Maltese Property Market History @ EMCS Forum
The following speech was given by Mr. Frank Salt today 4th June 2008 at the EMCS Property Forum, Hilton, St. Julian's.
I will start by giving you a brief summary of the history of the Maltese property market.
We shall start in the 1960s. Malta at that time was very dependent on the income generated by the British forces, who were at that time living and working in Malta. When the Maltese Government were told that the British bases were soon to leave, a different way of earning money had to be found.
One of the ideas that came forward was the introduction of a permanent residency scheme, that took advantage of the many British that were leaving the old colonies in Africa. This scheme was very successful, as the climate in Malta was very acceptable and the taxation being offered of sixpence in the pound was very attractive.Those were the days of taking foreign clients out in coaches, and each salesperson selling over 25 properties a month.
Then there came a change in Government...
A strong socialist government led by Mr Mintoff, immediately on getting into power, threw out Nato, and started renegotiating the terms and conditions of the remaining British lease.
The resulting publicity in the foreign press was horrific, and whereas property owned by foreigners in Malta was never touched, the settlers were afraid that they would lose everything and they started to sell their properties.
There were no other foreigners to buy so the onus fell upon the Maltese, who took full advantage of the situation and started buying property, something which very few had done before. Maltese started buying the properties sold by foreigners and this started the local property market.
Examples of prices... Attard £3,500 bungalow, Monte Rosa Gardens £5,250 fully detached villas. Apartments £2,500. San Gwann. This type of market continued very successfully for 30 years with Maltese and a few foreigners a year purchasing the properties that were placed on the market.
Then came a radical change...
Properties were being designed and built for a particular luxury segment of the market. The first of these was Busietta Gardens in Madliena, today known as Madliena Village, and then came Portomaso, followed by Tigne' Point, and now Holiday Inn / Fort Cambridge Development, Pender Place, and Metropolis, plus many, many others in the pipeline. Mistra Village, Jerma Palace, Ta' Monita, The Palms, Manoel Island, Forum Hotel, Le Lapin Ta' Xbiex, White Rocks, Smart City, Qawra Point, Developments in Gozo, Chambray, Ta' Selmun Mellieha, Mgarr Bay Hotel, St Lawrence, Tower Road Sliema, No 1 Dock, Town Square... I could go on and on.
More and more luxury developments were built, are being built and are in the pipeline and planning stage to be built.
We have now created two completely different property markets.
The first is the first and second time buyers market, which is doing well and is healthy. Good quality properties are being built and well marketed and well priced. There are also plenty of properties for sale at the starting price for 1st time purchasers. Our company for example has on our registers for sale 2028 properties in Malta and Gozo between 70,000 and 116,500 Euros - Lm30,000 to Lm50,000; 2929 properties between 116,500 and 151,409 Euros - Lm50,000 to Lm65,000 and 1664 properties between 151,409 and 186,349 Euros - Lm 65,000. and Lm80,000.
Unfortunately, today the expectations of young couples are very high, and buyers and their parents need to be realistic about the real, real estate market.
Just because the parents purchased their property 30 years ago for a certain price, in a certain area and with a certain size, it doesn’t mean that their children will be able to do the same today.
There were different problems 40 years ago than there are today, but problems there were, and these had to be solved, just as the problems of today have to be solved.
When I was first married, I had to live in an area that was not to my liking, and so did a great many of my friends, but we all moved in to the properties and worked hard to improve ourselves and eventually got the property that we wanted. Really, there is very little difference today.
The luxury market is a completely different matter. It is something completely new for Malta.
We have dabbled with it in the past, but the demand for our local property market was so strong by local purchasers that we managed very successfully with the small number of foreigners who came to settle and have holiday homes in our Islands.
Things are now completely different.
We are now joining the big boys, and that means that we must compete and compete strongly with all the countries in the Mediterranean and elsewhere that can offer the same product. Compete with them to get into our country thousands of people who would settle here either permanently or as tourists, bringing into Malta much needed income, for the benefit of all.
We have to see what our advantages are and promote these through all the necessary and effective means possible. This will cost money. Big money. But it has to be done.
It is also my opinion that this process should also be helped and not hindered by Government, because the latter will be the largest beneficiary.
