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Buying property in Malta: scams and pitfalls

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Everything you need to know is included in our Malta Property Pack

Foreigners are increasingly considering Malta for real estate investments, enticed by its Mediterranean charm and business opportunities.

For those who aren't familiar with the area, getting into the property market there can be quite a challenge. You may encounter unexpected issues and pitfalls, so it's essential to stay vigilant.

Both our customers who purchased properties there and our on-site local experts have reported a significant list of pitfalls. We've listed them all in our Malta Property Pack.

This article will give you a quick overview of some of the potential pitfalls you could face.

Is it safe or risky to invest in real estate in Malta?

Buying property in Malta is generally considered safe for both locals and foreigners, provided that due diligence is exercised.

However, as in any real estate market, there are risks of scams or fraudulent activities. It's not common, but it's not unheard of either.

For instance, there have been occasional reports of rental scams which could, by extension, suggest that potential buyers should be cautious. Ensuring that one deals with reputable agents and solicitors can mitigate this risk.

Malta’s real estate market is relatively open to foreign buyers, but there are certain restrictions and additional fees for non-residents, especially for those who are non-EU. The Acquisition of Immovable Property (AIP) permit is a requirement for non-residents who wish to purchase property, and the process can be complex.

Moreover, foreigners are often subject to higher stamp duties and additional taxes.

Failing to understand local tax laws and neglecting to secure proper legal representation can lead to costly mistakes. For instance, there are specific tax implications related to capital gains and rental income that, if overlooked, can result in significant unexpected expenses.

Malta’s laws and regulations offer a good level of protection to property buyers.

The Maltese legal system is based on both civil law and British common law, offering a robust framework for property rights and transactions. Contracts are legally binding and property titles are secure.

However, the efficiency of the legal system can sometimes be bogged down by bureaucracy.

The property buying process in Malta is fairly transparent, with established procedures. However, it can be less transparent than in some Northern European countries where real estate transactions are often more regulated.

It is essential for buyers to have trusted local legal counsel to navigate the process.

Disputes can be resolved through litigation or arbitration, but the legal process can be lengthy. While the system is deemed fair, it may not always be as efficient as some investors would hope.

Delays in court proceedings can add to the cost and frustration of resolving disputes.

Foreign buyers should conduct thorough due diligence, which includes legal checks on the property title, ensuring there are no outstanding debts or liens against the property, and understanding local planning and zoning regulations.

Engaging a reputable notary is crucial, as they conduct the necessary searches and ensure that the title is free and clear.

The Maltese government supports the real estate market through various programs, such as the Individual Investor Programme, although this has faced criticism and was suspended due to concerns about due diligence.

The government also regulates the market to some extent; however, the involvement is not as comprehensive as in some countries, which allows for more market-driven price determination.

Foreign buyers have reported challenges related to the bureaucracy of the permit process and sometimes a lack of urgency in administrative procedures.

Additionally, property valuation discrepancies can sometimes be an issue, leading to price uncertainty.

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Potential real estate buying mistakes in Malta

The risks related to the "Kummissjoni għall-Kontroll ta' l-Iżvilupp" decisions

One specific pitfall you should be aware of when buying residential property in Malta is the potential misunderstanding or misinterpretation of the "Kummissjoni għall-Kontroll ta' l-Iżvilupp" (Development Control Commission or DCC) decisions.

This is particularly relevant if you're considering buying a property that requires development or renovation.

In Malta, the DCC, operating under the Planning Authority, is responsible for reviewing and approving development applications. However, their decisions can often be quite technical and detailed, with specific terms and conditions.

As a foreigner, you might not be fully familiar with the local building and planning regulations, which can vary significantly from those in other countries.

For instance, you might buy a property intending to make significant alterations, only to find out that the DCC's approval comes with stringent conditions or limitations due to local planning policies, cultural heritage considerations, or neighborhood schemes.

These restrictions could significantly impact your planned renovations or expansions.

This issue is not uncommon, especially in areas with historical or architectural significance, where preservation is a priority.

It's crucial that you consult with a local architect or legal advisor who can interpret the DCC decisions and advise you on the feasibility of your plans before you finalize your purchase.

"Ċens Enfiteutiku" or ground rent

Another specific pitfall to be aware of when buying residential property in Malta involves understanding and managing or "Ċens Enfiteutiku."

This is a unique aspect of Maltese property law that can significantly impact your ownership rights and costs.

Ground rent is a feudal system still present in Maltese property law. Under this system, you might purchase a property but not own the land outright. Instead, you may have to pay an annual rent to the landowner. This concept can be quite foreign to many, especially those from countries where such practices are obsolete or non-existent.

The frequency of this issue is notable, particularly in older properties and certain localities like Valletta or Sliema, where ground rent arrangements are more common.

