that British citizens married to their Maltese partners can apply for Maltese citizenship after five years. Currently, more than 13,000 British nationals live in Malta.
1.3. Becoming a resident in Malta
An individual who wishes to reside in Malta must declare their intentions within three months of their arrival at Identity Malta, by completing and submitting a form: EU or non-EU. The individual has to prove economic self-sufficiency, employment or education unless they are involved in a residence scheme.
Non-EU nationals, or as often referred to as third-country nationals (TCNs), can take up employment if their employers apply for permission. After this, the individual has to require a work permit—documentation EU nationals are not required to obtain since May 2011.
An individual is normally considered a resident if during one calendar year their stay exceeds an aggregate of 183 days. They are hence taxed as Maltese citizens, based on income and not capital, whole foreign citizens are not taxed on their global income in Malta.
2. Screening the property market in Malta
It is highly important that you have a clear budget in your mind, and that you keep to it: going over could get you into serious financial troubles.
Although at the end of 2019 skyrocketing property prices seem to have come to stagnation, the entry prices of properties on general start around €200,000. If purchasing through an agent, the buyer will have to cough up quite a significant amount for their services.
2.1. Buying through real estate agents
It is essential that you discuss beforehand who is supposed to pay the agent, the seller or the vendor. Today, in the majority of the cases, the advertised price already includes the commission of the agent, so when you are told “not to worry, the vendor is paying the fee”, essentially you are paying it, as the property price will be inflated.
The world of agencies offers very little—if any—transparency related to commissions. At the same time, bargaining for a property is even more difficult, as you are haggling away the agent’s commission, which they will try to stick to as much as they can.
However, agents are paid a commission of 5%, which is quite a sum, so you can expect better service from the agents. Nevertheless, in Malta, you will find your fair share of 1% agents, or “sensara” as the Maltese call it, who are less organised and will offer less of a service.
2.2. Buying from owners directly
Buying from owners is probably the best investment option possible if you are willing to invest time in your search. Even if you buy on a bank loan, instead of wasting money on renting, you are investing in your own apartment. When you are dealing directly with the owner, setting up a time slot for your viewing is easier, because you do not have a mediator bouncing back and forth between you.
Additionally, as all properties that are sold through an agent already have the agency fee incorporated in the price, buying directly from the owner will help you find prices that are lower, more real to the market.
At the same time, negotiating the price is also easier with the owner, as when you haggle through an agent, essentially you bargain their commission away. To be on the safe side, when you reach out to the seller, establish at the very beginning if you are dealing with the owner. If you do not want to deal with agents, state it at the beginning.
If you want to make sure that you are window shopping for properties that are sold by the owners directly, check out our properties on NoAgentFees. We have built a channel where owners and buyers can find each other immediately. As the majority of listed property adverts online are handled by agents, it had been rather difficult to find properties offered by the direct owners.
However, NoAgentFees is ready to change this. All the adverts posted on our platform is offered by the direct owners. We monitor the adverts and make sure that no agents can list properties. Our platform offers users a quick and easy connection to the owners of the properties.
If you have the time and dedication, combing through an area where you would like to purchase is a great technique to go with. Currently, the Maltese market boasts properties for sale in high numbers, and you will have “FOR SALE” stickers accompanied by telephone numbers literally every corner.
The social media platform Facebook has grown into a major channel for online communications in Malta. You will find many groups and pages that list properties for sale. However, note that the majority of these listings is by agents who are increasingly active, so you will have to do your due diligence to make sure that you are dealing with the direct owner.
2.3. Difference between freehold and leasehold
When buying a property, you are highly advised to opt for freehold. This is essential. A freehold property means that it is “unencumbered”. Breaking down the legalese to everyday English, it means that the ground on which your property lies is owned by the owner of the property resting on it. You buy the property, you buy a part of the ground, too.
Although, today the majority of the properties come as freehold, every now and then you will bump into properties that are leasehold or there is a ground rent on them. This essentially means that the ground that your property rests on is owned by somebody else, who can make you pay a rent for the ground. It is better to avoid such arrangements, as the owner of the ground is in an inevitable power position, and can set the price of the ground rent to their wishes. After all, you cannot move your flat/house to another plot.
