Buying Property in Malta

Anton John Mifsud | 12 Jul 2013

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Walking you through the process

Be it for residential or for commercial use, Malta’s property market presents a wide range of opportunities for a secure investment. Complementing its favourable climate and location in the heart of the Mediterranean, high quality health care, safety and a stable economy, Malta’s property market caters for every type of buyer ranging from low to high markets, including resort-style developments, town houses, villas and apartments, amongst others. 

Acquisition of property in Malta is typically done through the assistance of legal advisors who ensure that the rights of their clients are secure in every step of the way. A typical property acquisition involves three phases, namely 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.

Promise of Sale Agreement

The Promise of Sale Agreement (the konvenju) is a very important phase in the acquisition process in that it sets out the conditions under which the property will eventually be purchased. The contract is typically concluded between the legal representatives of both the buyer and the seller based on prior negotiations. In cases whether the seller or the vendor is not physically present, a representative authorised through a Power of Attorney may appear to sign the Promise of Sale Agreement as well as the Final Deed of Sale.

Generally speaking, a standard promise of sale includes:

  • 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 Public to register the promise of sale with the Commissioner of Inland Revenue.

Customarily the Promise of Sale Agreement has a term of validity of three months; however, the parties are free to agree on a shorter or a longer period. If no time frame is indicated, the Promise of Sale Agreement has a validity of 90 days. During this period, all the conditions in the Promise of Sale on which the Final Deed rests must be fulfilled.

On signature of the Promise of Sale Agreement, the prospective buyer would typically transfer 10% of the value of the property, which is usually held in escrow by the Public Notary, typically appointed by the purchaser, and released to the vendor upon the Final Deed of Sale. For its validity, it is essential that the Promise of Sale Agreement be executed in written form. Thereupon, the document must be registered, and provisional duty amounting to 1% of the purchase price paid within 21 calendar days to the Inland Revenue Department. The outstanding duty is paid at the time of signing the Final Deed.

It is essential that one makes a distinction between the Promise of Sale and the Final Deed that completes the sale. This distinction is important both from an academic and practical perspective in that upon signature of the Promise of Sale Agreement, there is no change in ownership, and the prospective buyer becomes the effective owner only upon the signature of the Final Deed of sale. Thus, following the Promise of Sale Agreement stage, risk would still lie with the prospective vendor.

What happens during the term of the Promise of Sale?

During the three month term, or as otherwise agreed upon between the parties, both parties much ensure that the conditions on which the Final Deed of Sale depends are fulfilled.

Usually, one of the conditions set in the Promise of Sale Agreement is that the property is transferred in good title and that there are no court orders or third parties that may prevent the sale or the grant of an absolute and proper title. Another condition usually made is that, unless stipulated otherwise, the property is with vacant possession. In order to ensure that this is really the case, the Notary Public and the legal advisors of the purchaser would carry out the necessary searches.  In this respect, it is important to point out that, contrary to popular belief, the searches undertaken by the Notary Public do not include an inquiry into whether the building has been constructed with the necessary permits or that is structurally sound. This is done by an architect who would carry out the necessary inspection.

For the purpose of financial protection and in the event that the buyer would like to take a bank loan, it is advised that the signature of the Final Deed of Sale is made conditional on the issuance of a sanction letter by the bank which confirms that such loan will be granted to the buyer.

Unless the property being purchased is located in a Special Designated Area (in which case no Acquisition of Immovable Property (AIP) permit is required), EU/EEA nationals[1] seeking to buy a secondary property in Malta[2] or non-EU nationals need to obtain such a permit. In such case, it is advisable to make signature of the Final Deed conditional on the issuance of the AIP. For such permit to be issued, the property must have a value which is higher than the minimum threshold set at law[3] and must be destined for personal residential use of the applicant, for an approved industrial or touristic project, for a project or if deemed as contributing to the development of the Maltese economy. A permit may also be granted for any other purpose approved by the Government of Malta.

The Final Deed of Sale

Once all the conditions of the Promise of Sale Agreement are satisfied, the Notary Public drafts the Final Deed of Sale which is then signed by both parties. At this stage, the balance due (determined by taking into account the purchase price and any deposits paid on account) is paid to the vendor. The remaining duty is also paid to the Commissioner for Inland Revenue. The keys of the property are handed over to the purchaser or his representative.

In cases where a bank loan is taken out for the acquisition of the property, bank representatives appear on the Final Deed of Sale in order to sign the relevant documentation. In this case the Final Deed is usually divided into two parts, with an agreement made between the bank and the purchasers, and a second agreement made for the purchase of the property. In this case, the balance due to the vendor is paid by the Bank on account of the loan granted to the buyer.

Subsequently, the Notary Public registers the transfer at the Public Registry, or the Land Registry as applicable. Through such registration, the agreement made between the parties is rendered public.

Applicable taxes and fees

By way of general guidance, the costs due by the purchaser to the notary public roughly amount to 1% of the price of the immovable property. Additionally, payment of stamp duty must be made. Typically, the stamp duty is 5% of the purchase price or of the value of the property (whichever is the higher) however this rate may be reduced to the 3.5% on the first €116,000 in cases where the property being acquired is the purchaser’s sole ordinary residence in Malta and where an AIP is not required.

Conclusion

Although the process of acquisition of property in Malta is fairly straightforward it is however advised that you appointed legal representatives who will be able to guide you throughout the process. The binding nature of the Promise of Sale Agreement means that if this agreement is not honoured, serious liabilities will arise.

The guarantee of being serviced by experienced professionals and experts has attracted thousands who have left their home country and established their new home in Malta. Once they become owners of property in Malta, foreigners are able to repatriate funds, take advantage of special concessions on harmonisation of social security amongst EU countries and enjoy the chart-topping quality of life Malta offers to those who choose Malta for business, personal and investment opportunities.[4]

 


[1] The terms ‘nationals’ refers to natural persons or companies established in the EU/EEA.

[2] This refers to property which will not be the primary residence, typically a holiday house

[3] The threshold varies on an annual basis and is calculated on the property index. In 2012, the minimum value of a villa or town house must be €163,905 whilst an apartment or maisonette must have a value that exceeds €98,370. In the event that the property is being purchased in shell form or unconverted, the value of the property takes into account necessary finishing costs that must be made subsequent to the final deed

[4] 2011 International Living’s Quality of Life Index

 


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