Of these new luxury properties, some will be sold to Maltese, but today most Maltese have property, and second properties and investments to rent, so by far the majority will be sold to either Maltese investors to resell to foreigners or to foreigners themselves.
Because of the low interest given on investments worldwide, many of these properties will be sold as a buy to let investment.
Now let me explain what I mean by Government helping and not hindering the sale of these properties. This is information from the horse’s mouth. From the industry that is at the sharp end of the property market. Information from the people who know the facts. Helping private enterprise to sell their properties is basically telling people that they are welcome and not putting obstacles in their way. Hindering the sale of properties to foreigners, is by putting obstacles in their way and making the purchase of the properties not worth while, or at best very inconvenient.
For example. It is a fact that there are thousands of properties being built or being planned that are mainly suitable for foreign purchasers. A lot of these foreign purchasers would probably want to buy to let, or live in it for 6 months and rent it out for the remainder of the year.
In Malta, three obstacles have been created by the Authorities, to make purchasing property unattractive. First is the 12% Capital gains tax on the full sale price if the property has been owned by the purchaser for longer than 5 years. This tax was created by goodness knows who, when there was a large increase in the value of property in Malta for one single year. A 25% increase in 2006. This tax of 12% was only viable if the property market continued to increase at a rate of 15% per annum ad infinitum. If this actually happened, it would be a catastrophe for the local market as we would be completely priced out of the market. The increase of 2006 couldn’t continue, and in fact the increase in prices so far this year is only1.7%.
A foreigner or Maltese buys a property for €200,000. Let us say there will be a capital increase of 5% every year for the next 5 years... Which would be good. The property in 5 years would be worth €255,000. Now after 5 years the owner wishes to sell. There was 5% stamp duty to buy and another 5% commission to sell, so if the owner sells at €255,000, he will make €32,493. profit. On the contract the Government would take 12% tax on the gross selling price of €255,000. which is €30,600.
So the owner would make €32,493. out of which the Government would take €30,600. Even if there is a smaller capital gain per annum, which could happen, or even if, God forbid, the seller makes a loss when the property is sold after 5 years, the seller still has to pay the 12% capital gains tax on the full sale price.
Now that is one heck of an incentive to purchase property on a buy to let basis. This most unfair tax has to go, and sellers after 5 years of ownership should have the choice of either 12% capital gains tax, or the 7% provisional capital gains tax. This will be fair and just.
Second. The Government doesn’t allow foreigners to rent properties unless they are in a Special Designated Area. So if a developer builds a luxury block of 20 flats, and they are not designated Special Designated area, these properties if purchased by foreigners cannot be let.
We have been trying to get Government to change their attitude, but unless they are prepared to give every luxury new development being built a Special Designation Status, they would be very difficult to sell.
Why cause problems when none need to be there? We badly need these properties to be sold, and we should not put off potential purchasers. How can we sell properties to foreigners and promote them to buy to let, if they cannot be let?
The irony is, that if a Foreign buyer from the EU comes to Malta, and declares that his business is buying and renting property, he can buy as many properties as he wants and let them all as and when he wants. Yet a normal individual wanting to purchase one property to live in it for 6 months and rent it for the remaining period, can’t, unless it is a Special Designated Area.
That just doesn’t make sense.
When The Federation of Estate Agents approached the EU Ombudsmen on the matter of EU citizens not being allowed to rent their property in Malta, their reply was that this clearly goes against the spirit and law of the EU. Protocol No6, of the accession treaty grants that Malta can maintain in force the rules on the Acquisition and holding of immovable property for secondary residence purposes by nationals of Member States who have not legally resided in Malta for at least 5 years as laid down in the Immovable Property( Acquisition by non-residents) Act.
Any changes in this particular provision would require a modification to the Treaty agreed by all Member States, including Malta, or a unilateral relaxation by Malta of it’s restrictions. Therefore the rules at issue are not contrary to Community Law.
Malta can, on its own, change the condition in the AIP permit, which restricts the use of the property, to EU members.
Third. A few months ago, when a foreigner wanted to become a permanent or temporary resident of Malta, all he had to do was to apply in Malta through one of the many competent people here who helped him very efficiently. They deposited the original documents or certified copies here, and everything moved very smoothly and efficiently.