The terms of these ground rents can vary greatly – some are nominal and fixed, while others can be quite substantial and subject to periodic increases.

As a buyer, you must thoroughly investigate whether the property you are interested in is subject to ground rent.

For instance, is it a "temporary emphyteusis" (usually for a period of 17 to 99 years) or a "perpetual emphyteusis"?

The implications for your property rights and financial obligations can be significant.

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The concept of the "Konvenju" process

A lesser-known but critical aspect you should be aware of when buying residential property in Malta involves the "Konvenju" process, particularly the "Perjodu ta' Riflessjoni" or reflection period.

This is a uniquely Maltese aspect of the property buying process, different from practices in many other countries.

The "Konvenju" is essentially a preliminary agreement between the buyer and seller. It's legally binding and outlines the terms of the sale, including the price, conditions, and a timeline for the final deed of sale. What's particularly important for you as a foreign buyer is understanding the "Perjodu ta' Riflessjoni."

This is a legally mandated reflection period after signing the "Konvenju," typically 3 to 7 days, during which either party can withdraw from the agreement without incurring penalties.

While this might sound like a simple cooling-off period, it's crucial in the context of Maltese property transactions. This period is not just for reconsideration but also allows for essential checks and due diligence.

During this time, you should conduct a thorough investigation of the property, including its legal title, any debts or encumbrances attached to it, and its compliance with planning and building regulations.

"UCA" or Urban Conservation Area status

Another specific aspect you need to be cautious about when buying residential property in Malta is understanding and dealing with the implications of "UCA" (Urban Conservation Area) status, which can be quite unique compared to other countries.

Properties located within a UCA in Malta are subject to stringent planning regulations and restrictions to preserve their historical and architectural value.

This status can significantly impact what alterations or renovations you can make to the property. For example, in localities like Mdina, Birgu, or parts of Valletta, which are rich in history and cultural heritage, the regulations are particularly strict.

The frequency of issues related to UCA restrictions is considerable, especially among foreign buyers who may not be familiar with the extent of these regulations.

You might purchase a property with the intention of making substantial renovations or modernizations, only to find that your plans are severely limited or even prohibited under UCA guidelines.

It's crucial for you to check whether the property you are interested in falls within a UCA and understand the specific restrictions and requirements that apply.

This includes limitations on changes to external facades, the use of traditional materials in renovations, and even restrictions on new constructions within the property boundaries.

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The issues with the "il-miżura l-antika" traditional method

A unique pitfall in Malta's property market that you should be aware of as a foreign buyer is the potential for discrepancies in property measurements and boundaries.

This issue arises from the traditional method of property measurement in Malta, known as "by the old measure" or "il-miżura l-antika."

In Malta, especially in older properties, the actual size of a property might be recorded using an outdated measurement system, which can differ significantly from modern measurement standards. This discrepancy can lead to confusion about the actual size of the property you are purchasing.

For instance, what is listed in the property description might not match the size when measured by current standards, leading to misunderstandings about the space you're acquiring.

This issue is not uncommon, particularly in historical areas or when dealing with properties that have been around for several generations.

The difference in measurement can impact not only the value assessment but also your plans for the property, such as renovations or extensions. To avoid this pitfall, you should ensure that the property measurements are verified with a modern standard before finalizing the purchase.

Hiring a reputable surveyor who is familiar with both the old and new measurement systems is crucial.

They can provide an accurate conversion and verify the property's actual size, ensuring that what you agree to buy is indeed what you get.

Risks related to "Sedqa" payments

In Malta, a unique and often overlooked aspect in the residential property market is the significance of "Sedqa" payments in older lease agreements.

This is a concept that might be unfamiliar to you as a foreign buyer and is specific to the Maltese property market.

"Sedqa" is a traditional Maltese term referring to a goodwill payment made by the tenant to the landlord. In older lease agreements, particularly those dating back to the mid-20th century or earlier, it was common for tenants to pay a substantial "sedqa" to the landlord as a gesture of goodwill.

This payment was in addition to the regular rent and could be quite significant.

The issue arises when you purchase a property that has existing tenants under these old lease agreements. You might find that these tenants have been paying a very low nominal rent due to rent control laws, with the sedqa forming a significant part of the actual income from the property.

However, as a new owner, you may not be entitled to receive sedqa payments, which can impact the property's profitability.

This situation is relatively infrequent but can occur in properties with long-standing tenants, especially in older, more traditional localities. The implications can be significant for your investment, particularly if you were counting on rental income.

To navigate this potential pitfall, you must thoroughly review any existing lease agreements before purchasing a property. A local property lawyer can help you understand the terms of these agreements and the implications of sedqa payments.

They can also advise on the current legal framework regarding old leases and your rights as a new property owner in these situations.