2.4. What is airspace and use of roof?
With Malta having fairly limited space for construction, it is a common practice that developers build additional floors on top of existing blocks. They can do it if they own the airspace, which is quite literally the space of air above a block.
When purchasing a flat in a block, clarify who owns the airspace. Usually, it is either the owner of the top property or its ownership is shared among the owners of the flats in the block. Even if you do not buy any portion of the airspace with your flat, you might buy the rights to veto any construction that might be planned atop your block.
When you buy a flat in a block, you might receive the so-called “use-of-roof”. Even if additional floors are added to your block, developers must make sure that they create a new roof space for you on the very top.
3. The process of buying
When buying a property, the buyer pays the notary. It is highly advised to commission a notary who has a clean sheet, whether you choose your own or is provided by your agency.
A very simple timeline of buying a property is the following: you agree on the price and terms, you sign the “konvenju” or promise of sale (POS) agreement, the notary/notaries carry out searches, you sign the final agreement, and you are the owner.
Note that in Malta, buying a property can extend to a couple of months easily, especially if the notaries find legal issues through the searches that need to be sorted before signing the final deed.
3.1. What is the “konvenju”?
The “konvenju” is the convenium; the promise of sale (POS). In this preliminary agreement, the parties record the terms of the purchase and the characteristics of the property.
3.2. What is a deposit? How much is it?
Usually, you will have to deposit at least 10% of the final purchase price upon signing the promise of sale. You can either decide to pay it to the owner upfront or leave it with the notary—as in an escrow—which will be transferred upon signing the final deed.
3.3. What is “the searches”?
The notary registers the preliminary agreement with the Commissioner of Inland Revenue no more than three weeks after signing the konvenju, and pays the purchase price’s 1% on duty due by the finalisation of sale.
During the searches, the notary verifies the legal title and ensures that no outstanding debts, hypothec or liens exist related to the property. At the same time, the notary verifies whether the property is freehold or leasehold.
Finally, the notary ensures that both the vendor and the purchase honour the terms registered in the promise of sale.
3.4. What is the final deed?
After the searches, the vendor and the purchaser sign the final deed in the presence of the notary/notaries, as well as the bank representatives if it is financed by a bank, and the ownership rights are transferred to the buyer, with the final price being paid to the vendor.
3.5. What are the fees involved?
The purchaser is required to pay a 10% deposit of the price right when signing the konvenju/promise of sale. This either goes immediately to the vendor or is held by the notary up until the signing of the final agreement.
The purchaser has to pay the stamp duty that is maximum 5% of the purchase price on total, however, the breakdown differs for first-time buyers.
3.6. What is the notary fee? Who pays it?
The purchaser pays the notary, usually. Notary fees span from 2%-2.5% generally, therefore it is important that the purchaser clarifies the including fees at the beginning with their notary.
3.7. What is the stamp duty?
The stamp duty is charged on any immovable property, at a rate of 5% on the total value of the property itself, but not on the movable parts of the property, such as furniture and fittings.
In the 2020 Budget, the limit of exemption for the stamp duty is increased to €175,000 from the previous €150,000 for first-time buyers. When a property is purchased as a place of ordinary residence, a duty of 3.5% is charged on the first €150,000 and 5% on the remaining value.
For any other property, 5% is charged on the total value of the immovable property price.
3.8. First-time buyers vs buying second property
Buying your own property is heavily incentivised by the Maltese government. As the 2020 Budget describes, for first-time buyers the stamp duty is released on the first €175,000, and 5% is charged on the rest of the value of immovable property.
If somebody purchases a property for primary residence, the stamp duty is 3.5% on the first €150,000, and 5% is paid for the rest.
Conversely, for second or umpteenth properties, the stamp duty is 5% of the whole price of the immovable property.
3.9. How to apply for a bank loan
As the real estate market is booming in Malta today, banks present in Malta offer a wide range of loan products for buying properties. As with any service provider, there is no such thing as a “best” bank for a loan. It is recommended that you conduct your own market research, book appointments and see what banks have to offer, before settling with a single bank. At the end of the day, you will be paying the credit for long years, you want to make sure that you are vouching for a bank that makes you feel good about this business relationship.
Do you still have questions that have remained unanswered? Feel free to reach out to us so we can improve our ultimate guide further!