Then someone decided that this had to be changed. The regulations now state that “every applicant for residency has to be certified by a notary in the country of Nationality”. For example, a Swede living in London has to go back to Stockholm to apply and register. A Canadian living in France, has to go to Canada to register. This makes it very difficult and inconvenient for the applicant, and is basically telling them not to come.
This is not an EU directive. An applicant who comes from a country that has no Maltese mission, can carry on applying as before here in Malta.
Government has put three totally unnecessary obstacles in the way, which will make it very difficult to sell to foreigners and to compete with other competing destinations.
How can one attract high worth individuals, when one legislates specifically against these individuals?
Why do we do this? Why do we always seem to deliberately make life difficult, and when we finally succeed, we do so in spite of and not thanks to the authorities?
We are in competition with the rest of the World for these wealthy people.
Why are we promoting Smart City, Yacht Marinas, new five star developments, and yet on the other hand we create obstacles?
Government cannot afford to put off investors, especially in such a competitive and delicate market.
It is my estimation that there are appx 10,000 very good luxury properties, either on the market, being built, awaiting MEPA permits or being planned. These have all to be sold.
If they are sold at an average of €450,000 each, then we will have €4,500,000,000 coming into the country over the period of the next 10 years. Stamp duty alone of €225,000,000.
Government will also get annual incomes coming into Malta from these foreign purchasers of appx €30,000 per property, or eventually €300,000,000 per annum. These foreigners are effectively good solid permanent tourists.
These are not pie in the sky figures.There ARE approx 10,000 properties built, being built, or planning to be built, and these HAVE to be sold. This is not theory... it is fact. We must be successful at selling the properties being built. We cannot afford to be unsuccessful... it will be a disaster.
These business figures put construction and property sales and the resulting recurrent expenditure as a major player, if not the major player in our Island’s economy, for the foreseeable future.
It benefits Government to officially help promote these luxury properties along with private enterprise, because without them the promotion would not be so effective, and the sooner these thousands of luxury properties are sold, the better for everyone.
Government actively, officially, promoting and helping the sales and occupation of these luxury properties, will not effect the other more sensitive and socially important property market, because as we have already seen, the property market in Malta and Gozo has evolved into two completely different segments.
I will start by giving you a brief summary of the history of the Maltese property market.
We shall start in the 1960s. Malta at that time was very dependent on the income generated by the British forces, who were at that time living and working in Malta. When the Maltese Government were told that the British bases were soon to leave, a different way of earning money had to be found.
One of the ideas that came forward was the introduction of a permanent residency scheme, that took advantage of the many British that were leaving the old colonies in Africa. This scheme was very successful, as the climate in Malta was very acceptable and the taxation being offered of sixpence in the pound was very attractive.Those were the days of taking foreign clients out in coaches, and each salesperson selling over 25 properties a month.
Then there came a change in Government...
A strong socialist government led by Mr Mintoff, immediately on getting into power, threw out Nato, and started renegotiating the terms and conditions of the remaining British lease.
The resulting publicity in the foreign press was horrific, and whereas property owned by foreigners in Malta was never touched, the settlers were afraid that they would lose everything and they started to sell their properties.
There were no other foreigners to buy so the onus fell upon the Maltese, who took full advantage of the situation and started buying property, something which very few had done before. Maltese started buying the properties sold by foreigners and this started the local property market.
Examples of prices... Attard £3,500 bungalow, Monte Rosa Gardens £5,250 fully detached villas. Apartments £2,500. San Gwann. This type of market continued very successfully for 30 years with Maltese and a few foreigners a year purchasing the properties that were placed on the market.
Then came a radical change...
Properties were being designed and built for a particular luxury segment of the market. The first of these was Busietta Gardens in Madliena, today known as Madliena Village, and then came Portomaso, followed by Tigne' Point, and now Holiday Inn / Fort Cambridge Development, Pender Place, and Metropolis, plus many, many others in the pipeline. Mistra Village, Jerma Palace, Ta' Monita, The Palms, Manoel Island, Forum Hotel, Le Lapin Ta' Xbiex, White Rocks, Smart City, Qawra Point, Developments in Gozo, Chambray, Ta' Selmun Mellieha, Mgarr Bay Hotel, St Lawrence, Tower Road Sliema, No 1 Dock, Town Square... I could go on and on.