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Potential misinterpretation of "Sanat" clauses

A specific pitfall in Malta's residential property market, particularly relevant for foreign buyers like you, is the complexity and potential misinterpretation of "Sanat" (or "Sant") clauses in property deeds.

This aspect is unique to Maltese property law and can significantly affect your rights and responsibilities as a property owner.

The "Sanat" clause is a traditional aspect of Maltese property deeds, often found in older contracts.

It refers to a stipulation where certain responsibilities, such as maintenance of common parts, structural repairs, or contribution to communal expenses, are assigned to specific property owners within a building or complex. The issue arises because these clauses are often written in archaic language and can be subject to various interpretations.

As a foreign buyer, understanding the implications of a Sanat clause can be challenging, especially if you're not familiar with the historical context or traditional legal language used in Malta.

Misinterpreting these clauses can lead to disputes with neighbors or unexpected financial obligations, particularly in older properties or those within communal buildings.

The frequency of issues arising from Sanat clauses is notable, particularly in densely populated areas or historic properties where communal responsibilities are more complex.

To avoid this pitfall, it is crucial that you engage a local legal expert or notary who is proficient in interpreting these traditional clauses.

They can clarify your responsibilities and rights concerning the property, especially regarding maintenance and communal expenses.

The concept of "Title of Nobility"

A distinctive challenge you might encounter when buying residential property in Malta, especially as a foreigner, is navigating the implications of "Title of Nobility" attached to certain properties.

This is a unique aspect of Maltese property law and culture that can have significant implications on your purchase.

In Malta, some properties, particularly ancestral homes or estates, may come with a Title of Nobility. These titles are historical and often linked to the property itself. While they don't carry the same legal weight as nobility titles in other countries, they do hold cultural significance and can impact the property's perceived value and status.

The challenge arises because these titles are often highly valued by locals and can inflate the property's price.

As a foreign buyer, you might not fully appreciate the cultural significance of these titles, leading to either overpaying for the property or misunderstanding its cultural value.

This issue is not widespread but can be particularly relevant in the case of historic or high-value properties in prestigious areas. The implication of purchasing a property with a Title of Nobility goes beyond financial aspects; it can also involve cultural and social dimensions.

To address this, you should conduct thorough research on the property and its history. Consult with a local property expert or historian to understand the significance of any title associated with the property.

They can provide insight into how this title might affect the property's value and your responsibilities as the new owner.

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"Servitù Religjużi" or divine easements

When purchasing residential property in Malta, especially as a foreigner, you should be particularly mindful of the potential for issues related to "Divine Easements" or "Servitù Religjużi".

This is a unique element of Maltese property law and tradition that could impact your ownership experience.

Divine Easements refer to historical obligations or rights attached to certain properties, often requiring the property owner to maintain and allow access to religious artifacts, shrines, or chapels within or adjacent to the property. These easements can date back centuries and are sometimes not clearly documented in modern legal language.

For example, you might purchase a property that has an old chapel or a religious statue within its boundary.

According to the Divine Easement attached to the property, you might be obligated to maintain these religious sites and allow public access for certain religious activities or on specific days of the year.

This could impact your privacy and use of the property.

While such easements are not common in every property transaction in Malta, they are more frequently encountered in older properties or those located in historical areas.

The potential impact of a Divine Easement can range from minor inconveniences to significant obligations in terms of maintenance and public access.

"Dritt ta' Prelazzjoni" or "Pre-emption Rights"

Another unique aspect to consider when buying residential property in Malta, particularly for a foreign buyer like you, is the potential existence of "Pre-emption Rights" or "Dritt ta' Prelazzjoni."

This is a legal right that could significantly affect your property purchase and is specific to Maltese law.

Pre-emption Rights refer to a legal provision where certain individuals, typically adjoining property owners or family members, have the first right to purchase a property before it can be sold to someone else. This means that if you intend to buy a property in Malta, there might be a legal requirement for the seller to first offer it to these individuals at the same terms offered to you.

This issue is particularly relevant in cases where the property is part of a larger family estate, or when it adjoins other properties owned by relatives or close neighbors.

Rooted in traditional Maltese property laws, pre-emption rights primarily aim to keep property ownership within families or local communities.

While the occurrence of this issue might not be universally high across all property transactions, its significance is particularly notable in rural areas or close-knit communities.

For you as a buyer, understanding and navigating these rights is crucial due to their potential impact on your property purchase process.

Even after agreeing on a sale, the transaction could be delayed or nullified if someone with pre-emption rights decides to exercise them. To navigate this potential pitfall, it is essential to work with a local notary or legal advisor who can ascertain whether any pre-emption rights are attached to the property you are interested in.

They can conduct due diligence to ensure that all necessary steps have been taken to respect these rights before proceeding with the sale.

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