22.02.06 / New Article
Peter Caruana Galizia's article - 'Hybrid Holiday Home' - is now online.
26.04.05 / Growth
BCGL Advocates expands its offices to include a new wing.
   
'Talking Point'
'The Hybrid Holiday Home', Peter Caruana-Galizia LL.D.

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Simon Busuttil MEP (Times of Malta, Wednesday 1st February 2006) argues that foreigners, including citizens of European member states other than Malta, should be allowed to rent out a Malta holiday home during their absence from the island and that the outcome of our accession negotiations does not entitle Malta to prevent them from doing so.

The matter has not however been put in its proper perspective and Dr Busuttil is not quite right about the outcome of our negotiations. Prior to accession the acquisition of immovable property in Malta was heavily regulated (Chapter 246 of the Laws of Malta) and any non-Maltese citizen (unless married to a Maltese citizen) could only purchase – as opposed to inherit which was more or less unregulated- one dwelling house at a time and only if above a certain market value. This restriction was general and covered the whole of Malta apart from a few so called designated special areas where there was and there still is no restriction on number.

Such an alien required a permit under the law commonly known as an AIP permit which was issued subject to various conditions, one of which was that the property was to be used solely by the applicant and his family. This in effect meant that the property could not be rented out, although an exception was made in the case of villas with swimming pools as it was felt there were not enough on the market to satisfy demand.

Prior to accession Malta negotiated a special derogation, unique to Malta and allowed by reason of our limited land space and high population density. We have been allowed to retain exactly the same restrictive legislation we had prior to accession in the case of all acquisitions by citizens of third party states, that is non-European Union citizens and exactly the same restrictions in the case of acquisition by European Union citizens of a secondary residence, that is holiday homes.

The position prior to accession therefore remains unchanged for non-EU citizens whereas in the case of EU citizens it is only acquisition of holiday homes that is regulated and requires an AIP permit. Once an EU citizen applies for a permit, it must be issued with the “personal use” limitation and cannot therefore be rented out. There is no Ministerial discretion and the derogation granted to Malta in the acquiscommunitaire allows us to impose this condition even on EU citizens as it was one of the conditions that existed at law and was imposed in AIP permits prior to accession. I quote from the actual text:

...Malta may on a non-discriminatory basis maintain in force the rules on the acquisition and holding of immovable property for secondary residence purposes by nationals of the Member States who have not legally resided in Malta for at least five years...

It follows that acquisition by EU citizens of property for business purposes or to be used as a primary residence does not require a permit. This would include property such EU citizen intends to purchase so as to rent out to third parties, if such is that person’s business. These commercial acquisitions have been completely liberalised in line with the free movement of capital principle and the law makes this clear in Article 3(2). In fact, all property other than that to be used as a secondary residence can be freely acquired without the necessity of obtaining a permit under the law. Once there is no pre-acquisition permit, there can be no rental restriction. Naturally, such purchaser would then have to pay tax in Malta on the rental income. The same applies to acquisition by commercial partnerships or other so called moral persons: once the moral person is a so-to-speak “EU person” by place of establishment and the nationality of its members, no restriction on acquisition can be applied under the derogation. Such moral person could then freely rent out the property acquired if this is that moral person’s business as no restrictions are imposed at the moment of acquisition

The insistence Malta made on obtaining the derogation on the acquisition of secondary residences was to my mind mainly political. The high prices have turned out to be a much bigger deterrent than the derogation and the market has not really changed much post-accession despite much less regulation in acquisition by non-resident EU citizens and no regulation in the case of resident (over 5 years) EU citizens.

I have in my professional life come across a few cases of EU citizens who would have eagerly purchased a holiday home here if they could rent it for some years, to help with loan repayments, planning to eventually retire here. I am aware that our estate agents are lobbying, also perhaps through their Euro MP, for the removal of this restriction as they feel they could sell more without it.

But in reality, the EU citizen who wishes to purchase property in Malta to rent out as a business venture is completely free to do so and does not need any AIP permits. However, allowing purchasers of holiday homes to finance their acquisition by renting out the property will definitely lessen the housing stock available for Maltese citizens in that presumably more secondary residences will be sold. It is this hybrid use that the law frowns upon.

The aim behind the derogation and the retained non-rental condition is therefore under this aspect justifiable in that it ensures the availability of housing stock for residents. The derogation does not allow us to discriminate between Maltese and EU citizens as Dr Busuttil and Dominic McGrath, his Irish non-resident owner, imply but simply between residents and non-residents. Perhaps, as a compromise, the government should consider waiving the personal use condition in the AIP permit in the case of purchasers who have lived here continuously for five years since the date of acquisition and had not originally purchased the property as their primary residence.

Otherwise, those of us with teenagers, of which I have plenty, are wondering when and if their children will be able to afford the small fortune needed to purchase their first property. At this rate I may be leaving home before them.

This article appeared in the Times of Malta, February 2006.

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