More and more luxury developments were built, are being built and are in the pipeline and planning stage to be built.
We have now created two completely different property markets.
The first is the first and second time buyers market, which is doing well and is healthy. Good quality properties are being built and well marketed and well priced. There are also plenty of properties for sale at the starting price for 1st time purchasers. Our company for example has on our registers for sale 2028 properties in Malta and Gozo between 70,000 and 116,500 Euros - Lm30,000 to Lm50,000; 2929 properties between 116,500 and 151,409 Euros - Lm50,000 to Lm65,000 and 1664 properties between 151,409 and 186,349 Euros - Lm 65,000. and Lm80,000.
Unfortunately, today the expectations of young couples are very high, and buyers and their parents need to be realistic about the real, real estate market.
Just because the parents purchased their property 30 years ago for a certain price, in a certain area and with a certain size, it doesn’t mean that their children will be able to do the same today.
There were different problems 40 years ago than there are today, but problems there were, and these had to be solved, just as the problems of today have to be solved.
When I was first married, I had to live in an area that was not to my liking, and so did a great many of my friends, but we all moved in to the properties and worked hard to improve ourselves and eventually got the property that we wanted. Really, there is very little difference today.
The luxury market is a completely different matter. It is something completely new for Malta.
We have dabbled with it in the past, but the demand for our local property market was so strong by local purchasers that we managed very successfully with the small number of foreigners who came to settle and have holiday homes in our Islands.
Things are now completely different.
We are now joining the big boys, and that means that we must compete and compete strongly with all the countries in the Mediterranean and elsewhere that can offer the same product. Compete with them to get into our country thousands of people who would settle here either permanently or as tourists, bringing into Malta much needed income, for the benefit of all.
We have to see what our advantages are and promote these through all the necessary and effective means possible. This will cost money. Big money. But it has to be done.
It is also my opinion that this process should also be helped and not hindered by Government, because the latter will be the largest beneficiary.
Of these new luxury properties, some will be sold to Maltese, but today most Maltese have property, and second properties and investments to rent, so by far the majority will be sold to either Maltese investors to resell to foreigners or to foreigners themselves.
Because of the low interest given on investments worldwide, many of these properties will be sold as a buy to let investment.
Now let me explain what I mean by Government helping and not hindering the sale of these properties. This is information from the horse’s mouth. From the industry that is at the sharp end of the property market. Information from the people who know the facts. Helping private enterprise to sell their properties is basically telling people that they are welcome and not putting obstacles in their way. Hindering the sale of properties to foreigners, is by putting obstacles in their way and making the purchase of the properties not worth while, or at best very inconvenient.
For example. It is a fact that there are thousands of properties being built or being planned that are mainly suitable for foreign purchasers. A lot of these foreign purchasers would probably want to buy to let, or live in it for 6 months and rent it out for the remainder of the year.
In Malta, three obstacles have been created by the Authorities, to make purchasing property unattractive. First is the 12% Capital gains tax on the full sale price if the property has been owned by the purchaser for longer than 5 years. This tax was created by goodness knows who, when there was a large increase in the value of property in Malta for one single year. A 25% increase in 2006. This tax of 12% was only viable if the property market continued to increase at a rate of 15% per annum ad infinitum. If this actually happened, it would be a catastrophe for the local market as we would be completely priced out of the market. The increase of 2006 couldn’t continue, and in fact the increase in prices so far this year is only1.7%.
A foreigner or Maltese buys a property for €200,000. Let us say there will be a capital increase of 5% every year for the next 5 years... Which would be good. The property in 5 years would be worth €255,000. Now after 5 years the owner wishes to sell. There was 5% stamp duty to buy and another 5% commission to sell, so if the owner sells at €255,000, he will make €32,493. profit. On the contract the Government would take 12% tax on the gross selling price of €255,000. which is €30,600.
So the owner would make €32,493. out of which the Government would take €30,600. Even if there is a smaller capital gain per annum, which could happen, or even if, God forbid, the seller makes a loss when the property is sold after 5 years, the seller still has to pay the 12% capital gains tax on the full sale price.
