Last Updated on 01 April 2013
Ah, your first apartment. It may be smaller than a closet with a next-door neighbour who likes to blast music into the wee hours of the morning, but hey, it's a place to call your own. Whether you're moving away from your country or just leaving Mum and Dad's house, getting your first real place can be a liberating — and nerve-wracking — experience.
Trust us; there are worse situations you can find yourself in as a first-time renter than tight spaces and annoying neighbours. Moving into your own apartment may be one of the biggest financial steps you've taken this far in your life. In this rite of passage, you're committing to stay put for a long time while spending money on rent and utilities. So, naturally, you want to do it right.
We point out four sins that can threaten your financial soul — and your sanity — upon moving into your own place. Avoid making these mistakes for a smoother transition, whether you're a first-timer or a seasoned renter.
1. Underestimating the cost:
The first item when looking for a place to live: How much can you afford to spend on renting a place? Find out how much apartments cost in your desired area by browsing online rental sites such www.77greatestates.com . This will help you determine if you can even afford to make the move, and whether you'll need a roommate (or two) to pay the expenses.
But rent isn't the only cost for which you have to budget. Don't forget to calculate your first time rental expense when you first move in. For example the deposit (usually equal to one month's rent), your first month's rent, a deposit on the electricity (maybe €75-100), fees to get your cable and telephone connected, agency fee which is usually equal to half the first month’s rent, and let's not forget the cost of living in your new place and stocking it with life's essentials.
Once your start-up expenses are covered, don't forget to account for other monthly expenses that come with your new place, including gas and electricity bills.
2. Not getting your priorities straight
Before you embark on an apartment hunt, write down a list separating your needs from your wants. Needs are those things without which you just can't live. For example, my husband and I own just one car, so for us, being next to work or to public transportation is a need. Wants, however, are those things that would be nice to have, but you could live without for the right price. For example, you may want a gym close by, but they may not be deal breakers.
Sorting out your needs and wants will help keep you from making a choice you may regret later — say, renting an apartment with a great view but having to commute to work.
Remember, your first place isn't going to be perfect, so you need to know which things you can let slide beforehand. Besides, you can always move up to a better apartment when your lease is up.
3. Failing to read the lease
A lease is a legally binding contract between you and the landlord, spelling out each of your rights and the rules you must abide by while living in the place. It's worth your while to f-o-c-u-s and read it all the way through or you may find yourself in trouble at a later stage, for example penalties and restrictions after you've signed on the line.
Every lease will include some basic information, such as the address of the apartment, the length of the lease (say, six months or one year), the amount of rent due, the amount of the deposit, and the signatures of the landlord and all tenants. That's all pretty straightforward, but there are additional clauses that could have a big impact on your wallet and your lifestyle, for example what to do if something breaks or needs repair, penalties for moving before your lease term is up, policies on subletting and having roommates.
4. Forgetting the basic items that make a home
If you've never lived on your own before, you're bound to be short of a few essentials. For example, I didn't realize when I moved into my first place that a shower curtain wasn't included. I also thought I had planned ahead by packing some food to survive on for a few days — only to realize I didn’t have a can opener!
So when renting an apartment make sure your priorities are set right and you plan ahead.
Happy house hunting!
Posted in: Real Estate in Malta
Last Updated on 04 October 2010
Photo : Francesco Marino/FreeDigitalPhotos.net
Foreign Property Demand and the Real Estate Sector in the Maltese Islands
A Dissertation submitted in partial fulfilment of the requirements of the B.Com (HONS.) Economics at the Faculty of Economics, Management and Accountancy
University of Malta
By taking into consideration all the factors involved in foreign property demand for real estate, this study identifies thoroughly those relevant attributes which a country should typically acquire or possess in order to capture a significant portion of overseas real estate investors by segmenting the real estate market into three main types of investors; the retiree, the lifestyle investor, and the pure investor.
Furthermore, the study analyzes each of the attributes and applies their relevance to the Maltese Islands, keeping in mind the limitations that the country faces. The research conducted identifies Malta’s weaknesses and threats and aims to turn them into strengths and opportunities mainly by focusing on those market segments which yield the highest return, not solely from an economic perspective, but also from a political, legal, and ultimately social point of view.
