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Glossary
AIP
An Acquisition of Immovable Property (AIP) permit is a permit that non-residents must obtain to purchase property in Malta. Properties acquired under this permit cannot be rented out. Maltese and EU citizens who have resided in Malta continuously for at least five years do not need to obtain an AIP permit. If Maltese and EU citizens fail to satisfy this criterion, they do not require this permit only if the property is for primary residence or business activities/services supply. However, if the property is for secondary residence purposes, they must obtain an AIP permit. Non-EU citizens must obtain an AIP permit for all property purchases, regardless of the property’s intended use. However, if EU/non-EU citizens purchase properties in certain zones in Malta, known as Special Designated Areas (SDAs), they do not require an AIP permit. Examples of these zones include the Portomaso Development in St Julians, Smart City, and the Cottonera Development in Cottonera, among others.
Building Insurance Policy
A building/home Insurance policy is a common requisite by banks when taking out a home loan. Depending on the package you choose, this policy protects your investment—from covering the building structure and everything inside it, including fixtures and fittings, such as baths, windows, and doors, to theft and damage caused by events like weather or fire. This type of insurance is mandatory until you repay the full loan, after which it becomes optional to maintain home insurance.
Energy Performance Certificate (EPC)
The Energy Performance Certificate (EPC) displays the energy performance of the building and its carbon emissions through a numerical/alphabetical rating scale. It also provides recommendations for improving the homes’ energy efficiency, thus improving the overall rating. An EPC is valid for 10 years, during which one can use it multiple times, provided no significant renovations or new constructions occur. All properties listed for sale must have an EPC, of which the prospective buyer must have a copy before entering into a promise of sale agreement.
Final Deed of Sale
The Final Deed of Sale is a legal document confirming the transfer of property ownership from the seller to the buyer. After all conditions outlined in the promise of sale agreement have been fulfilled, both parties must sign the final deed of sale. At this stage, the buyer pays the agreed purchase price to the seller, along with any additional fees, such as stamp duty. Following the signatures of both parties, the notary also signs the deed, at which point it becomes officially published. The notary then registers it in their records and enrols it with the Public Registry of Malta and, where applicable, with the Land Registry.
Finished
Properties sold in a finished state refer to those dwellings that include basic internal finishings, such as tiling, skirting, plumbing, electrical wiring, sockets, and flooring. However, properties advertised in a finished state can vary from one listing to another, so you should carefully review the list of finishes to understand what they include. Two common types of finished properties are those listed as finished excluding doors and bathrooms, and those listed as finished including doors and bathrooms. One key advantage of purchasing a finished property is the ability to move in sooner as opposed to properties sold in shell form or on plan, which typically take longer to move in.
Freehold
Unlike properties with ground rent (non-freehold properties), freehold properties mean that you are the outright owner of both the building and the land it sits on, with complete control. Some key benefits of owning a freehold property include no recurring fee payments, full ownership, no conditions attached to the ground rent of the property, no modification or improvement restrictions, the ability to sell, rent, or use the property without limitations, and a typically a higher resale value.
Ground Rent
Ground Rent, also known as ċens or emphyteusis, is a financial obligation attached to immovable property. It legally obliges the leaseholder or property owner to pay a recurring fee (ground rent)—typically on an annual basis.
There are four main types of ground rent:
- Perpetual ground rent is a fixed-rate ground rent with no expiration. While the leaseholder can redeem this type of ground rent, if it is not redeemed, they must continue paying it indefinitely.
- Perpetual revisable ground rent also has no expiration but is subject to periodic adjustments to reflect inflation or other economic factors, as specified in the deed of constitution.
- Temporary ground rent applies for a fixed period—typically 99 or 150 years—and upon expiration, the property reverts to the original owner unless the ground rent is renewed or converted into a perpetual ground rent. However, under Maltese law, if the property is used as an ordinary or summer residence and the ground rent belongs to the Government (Joint Office), the emphyteuta (leaseholder) has the right to convert the ground rent into a perpetual one through a specific scheme.
- Temporary revisable ground rent is the same as temporary ground rent but is subject to periodic adjustments over time.
If the property is subject to ground rent, the notary should trace back to its constitution to confirm its nature and ensure no disadvantageous conditions are attached. Furthermore, if one purchases a property subject to ground rent, a one-time recognition fee—known as laudemium—must also be paid to the ground rent owner upon the transfer of a title. Therefore, two payments are due in the first year: the ground rent and the recognition fee.
In addition to ground rent, the property can also be subject to other burdens, for example, the piż piju in favour of the Church.
Home Loan
A home loan is a sum of money borrowed from a bank or financial institution to purchase a residential property. The bank or financial institution grants the applicant a specific amount, payable over a set period through monthly repayments, along with the interest accrued on the loan.
There are different types of home loans: those for first-time buyers purchasing their first property, loans for acquiring a second or additional property, and loans for individuals buying properties intended for rental purposes, also known as buy-to-let loans, among others.
The criteria and repayment terms vary depending on the purpose of the loan. For example, when purchasing a first property, banks typically require a minimum upfront contribution of 10% of the property price. In contrast, banks usually require a minimum upfront contribution of 25% when purchasing a second or buy-to-let property. Therefore, it is essential to determine in advance whether the property is a first or second home and whether it will be used as a primary residence or for rental income.