Now that is one heck of an incentive to purchase property on a buy to let basis. This most unfair tax has to go, and sellers after 5 years of ownership should have the choice of either 12% capital gains tax, or the 7% provisional capital gains tax. This will be fair and just.
Second. The Government doesn’t allow foreigners to rent properties unless they are in a Special Designated Area. So if a developer builds a luxury block of 20 flats, and they are not designated Special Designated area, these properties if purchased by foreigners cannot be let.
We have been trying to get Government to change their attitude, but unless they are prepared to give every luxury new development being built a Special Designation Status, they would be very difficult to sell.
Why cause problems when none need to be there? We badly need these properties to be sold, and we should not put off potential purchasers. How can we sell properties to foreigners and promote them to buy to let, if they cannot be let?
The irony is, that if a Foreign buyer from the EU comes to Malta, and declares that his business is buying and renting property, he can buy as many properties as he wants and let them all as and when he wants. Yet a normal individual wanting to purchase one property to live in it for 6 months and rent it for the remaining period, can’t, unless it is a Special Designated Area.
That just doesn’t make sense.
When The Federation of Estate Agents approached the EU Ombudsmen on the matter of EU citizens not being allowed to rent their property in Malta, their reply was that this clearly goes against the spirit and law of the EU. Protocol No6, of the accession treaty grants that Malta can maintain in force the rules on the Acquisition and holding of immovable property for secondary residence purposes by nationals of Member States who have not legally resided in Malta for at least 5 years as laid down in the Immovable Property( Acquisition by non-residents) Act.
Any changes in this particular provision would require a modification to the Treaty agreed by all Member States, including Malta, or a unilateral relaxation by Malta of it’s restrictions. Therefore the rules at issue are not contrary to Community Law.
Malta can, on its own, change the condition in the AIP permit, which restricts the use of the property, to EU members.
Third. A few months ago, when a foreigner wanted to become a permanent or temporary resident of Malta, all he had to do was to apply in Malta through one of the many competent people here who helped him very efficiently. They deposited the original documents or certified copies here, and everything moved very smoothly and efficiently.
Then someone decided that this had to be changed. The regulations now state that “every applicant for residency has to be certified by a notary in the country of Nationality”. For example, a Swede living in London has to go back to Stockholm to apply and register. A Canadian living in France, has to go to Canada to register. This makes it very difficult and inconvenient for the applicant, and is basically telling them not to come.
This is not an EU directive. An applicant who comes from a country that has no Maltese mission, can carry on applying as before here in Malta.
Government has put three totally unnecessary obstacles in the way, which will make it very difficult to sell to foreigners and to compete with other competing destinations.
How can one attract high worth individuals, when one legislates specifically against these individuals?
Why do we do this? Why do we always seem to deliberately make life difficult, and when we finally succeed, we do so in spite of and not thanks to the authorities?
We are in competition with the rest of the World for these wealthy people.
Why are we promoting Smart City, Yacht Marinas, new five star developments, and yet on the other hand we create obstacles?
Government cannot afford to put off investors, especially in such a competitive and delicate market.
It is my estimation that there are appx 10,000 very good luxury properties, either on the market, being built, awaiting MEPA permits or being planned. These have all to be sold.
If they are sold at an average of €450,000 each, then we will have €4,500,000,000 coming into the country over the period of the next 10 years. Stamp duty alone of €225,000,000.
Government will also get annual incomes coming into Malta from these foreign purchasers of appx €30,000 per property, or eventually €300,000,000 per annum. These foreigners are effectively good solid permanent tourists.
These are not pie in the sky figures.There ARE approx 10,000 properties built, being built, or planning to be built, and these HAVE to be sold. This is not theory... it is fact. We must be successful at selling the properties being built. We cannot afford to be unsuccessful... it will be a disaster.
These business figures put construction and property sales and the resulting recurrent expenditure as a major player, if not the major player in our Island’s economy, for the foreseeable future.
It benefits Government to officially help promote these luxury properties along with private enterprise, because without them the promotion would not be so effective, and the sooner these thousands of luxury properties are sold, the better for everyone.
Government actively, officially, promoting and helping the sales and occupation of these luxury properties, will not effect the other more sensitive and socially important property market, because as we have already seen, the property market in Malta and Gozo has evolved into two completely different segments.
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