Malta has long

gained a reputation for a high standard of living with a Mediterranean flair.

With the introduction of various programmes related to the attainment of citizenship or residency, many foreign

investors have eyed the island as an ideal European solution for immigration

purposes with vast potential for stable investment in real estate. In this

article Dr Maria Chetcuti Cauchi presents an analysis of the real estate market

and laws through 2015 and 2016, with a view of giving an exposition of the process

for property acquisition and resale.

Malta offers a

unique style of living. The island offers a fusion of various interesting elements

including a stable political environment, a multilingual workforce, English as

an official language, a unique relaxed lifestyle, reputable financial services,

strong corporate & business solutions, a temperate climate, a Mediterranean

cuisine, an intricate past laced with noteworthy historical happenings, local

character and an attractive fiscal

framework. All this has resulted in elevated foreign interest in the

island, most noteworthy in the property market.

1. Facts

During the global

financial crisis that hit most countries in the last decade, many investors have

sought safer ways to protect their income and investments. With an increasing

number of investors strategically planning ahead and looking into alternative

solutions, the worldwide trend was to invest in property. Yet 2010 heralded a realty

hit in most countries, yet it was interesting to note that, at a time when even

most European property markets experienced a downturn, the Maltese realty

market earned itself a coveted reputation for being relatively steady, constant

and with a first-rate return on investment.

Even though 2008 signalled

a relative fall in the Maltese real estate market, mainly due to the global

financial downfall and even though late 2012 did witness a short slump in

property prices, yet this nosedive was very temporary for Malta. In fact during

the year to end-Q1 2013, Maltese property prices fell by just 0.6% (-2.42%

inflation-adjusted).[1]  On a quarterly basis, property prices rose by

1.54% (3.28% inflation-adjusted) in Q1 2013. 2014 then witnessed a substantial

increase, which increase was partially attributable to the very successful Malta

Individual Investor Programme (MIIP), introduced by the government in November

2013, which programme targeted high net worth individuals seeking to obtain

citizenship by investment in a European jurisdiction.

Having said that,

the MIIP

was not the only reason for this success. In general, Maltese property holds its

value very well and has experienced exponential growth for decades. This, in

addition to the stamp duty exemption for first-time buyers on the first €150,000

of their new property’s value (which had been extended till 30 June 2015) as

well as the property

tax exemption for sellers who have owned and occupied the property as their

own residence for a period of at least three consecutive years, have all

contributed to this growth.

In the last year or

so, most property types in Malta have experienced price hikes:

increase during the year to Q3 2014. Prices actually went up by 6.44%, when

adjusted to inflation;

5.89% (5.18% inflation-adjusted) y-o-y in Q3 2014;

hand, had a slight price drop of 0.42% (-1.09% inflation-adjusted) y-o-y in Q3

2014;

of townhouses, houses of character and villas, experienced the highest price

increase of 16.17% (15.38% inflation-adjusted) during the year to Q3 2014.[2]

2. The

Process

Purchasing property in Malta is a process that is marked

with certainty. Any transfer or change of title in relation to immovable

property, being a title emanating from a real right, must be undertaken through

a public deed, which is a contract signed in the presence of a notary public,

and registered in the Public Registry. Searches for the verification of title

are also undertaken therein and lease hold titles and usufructs

are also registered in a similar manner.

Practice is such that, searches in the title of the property

are undertaken before the actual transfer of ownership is done, thus ensuring

that the seller is entitled to sell and that there are no encumbrances or

claims on the property. These searches are usually undertaken and vetted by the

notary and the legal representatives of the purchaser. On the searches being

undertaken, a purchaser may choose to obtain a title report from the notary

guaranteeing title for five years. The guarantee is not given by the State, but

by the notary himself who carries the status of a public officer in Malta.

In addition to the above, the Malta Civil Code provides for

the implied warranty of peaceful possession afforded by the seller to the purchaser.  It is custom that in the final deed of sale, whilst

warranting peaceful possession and good title to the property, the seller, by

way of guarantee of such, constitutes a general hypothec on his/her property

present and future, in favour of the purchaser.

The process comprising searches, root of title guarantees,

registration and enrolment in a public registry, grant any local and foreign

buyer a level of certainty and transparency that is obviously paramount when

investing in real estate on the island.

Specially

Designated Areas

We would like to

end by placing particular focus on Malta’s Special

Designated Areas (SDAs). These are prime residency areas where the

conditions of acquisition are the same for Maltese and foreign residents, with

the intention of providing top-end facilities and amenities to buyers within

the same location.SDAs provide an exception to the rules on residency permits

in Malta, in that non-Maltese purchasers may buy property with the same rights

as Maltese citizens, thus not requiring a special permit from the Maltese

government. Essentially this means that purchasers, whatever their nationality,

are exempt from the requirement of obtaining an Acquisition

of Immovable Property (AIP) permit. Once such property is acquired, it may

be leased out without any restrictions. This has obviously resulted in a very

effective and profitable product for foreigners who want to invest, speculate

and lease out a diverse property portfolio without suffering any restrictions that

would normally be imposed on property located out of the SDAs.

Malta is a

pro-investment and pro-business jurisdiction. All stakeholders, including banks

and various administrations, have all sought to provide solutions and products

that encourage and attract FDI into the country. The success of the property

market is evidence of this approach. The country seeks to reach a balance

between ensuring propriety whilst at the same time cutting down on bureaucracy

and red-tape. Yet this is done without forfeiting important elements such as financial

reputability, proper due diligence on investors, soundness of borrowers, certainty

of root of title and more. A mix of all the above elements has resulted in a

relatively affordable andbuoyant property market.

All this, coupled

to the other advantages the island can offer the new expat, including a vibrant

network, safe environment and now even the possibility of Maltese citizenship,

have labelled the island as the best, current European personal living

solution.

This article is

intended to be of a general nature and is not intended to address the specific

circumstances

Dr Maria Chetcuti

Cauchi

Co-founding

partner, Maria is the partner in charge of the Corporate law & Regulated

Business Units of the Firm.

On a

day to day basis, Maria’s team advises an array of clients on regulatory

issues, compliance matters, commercial and finance transactions and corporate

governance issues in general. Maria has vast experience of start-ups, corporate

restructurings, takeovers, mergers, privatisations, and equity and debt

financing structures. Maria’s team regularly handholds banks and financial services

companies on the procedure to set up in Malta, the compliance and regulatory

aspects of their business including client intake and due diligence, ongoing

compliance procedures, reporting and general regulatory observance matters.

Maria’s

pet subject centres around the application of traditional notions of Intellectual

Property Financial Services Law to the online world, as well as the

conversion of brick and mortar notions to cyberspace. These mostly include

projects with a fusion of technology law and investment/finance law, such as

payment gateways, gaming operations, e-money institutions and ICT online

operators.

For more information about investing in Malta and property

in Malta, please read:

Investing

in Malta – Why Malta

Who

can buy property in Malta?

Buying

Property in Malta

Malta

Sale of Property

Malta

Property Development

[1]Figures

released by the Central Bank of Malta (CBM)

[2]House Prices in Malta continue to Rise, Global

Property Guide, 23 January 2015.