Malta is a small archipelago located in the middle of the Mediterranean having an approximate area of 316 km2. It can boast of splendid beaches, slow-paced lifestyle, rich history and arguably one of the best nightlife locations in Europe. The island’s size has not been a bar to the huge arrays of activities available. This versatility makes the island the ideal place for anyone who wishes to buy a house in the EU irrespective of their age.
Given the current global financial crisis, Malta’s property market remains an ideal investment opportunity as despite the crisis, the market is experiencing a progressive increase in value. This has to be coupled with the fact that the investment presents itself as a relatively low cost endeavor and the fact that Malta uses the Euro. Language accessibility is also a benefit - Malta’s population is nearly all bi-lingual (Maltese and English); additionally a considerable portion is tri-lingual (Maltese, English and Italian or French).
The following article shall attempt to illustrate the most important features of the process of buying property in Malta. The property purchase procedure in Malta involves three phases; the Promise of Sale Agreement, the term between signature of the Promise of Sale Agreement and the Final Deed and the Final Deed of Sale.
Malta Property Purchase - Promise of Sale Agreement
The first step towards property acquisition is the Promise of Sale Agreement (POS) (konvenju). In other countries this is sometimes referred to as the Sales Agreement. It is an instrument which legally binds both the prospective seller and the prospective buyer. Once the POS is signed by both parties, it sets out the terms under which the property will eventually be purchased. The konvenju may be done via private writing without the notary’s intervention. The buyer/seller’s physical presence is not a requirement, as long as a power of attorney is in place. A standard POS would normally contain clauses relating to:
• Details of the contracting parties;
• Detailed description of the property;
• Details on payment of a deposit;
• Minimum conditions surrounding the purchase;
• Agreement on the remaining works to be undertaken (if any);
• Clauses on payment due to the estate agent (if any);
• Condition that on final deed, the vendor will warrant peaceful possession according to law;
• Date by which the Final Deed needs to be signed;
• Authority to the Notary to register the promise of sale with the Commissioner of Inland Revenue.
Upon the signature of the POS, deposit has to be paid to the vendor. Usually the deposit amounts to 10% of the total agreed price, though this rate is negotiable. The deposit is normally held in escrow by the notary until the searches into the root of title have been finalised. The term ‘deposit’ may refer to two distinct payment methods:
• If the deposit is described as a payment ‘on account of the final price’, it is considered to have been made as part of the final purchase payment. This gives rise to a legally enforceable right available to both parties - both contracting parties may sue the defaulting party in order for the contract of sale to be finalized;
• On the other hand, if the deposit is described as having been made ‘in earnest’ then both parties have a right to recede from the contract. If the sale does not occur due to the seller’s fault, the seller has to return to the buyer twice as much as the deposit paid. Conversely if the sale does not take place due to the buyer’s fault, the buyer forfeits in favor of the vendor the deposit left.
The contracting parties are free to agree on the POS’s term of validity. If the parties fail to indicate any time span, the agreement will be valid for 3 months.
Subsequent to the signatures, the promise of sale agreement has to be registered with the Inland Revenue Department. Upon registration, a provision duty of 1% of the purchase price is due by the prospective purchaser to the Inland Revenue Department. This has to be paid within 21 days of registration, in default of which the POS will lose its validity. The remaining outstanding duty is paid on the final deed.
Malta Property Purchase - Process between the Promise of Sale and the actual Deed of Sale
During the term between the POS and the actual deed of sale, the conditions enlisted in the POS have to be fulfilled - until such conditions are fulfilled, the contracting parties cannot proceed to the final deed of sale.
During this stage, searches into the title of the property are carried out – the purpose is to ascertain that no charges, hypothecs or privileges burden the property. If it emerges that the property suffers from any such burden, such burden needs be extinguished prior to the signature of the final deed. It is also common practice to subject the signature of the final deed of sale to there being all necessary sanitary and planning permits related to the property and the successful attainment of a bank loan by the buyer.
In situations involving purchases made by non-residents, it is also advised to subject the signature of the final deed of purchase to the successful attainment of an Acquisition of Immovable Property (AIP) Permit from the Ministry of Finance (in cases where this is applicable).
Malta Property Purchase - Final Deed of Sale
Upon signature of the final deed of sale, the transaction becomes finalized and ownership is transferred. On the final deed of sale, the balance of the purchase price has to be paid alongside the remaining stamp duty. The total stamp duty owed to the Commissioner of Inland Revenue is usually 5% of the total purchase price/ value of the property, whichever is the higher. Where the property being bought is the purchaser’s sole ordinary residence, the 5% rate may be reduced to 3.5% on the first 117, 000€ of the total purchase price/ value of the property (whichever is the higher).
The costs due to the notary approximately amount to 1% of the total price of the immovable.
AIP Permits
Further to Malta’s accession to the EU, EU/EEA nationals can buy their primary residence in Malta without the need of any AIP Permit. This does not apply to non-EU citizens and EU-citizens who wish to buy their secondary residence – these individuals will have to apply for an AIP Permit. In order to obtain an AIP permit, the following conditions need to be satisfied:
1. Minimum value of property:
• villa or town house - €163,905;
• apartment or maisonette - €98,370;
• if the property is in shell form or unconverted, finish costs are to be taken into account for the purposes of determining the value of the property.
2. Property purchased must be destined:
• for the personal residential use of the applicant only;
• for other purposes approved by Government;
• for an approved industrial or touristic project; or
• for any other project or purpose which is considered to contribute to the development of Maltese economy.
In cases where there is an AIP Permit requirement, it is highly advisable to subject the final deed of sale to a successful obtainment of an AIP Permit.
Malta Property Purchase - Special Designated Areas
Malta offers the possibility to acquire property located in Special Designated Areas without the need of an AIP permit. There are no restrictions as to the number of properties that can be purchased in a Special designated Area. Moreover, such areas present a substantial investment opportunity as they may even be let out. The areas currently classified as Special Designated Areas are the following:
• Portomaso Development, St. Julian’s, Malta
• Portomaso Extension I, St Julians, Malta
• Cottonera Development, Cottonera, Malta
• Manoel Island / Tigne Point, Tigne/ Gzira, Malta
• Tas-Sellum Residence, Mellieha, Malta
• Madliena Village Complex, Malta
• Smartcity, Malta
• Fort Cambridge Zone, Tignè, Malta
• Ta’ Monita Residence, Marsascala, Malta
• Pender Place and Mercury House Site, Malta
• Metropolis Plaza, Gzira, Malta
• Fort Chambray, Ghajnsielem, Gozo
• Kempinski Residences, San Lawrenz, Gozo
The High Net Worth Individuals Residency Scheme
Through this scheme, high net worth individuals who do not have a Malta domicile may take up residence in Malta and benefit from advantageous tax treatment, which foresees a 15% flat rate income tax on foreign source income remitted to Malta and relief for double taxation in terms of double tax treaty and unilateral treaty relief. This scheme is addressed to two categories of applicants, namely nationals of;
1. The European Union (EU), the European Economic Area (EEA) and Switzerland,
2. and third countries.
Conclusion
As can be seen, buying a property in Malta offers a number of opportunities and advantages, among which that of making a substantial investment in an asset class which has maintained its value despite the recent turbulent times. Due to the binding nature of the property acquisition transaction, it is highly advisable to appoint legal advisors for guidance through the implications that may arise during the process.
