Property is classed as commercial when it refers to buildings or land intended to generate a profit through rental income or capital gain. Unlike residential property, which is essentially a house of some sort, there is a huge range of commercial property. It can be anything from farmland to a retail store, from a factory to an office building, from a medical centre to a restaurant. There is some crossover, in that a residential property that is divided up into multiple units can also be classed as commercial property. It is important that commercial property has the correct legal designation to ensure compliance with any aspect of Maltese law that concerns it. In Malta, commercial property has 19 “use classes” as defined by MEPA, the Malta Environment & Planning Authority. It is important to check this when you buy commercial property in Malta – especially if you plan to change the purpose of the building.
Why Buy or Rent Commercial Property in Malta
Malta has a thriving economy and the property market is stable having avoided the crashes that many western countries have seen in the past few decades.
Commercial property is a little less widely available than the residential equivalent and compared to buying or renting a residential property, a greater expectation of caveat emptor is involved.
There are two basic reasons to buy or rent commercial property: You need premises in which to carry out your business or you want to invest in property that will generate an income or increase the assets in your investment portfolio.
Commercial Property for Your Business
Looking for somewhere from where to carry out your business has very different considerations to an investment property. Renting or buying commercial property as a business base is generally more of a commitment than an investment property that you might only keep for a short period of time. The property also has to be a fit for your business, whereas an investment property is not restricted by use.
Renting Commercial Property
Renting commercial property, such as office space, is a fairly standard process in Malta. The rent advertised and subsequently written into the rental agreement is based on a per square metre, per year rate. The rental agreement will often have future rate increases included and will also detail other costs such as maintenance and service fees. Other inclusions may refer to the tenant’s right to sublet (all or part of the space) and also reference any nearby space that might become available that the landlord grants the tenant first right to refusal. The preferred option is that landlords grant a tenancy agreement for at least two years, but this can be negotiated to a shorter or longer term.
Buying Commercial Property
If your business is well established or you are confident your operations have settled into a scale that will be stable for a long term, you may prefer to buy rather than rent commercial property in Malta. It might be the case that you have been unable to find the perfect property, but you have found one that can be altered and wouldn’t be able to achieve that as a tenant.
It is best to take professional advice if you are going to buy a commercial property. Things you should know:
Native Maltese take preference and it is probably impossible to gain a permit to buy a commercial property if you are not an EU resident. If you are an EU citizen who has lived in the country for less than five years, you may still need a permit. The state does not levy annual property taxes, but transfers are subject to a withholding tax (a percentage of the property’s value less brokerage fees).
Depending on the business undertaken in the property, you may have to apply for various planning, development or environment permits, and other specific licenses and permits.
Commercial Property as an Investment
When investing in commercial property, the use of the building is less critical. You are looking to either receive a rental income as a landlord, or you want the property to increase in market value over a period of time to make a capital gain. It is the potential yield that you foresee that is the deciding factor in an investment property. It is wise to see property as a longer-term investment, something you want to hold on to for several years because of the relatively high transfer tax (which is based on the higher of the sale price or assessed value).
Please note: rental income is subject to taxes on the usual progressive income tax scale.
Availability of Commercial Property in Malta
Commercial property varies dramatically across the island. It varies from old to new, seaside and inland, and north and south but it ranges across the whole spectrum from old boat shed converted into workshops to modern built office blocks.