By focusing on UK buyers for local real estate, the study manages to identify various weaknesses which currently inhibit foreign demand for local real estate. It finally recommends various possible modifications keeping sustainability central to the research objective. Sustainability is one word which carries a lot of weight. Will the attraction of foreign property demand for local real estate develop as a threat to local housing affordability, or are there different segments with different price fluctuations in a common real estate market? Sustainability ensures that the optimistic vision of developing the local real estate into an exportable product is not achieved at the detriment of the local society. This dissertation suggests that sustainability in this regard may be achieved if all stakeholders, including government, developers, and estate agents, work consistently by coordinating their activities.
Dr. R. M. Azzopardi, my tutor, for her professional guidance, advice, availability, and constant support.
Dr. G. Cordina, for his help in generating the research title.
Dr. F. H. Bezzina, for his suggestions in the quantitative analysis of this dissertation.
Ms. Lara Sammut, for her kind assistance throughout the study.
I would also like to show my appreciation to the real estate agents and the agencies they represent for making the qualitative research in this dissertation possible, namely;
Dr. Carl Peralta BA, LL.D., Director of 77 Great Estates
Introducing the Topic:
Every individual who decides to purchase property can somehow be considered as an investor. The reason behind the purchase of a particular property generally determines the degree of the investment from a monetary aspect. A retiree is said to be investing in a lifestyle with little interest on the potential financial returns from the investment. On the other hand a pure investor’s objective is solely profit whereas a lifestyle investor’s aim lies somewhere in between that of the retiree and the pure investor.
Overall, since property is probably every individual’s most valuable lifetime asset, investors generally strive to acquire all the relevant information to ensure a secure and sound investment. Purchasing property locally takes time and money in going through all the required procedures that real estate investment entails. Purchasing property overseas calls for an extra effort over and above that of a local transaction as the investor would generally be entering a ‘new world’ of what may have seemed to be standard and common in the local scenario. Naturally, since more commitment is involved for overseas investments, every investor would be expecting a higher return either in terms of lifestyle, profit, or a combination of both.
Aims and Objectives:
The total number of real estate contracts in Malta stood at 10,000 in 2007. Furthermore, the number of properties purchased in Malta by foreigners in the same year totalled 745; 419 of which were buyers from the UK (Frank Salt Real Estate Limited, 2009) implying that 56.24% of foreign demand for local property were UK citizens. Table 1 compares the figures for Malta with Spain, since Spain has been recording the world’s highest number of real estate buyers from the UK.
Table 1: Proportion of property sold to UK citizens in Malta and Spain in 2007
Table 2 shows that in 2007 the local real estate market managed to capture 0.17% of UK citizens’ demand for property overseas. If Malta was to aim for the 0.8% (or 1,517 contracts over and above the current 419) of the UK market share identified by the local Federation of Estate Agents (FEA) in its input to the pre-budget 2009 consultation report, the country’s sales proportion to UK buyers would have to increase from 4.19% to 16.81% (refer to table 1); a proportion which is relatively around twice of what Spain enjoyed in 2007.
Table 2: Purchases of real estate abroad by UK citizens in 2007
By analysing the current weaknesses and threats which Malta faces as well as those attributes which make the country strike out against stiff competition, this study identifies the Maltese Islands’ overall potential of attracting foreign demand for local real estate. By also taking into account the current real estate situation in Malta, particularly with regards to the excessive property vacancy rates, the study takes a sustainable approach by keeping in mind that the attraction of foreign demand for local property ought not to develop into a threat for housing affordability.
According to the 2005 Census, within a period of just ten years – between 1995 and 2005 – the number of dwellings in the Maltese Islands had increased from 155,202 units to 192,314; an increase of 23.91% or 37,122 units in the dwelling stock. When dividing such increase between occupied and vacant dwellings the 2005 Census finds that of the 37,112 units 19,699 were occupied whilst the rest, 17,413 units, were vacant. This implies that around 47% of all the properties built in a ten year span were left vacant. In 2005 the number of vacant dwellings stood at 53,136, a figure which is net of holiday residences. The number of vacant dwellings in the Maltese Islands therefore, represented 27.63% of the total dwelling stock. Although such proportion cannot all be assumed as excess supply of properties due to possible unregistered lets and properties currently for sale, reducing these possibilities would still potentially leave a significant proportion of oversupply in the dwelling stock which according to Dr. Gordon Cordina (2008: 5) ‘may result in market disruptions, with the potential of unsustainable price declines in the near future’. However, Dr. Cordina (2008: 5) also stated that ‘vacant properties can be viewed as a potential supply of resources which could be utilised to generate earnings from abroad’.
