Malta: alternative methods of investing in property

Property funds provide an alternative tool for investors who want to invest in property but prefer a vehicle that provides exposure to a portfolio of property, risk diversification and the pooling of costs.

Malta is increasingly becoming a jurisdiction popular with investors for hosting such a ‘fund’ not only for property funds, but for all types of funds in general, says Dr Silvana Zammit, head of the financial services practice group at a Chetcuti Cauchi, a Maltese professional services group with key strengths in corporate and tax law, intellectual property and technology law and licensing and compliance.

“Demonstrating their resistance to the recent global financial crisis, investment funds and collective investment schemes in Malta have continued to grow, resulting in considerable increases in the number of registrations of funds taking place. Last year registered a boost of 13% compared to the figures of 2008 – and this during a time when other jurisdictions, such as Luxembourg, were only registering a 3% increase. Also, domiciles like Ireland, Jersey, Guernsey and the Cayman Islands were suffering from substantial drops at the time.

“In the industry of funds, Malta has, over the past decade, offered a trustworthy alternative to traditional EU fund jurisdictions such as Ireland and Luxembourg. Malta’s increased traction in the funds sector, and financial industry as a whole is attributed to several factors, including the support towards the industry given by the Maltese Government, a serious but flexible and pro-active regulator and Malta’s admission to the EU in 2004 and the Eurozone in 2008.”

She says Malta also offers low fees and a favourable tax location which, coupled with its advantageous European onshore business environment, provide very favourable conditions for setting up. The development of the financial services in Malta has also accelerated the development of related ancillary services including ICT, telephony, and back office services.

Malta is home to 436 funds (as at June 2010), representing a net increase of 11% over December 2009. In June 2010, property funds in Malta were responsible for 5% of the total funds market and recorded 1% of the total net asset value. During the first six months of the year, two new licenses for property funds were issued and none were surrendered.

Maltese legislation caters for three main types of funds: Retail Schemes (UCITS and non-UCITS); Private Collective Investment Schemes and Professional Investor Funds (PIFs). PIFs are non-retail type of funds better known as hedge funds, and as a result are subject to little restrictions on their investment or borrowing powers.

“Property Funds arise where any of these funds have property as their underlying assets. The establishment of funds having property as their underlying asset in Malta is typically performed through the PIF vehicle.

“The main advantage of investing in a fund, as opposed to direct investment in property, is that the investor can participate in a wider range of investments which are usually not feasible for most individual investors, and to share the costs and benefits of doing so.

“For example, investors investing in a PIF with real estate as the underlying asset will be investing in a portfolio of immovable property. They will not be required to pool in a large amount of money (you can invest in a PIF by pooling as little as €10 000. They will be sharing the costs with other investors, and will spread the risk across a number of properties rather than investing in one property only.”

In addition to the advantages Malta offers as a business destination – its strategic position, its sophisticated infrastructure and its dedicated, qualified and multi-lingual workforce – the Maltese PIFs regime, in particular, has added advantages which include the following:

•It may be targeted at domestic and international markets;
•It may be targeted at experienced investors (minimum investment of €10 000 an investor), qualifying investors (minimum investment of €75 000) and extraordinary investors (minimum investment of €750 000);
•Exemption from tax for a fund which has 85% or more of its portfolio invested in assets outside Malta;
•Exemption from capital gains and income taxes for investors who are non-residents in Malta;
•Benefits from one of the world’s most extensive double-tax treaty networks with more than 50 countries;
•Flexibility in structuring the fund;
•Possibility of having a self-managed fund;
•Flexibility about the appointment and choice of service providers. You could use service providers not based in Malta, provided they are regulated in a recognised jurisdiction; unlike other jurisdictions like Ireland and Luxembourg;
•It is subject to minimal restrictions on their investment or borrowing powers;
•Annual licence fees payable are a mere €1 500 per fund and a €500 for each additional sub-fund, if any, rendering them very reasonable especially when compared to other jurisdictions, says Zammit.
“With recent Global Financial Centres Index naming Malta as one of the top three financial centres likely to increase in importance over the next two to three years; and the World Economic Forum’s Global Competitiveness Index (2009 – 2010) ranking Malta 13th out of 133 countries for its financial market sophistication, the momentum of growth in the funds industry and financial services generally is expected to continue rising at a steady pace.

“Despite a slowdown in property funds during the first six months of 2010 largely due to holdings of property in countries affected by the crisis, it is undeniable that Malta itself has not only survived the financial crisis, which has simultaneously served as a blow to several other jurisdictions, but has also sustained the growth thrust in the financial services sector with all pointers and indicators showing that Malta is the place to be,” says Zammit.

http://www.sapropertynews.com/malta-alternative-methods-of-investing-in-property/