In comparison to the European Union, the Maltese prefer owning their home rather than renting, with Eurostat 2017 showing that 81.3% follow this trend, in comparison to the EU 28 of 69.3% in accordance with the Eurostat data. Furthermore, just under 10,000 families are residing in properties utilising the pre-1995 rent laws*, which provides a permanent residence at rental rates significantly below market rates.
There are numerous benefits to buying a property which can include, to; build equity in the property (eventually fully owning the property), utilising the property’s equity as collateral for other investments, modifying the property to one’s tastes, and providing a permanent base. Though one must also factor in the possible negative factors, such that the neighbourhood may go out of fashion, issues with neighbours, legal risks (such as the recent Nadur property title issues), geographic risks, possibility that property prices will stagnate or decline, and others.
Let us take an apartment valued at €300,000 and with a rental value of €14,400 per annum.
Purchasing a property like this comes with a significant cash outlay, even though most banks will finance up to 90% of the price. Thus, on a property transaction of €300,000, one will need at least a €30,000 down payment to cover the mortgage. One will then need to continue making capital and interest repayments throughout the term of the home loan.
It should also be kept in mind that in the initial years the interest payments are the bulk of borrowers’ repayment obligations. In addition, one will need to pay acquisition costs, such as, stamp duty of 5% (unless there are Government incentives). Furthermore, you will need to involve a notary (and their related expenses such as registration costs) and other professional fees, which may add up to an additional 2% of the transaction price (in this case up to €6,000), and this is all before the cost of any furnishings any maintenance or personalisation would have begun to be undertaken in the property.
Renting a property provides more flexibility to upgrade or downgrade your home, should your circumstances change. Furthermore, very often the maintenance is undertaken by the landlord, and overall, there is less responsibility on the tenant. The costs involved in rentals is also reduced as this simply includes the monthly rental fee, payment of the security deposit (usually one month’s rent), and estate agency fee (equal to half a month’s rent).
In addition, due to recent changes in local legislation the tenants’ rights have been further strengthened, such as, capped rental increase, and extension clauses. Also, the local rental market primarily provides properties that are fully furnished, thus lowering the move in costs for any renter.
In the past it has also been noted** that Maltese landlords prefer to rent to non-Maltese, as discriminatory as that is. One of the main fears of Maltese landlords, being that should there be an issue with a tenant, a Maltese person is more likely to stay within the premises until the possibly lengthy judicial process is concluded.
Reasons why the Maltese prefer to purchase may be varied, though a couple of observations include living longer at their parents’ home than their European counterparts allowing them to save more, belief that the real estate market will continue to improve, or the knowledge that should they change job on the islands they are no longer than a one-hour drive away to their new job.
Whilst it is an individual’s choice of whether to buy or rent their home, factors to also consider is whether the invested funds could earn a better return in another avenue. Other concerns could be the importance of the knowledge that they own their home, and that the interest repayments should not fluctuate as much as the rent payments.
Furthermore, one also needs to factor in the amount of time, work and expense involved when it comes to sell the property, possibly including an agency fee, taxes (though they are often waived if the property was for one’s own home, but they are subject to certain conditions being met).
Thus, whilst the Maltese property path is to own their home, it stands to reason that there may be scope to re-consider this.
An accountant by profession, Thomas Cremona, founded one of Malta's leading property management companies focused on maximisation of the property's earnings.
DISCLAIMER: The content of this article does not necessarily reflect or represent the views and opinions of The Malta Chamber of Commerce, Enterprise and Industry.