Real Estate Background – The Maltese Islands:
Real estate is generally regarded as the most expensive and, perhaps, most valuable asset that individuals or families possess. Owning a property gives an individual a financial sense of security. Many factors contribute to the proportion of property owners in different countries. One of which is lifestyle. Amongst other characteristics, various Mediterranean or Southern European countries such as Spain, Italy, Greece and Portugal have very comparable homeownership rates. Most families in Malta own a property or a multiple number of properties. According to the 2005 Census 104,611 units, or 75.2%, of occupied dwellings were owner occupied. This figure was only 23.1% in 1948 (Camilleri, 1999), but has been increasing ever since. Regardless of the decrease in housing affordability, homeownership in Malta still increased at rapid rates. A decrease in housing affordability and an increase in homeownership rates on a simultaneous level might sound somewhat contradictory. However, such a factor is explainable by the increase in the number of mortgage lending issued every year. Interesting to note is Cyrus Vakili-Zad’s (2006) observation that a “high rate of homeownership is often the sign of an underdeveloped economy rather than wealth”. Vakili-Zad states that “where there is economic and political instability, where citizens are worried about their future and that of their children, there is a tendency to invest in property which seems to be the most secure form of investment.”
“In Malta property has long been viewed as a secure investment” (Bianco, 2006). Since the 1990s, property prices in Malta increased steadily, with sharp increases in 2004, after Malta’s accession to the European Union membership. According to Pierre Mizzi (2009), such sharp increase in real estate prices “definitely skewed past trends beyond any recognition”. Several factors contributed to such price boom in housing. According to www.globalpropertyguide.com (2008), an investor’s guide to residential property buying overseas, the five main contributors to the increase in Malta’s property demand – which caused an increase in real estate prices – during this period, were the low interest rates on mortgages , a “tax amnesty to Malta residents who had invested overseas”, the fact that Malta enhanced its reputation in general due to the entry into the European Union, “the removal of building height restrictions in some areas by the Malta Environment and Planning Authority (MEPA) causing the sale of many houses to make way for apartments”, and finally the increase in development permits for dwellings relative to previous years (www.globalpropertyguide.com, 2008). Although not as drastic as in the case of Malta, parallel housing price booms were recorded in Cyprus for similar reasons.
According to Lino Bianco (2006), a veteran in the history of Maltese architecture, when segmenting the property market by property usage, the main property demand in Malta is for residential purposes. The most common type of residence in the Maltese Islands on a general level is the house (including terraced, semi-detached, and fully-detached houses). In 2005 houses accounted for 42% of the total housing stock in Malta followed by apartments as the second most common type of residences. The trend is now leaning towards the construction of more apartments and less houses. Lino Bianco (2006) also observed that houses are even more commonly found in southern and central areas whilst apartments are generally found in northern areas including St. Paul’s Bay, St. Julian’s, and Sliema – which are the most popular areas for foreigners.
Throughout the years, although both major political parties differed in many ideological views, they seemed to agree on the idea of having high rates of homeownership. In 1983, when the government – at the time lead by the Malta Labour Party – launched the Building Development Areas Act (BDA), land was given out almost for free. The scheme had positive effects on prices with regards to mitigating their rate of increase (Mifsud, 1999). However, in 1988, the BDA scheme was abolished when the number of building plots on the Homeownership Scheme was reduced, and ultimately the scheme was abandoned. Such developments as the latter as well as the setting up of the Planning Authority in 1992 and the abolishment of the requisitioning powers (Camilleri, 1999) left an impact on house prices. “Between 1982 and 1997, house prices in Malta more than trebled.
Table 3: Plot price as a percentage of house price
Camilleri (1999) compares Malta and the UK in the ratio of the cost of purchasing a plot with respect to house prices between 1970 and 1995 for both countries. From table 3 above, it can be observed that whereas between the mentioned dates the UK’s plot price as a percentage of house price had been around the twenty percent region for 25 years, the same ratio for Malta increased from seven percent in 1970 to as high as 50% in 1995. Analysing such observation indicates that the cost of building a plot of land had a relatively insignificant increase when compared to the increase in the cost of purchasing that same plot. Mallia (1994) observed that the total built-up area on the Maltese Islands by the end of 1990 covered twenty percent of the islands; the average built-up area in Europe was only eight percent at the time. However, such comparison must also take into account the population per square kilometre in the Maltese Islands relative to the European average. The 2007 Maltese Demographic Review illustrates that the population density in Malta is 1,298 persons per square kilometre. When compared to the European average (with a value of 105 persons per square kilometre) – excluding Turkey, Russia, Ukraine, Belarus, Kazakhstan, Georgia, Armenia, and Moldova, which countries decrease the value to 31 persons per square kilometre – one can find a justifiable reason why the built-up area in Malta is at such a high proportion.