It is also important to note that a property purchased as a primary residence cannot be used for rental purposes under the original loan terms. If a buyer later decides to rent out such a property, they should communicate with the bank for property guidance on the necessary steps.
Life Insurance Policy
Life insurance is a financial safeguard for both the individual and their immediate family, providing a pre-agreed sum to support the family in the event of the policyholder’s death. When applying for a home loan, banks require the borrower to obtain life insurance. This policy acts as security against your home loan by covering the outstanding loan amount in the event of your death. Depending on the terms agreed with the insurance company, life insurance can also provide coverage in the event of a permanent disability that limits your ability to work.
On Plan
On-plan properties, commonly known as ‘off-plan’ properties in many countries, are those dwellings sold before construction begins or during its early stages. Here buyers purchase the property on paper, based on the architectural plans. While some prefer ready-built properties because they can see them physically before the purchase, on-plan properties are becoming increasingly popular.
Buying on-plan not only gives you additional time to save and plan, but it also provides you control over things that you might want to change from the plan before construction begins, adjusting it to your liking where possible. However, there are also some drawbacks to consider, including the lengthy waiting period between contract signing and moving in, the fact that you are buying a property without seeing it, and the need for careful planning and decision-making.
Personal Loan
In addition to a home loan, one can also apply for a personal loan to cover finishing costs, such as purchasing furniture. This type of loan is granted based on the applicant’s creditworthiness, considering their income and credit history.
The most common type of personal loan is an unsecured loan, which does not require collateral. However, borrowers may also opt for secured personal loans backed by some form of collateral, which normally attracts a lower cost of borrowing. While all banks offer personal loans to help cover finishing costs, some also provide specialised personal loans specifically designed for home improvements.
It is important to note that personal loans generally carry higher interest rates than home loans, come with a lower maximum borrowing limit, and have a shorter repayment term.
Promise of Sale
The promise of sale, also known as konvenju, is a legally binding agreement where the seller commits to selling their property to a prospective buyer while the prospective buyer commits to purchasing it. The duration of a promise of sale typically ranges from 6 months to a year, but it can be set for any length of time, with the possibility of extension for valid reasons. This agreement is only valid if registered with the Commissioner for Tax and Customs.
Property Broker
A property broker, also known as a sensar, refers to a licenced individual in the real estate industry who acts as an intermediary in property transactions. In other words, a property broker offers a similar service to that of a real estate agent, with the main difference being that a broker works independently without employing branch managers and property consultants. Malta’s laws and regulations stipulate that property brokers can only charge a commission fee of 1% from each side, while the commission fee charged by a real estate agent can vary and is paid by the seller.
Real Estate Agent
A real estate agent refers to licenced professionals in the real estate industry who act as intermediaries in property transactions, negotiating and arranging deals between the owner/developer and the buyer. A real estate agent usually works within an agency that typically employs branch managers, as well as property consultants. The fees charged by estate agents are paid by the sellers using their services.
Sanction Letter (Facility Letter)
A sanction letter, also known as a facility letter or credit agreement, is issued by the bank confirming your creditworthiness and that your loan has been approved. It outlines all the terms and conditions of the loan, such as the loan amount and repayment terms, the bank’s tariff of charges, and any other relevant details. Once issued, you should review it thoroughly. If you agree with all the terms stipulated in this letter, you should sign and return a copy to the bank, implying that you accept the loan offer. Additionally, you should provide a copy to your notary and pay the bank’s processing fees associated with the issuance of this letter.
Shell Form
Properties sold in shell form refer solely to the construction of the property, focusing on the external structure of the building, excluding all interior finishings such as plumbing, electrical wiring, interior doors, bathrooms, and other finishings. These properties typically include the exterior walls, roofing, common areas (if they are part of a block), and external apertures, such as windows and external doors. Properties in shell form are generally cheaper than those with some degree of finishing. However, while the initial cost may be lower, additional work and expenses are required to complete the finishing.
Stamp Duty
Stamp duty is a tax payable when purchasing a property in Malta, applicable to private and commercial properties, as well as land. The buyer is responsible for paying this tax, which is generally 5% of the property’s value, subject to certain legal exemptions—particularly for residential properties and first-time buyers. Payment is made in two instalments: 1% upon signing the promise of sale agreement and the remaining amount during the final deed signing. First-time buyers purchasing their first immovable property are exempt from paying stamp duty on the first €200,000 of the property’s value but must pay the tax on any amount that exceeds this threshold.
UCA
Urban Conservation Areas (UCAs) refer to areas in Malta and Gozo that hold historic or architectural importance and are essential to Maltese heritage and identity. To preserve this heritage, the government offers various schemes and incentives to encourage and support property owners in UCAs to restore and maintain their buildings. These initiatives not only help property owners but also play a crucial role in safeguarding Malta’s cultural and architectural heritage.
To benefit from government schemes and incentives targeted at properties in UCA areas, you must first obtain a UCA certificate from the Planning Authority confirming that the property falls within a UCA area. This certificate, along with any other requested documents, should then be submitted to the Malta Tax and Customs Administration.
Step-by-Step Guide for First Time Property Buyers
This step-by-step guide is also available for download through the button below.