Many European and North American countries are generally faced with situations of excess demand for housing. On the contrary, Malta does not have a shortage of housing; in fact, it has an oversupply. According to the law of supply and demand in economic theory, when supply exceeds demand, prices will fall to equilibrate the two curves. So why has property in Malta been increasing at such rapid rates, especially during the last decade? Joris Hoekstra and Cyrus Vakili-Zad (2006) termed this phenomenon as the “Mediterranean Paradox” when they found that for Malta and Spain, the vacancy rate is positively related to housing price noting that both countries are characterised by a “strict rent regulation and a strong rental protection” (Hoekstra and Vakili-Zad 2006). Whether such occurrence will persist in the long-run or not is not so simple to state. According to Pierre Mizzi (2009), “one thing is certain – property remains a sound investment. Whilst other investments may have taken nosedives and U-turns, property may dip and drop periodically but it holds its own and is bound to keep doing so forever.”
When segmenting the real estate market between retirees, lifestyle investors, and pure investors, it can be concluded that whilst retirees are encouraged to purchase property in Malta, lifestyle investors as well as pure investors are discouraged from investing in local real estate. The main factors which encourage retirees, particularly from the UK, to purchase property in Malta are tax incentives covered under the permanent residency scheme, the way of life of the Maltese, the historical attributes which the Islands possess, as well as the pleasant weather conditions in Malta. Excessive rental regulations impinged on lifestyle investors who decide to purchase property in Malta discourage them from choosing Malta rather than any other competing country. As supported by the common replies of the interviewed estate agents, the segment covering pure investors is mainly discouraged from purchasing property in Malta. When compared to other property destinations which are considered as competitors with the Maltese Islands, according to the local estate agents who also advertise overseas property, the current taxation levels are considered to be excessive, thereby repelling.
From a general perspective the local state of vacant properties clearly indicates that a situation of over-supply of dwellings is present and has been increasing for a number of years. Focusing on the significance of market segmentation, according to the general opinion of the interviewed estate agents, foreign demand for local property and first-time buyer demand are different segments of the real estate market. The latter explanation coupled with the present property vacancy rate – which rate creates excess supply of property – contribute to justify that foreign demand for local real estate is not a threat to local demand, particularly for first time-buyers.
Potential recommendations based on this study:
Whilst further infrastructural modifications and improvements in the current local environment would undoubtedly aid in attracting both tourists as well as property investors, on a general level such limitations are not considered as a detriment to foreign demand for local real estate. The Maltese Islands contain attributes which are of a great advantage for foreigners. The fact that Malta is considered to a high degree as a relatively secure country to live in as well as to visit is an advantage to a great extent. Having English as an official language, being reflected both in ease of communication and in legal documents, is also a positive element which drives demand for local real estate.
However, such qualities are not sufficient in maximising Malta’s potential to attract foreign demand in two of the three identified segments. The capital gains tax affecting mainly pure investors discourages such a market segment from purchasing property in Malta and ought to be revised. With regards to lifestyle investors, excess rental regulations such as the requirement of property comprising a swimming pool, inhibit demand and need to be addressed.
Once such mentioned matters are modified, taking into consideration what other competing countries have to offer, Malta can potentially be seen as a more attractive property destination. Effective international marketing strategies, focusing on the advantages which Malta will potentially have to offer over other countries, will boost Malta’s popularity. While the measures to attract foreign demand for local property may have considerable negative impacts on government revenue from a static perspective, the same measures should ultimately result in long-term benefits, particularly arising out of the sale of vacant property to foreigners (Cordina 2008).
All things considered, Government and the private sector should coordinate their activities with a common sustainable vision to make such real estate modifications an opportunity for all stakeholders by mitigating and possibly eliminating any possible burdens which might develop through and after the consultation and decision-making period.
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Mallia, E. A. (1994) ‘Land Use: an account of environmental stewardship’, in Sultana and Baldacchino (eds.) Maltese Society – A Sociological Inquiry, Malta: Mireva Publications.
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Vakili-Zad, C. (2006) ‘Housing policy in Malta: A welfare state regime approach’, The FEMA Research Bulletin, vol. 1, no. 2, June, pp. 54-67.
For further information, such as obtaining the full version of the dissertation kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77GreatEstates or info@77GreatEstates.com.
Posted in: Real Estate in Malta