Malta: a booming economy, strong house price rises

Maltese property prices surged by 13.8% (12.95% inflation-adjusted) during the year to Q4 2016, based on the figures from the Central Bank of Malta (CBM).  During the last quarter of 2016 property prices rose by 7.24% (10.44% inflation-adjusted).

The Maltese economy remains one of Europe’s fastest growing. After amazing economic growth in 2014 and 2015 of around 7.9% annually, growth slowed to 5% in 2016.

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House price rises were experienced by all property types:

  • Apartments had a double digit price increase of 15.86% during the year to Q4 2016. When adjusted for inflation, prices were up by 14.99%.
  • Terrace houses saw a 13.33% y-o-y (12.48 inflation-adjusted) price hike in Q4 2016.
  • Maisonettes experienced the highest price surge, rising by 20.42% (19.51% inflation-adjusted) over the year to Q4 2016.
  • “Other houses”, consisting of townhouses, houses of character and villas, however, had a relatively low growth of around 1.96% y-o-y (1.20% inflation-adjusted) in Q4 2016.

Maltese property has been on the upswing for the past three years.  These latest price rises were attributed by the central bank above all to the Individual Investor Programme (IIP) and to the stamp duty exemption for first-time buyers.

The first cause of house price rises, the Individual Investor Programme, was introduced in the government’s November 2013 budget, and targets high net worth individuals.

The second cause is the exemption of first-time property buyers from a 3.5% stamp duty on the first €150,000 of a new property’s value, saving first-time buyers up to €5,000 (US$ 5,315). It also applies to a promise of sale signed from July 1, 2015. Buyers who have paid after July 1, 2015 (when the scheme was originally supposed to end) are still entitled to a full stamp duty refund.

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Other factors supporting housing demand were:

  • The low interest rate environment, which led to higher lending for house purchases;
  • Growth in disposable income; and
  • The increased number of foreign workers in Malta.

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How to Win in Real Estate No Matter the Market—Up, Flat, or Down

Imagine that you have $100,000 in wealth that you are ready to invest in real estate. You have accumulated this $100,000 over the course of about 10 years, and it amounts to the sum total of your worldly wealth outside of your home equity and/or retirement accounts.

Ready for a bad plan?

Invest all of that money into a $400,000 property producing a modest cash flow in a solid location and resume saving at $10,000 per year.

Why is that a bad plan, in spite of you getting some cash flow and reasonable prospects? Well, it’s a bad plan because you only win if the market goes up. You’ll survive in a flat market. But you are up a creek without a paddle if the market goes south.

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IS A CAREER IN REAL ESTATE RIGHT FOR YOU?

Imagine working for yourself in a flexible career where you can set your own schedule with annual earning potential of $100,000 or more. There are so many reasons to choose real estate as your career. But there are always two sides to every story, and a real estate career is no different. Below is a straight-forward look at the pros and cons of a real estate agent career.

Getting Started in a Real Estate Career is Quick and Painless

Pros: In most states, you can complete the required training, become a licensed real estate agent, and start a new career in just a matter of weeks or months (depending on state regulations).

Cons: There is an investment in time, money, and effort required. Also, it comes with no guarantees. Passing the state real estate licensing exam is difficult and demands an understanding of complex topics and a varied skill set.

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HOW TO BECOME A REAL ESTATE AGENT

Deciding to become a real estate agent is a major move in anyone’s career journey. People enter the field of real estate from various occupations and careers, and at various stages of their lives. Everyone has different reasons why they think real estate is the correct career choice for them. But, one question consistently comes from people looking to enter the real estate industry: “How do I become a real estate agent?”

The simple answer is, “it depends.” It mostly depends on where an individual wants to practice real estate. Becoming a real estate agent requires a state license. Each state regulates their own real estate licensing process, and each state’s regulations or rules are slightly different. But, there are a few basic requirements that are always consistent

General Requirements to Qualify to Become a Real Estate Salesperson

To be eligible to become a licensed real estate salesperson or agent, you must:

  1. Be at least 18 or 19 years old (depends on the state)
  2. Have legal US residency
  3. Complete your required prelicense education (number of hours required depends on the state)
  4. Pass your state real estate license examination

These items represent the high-level checklist of what it takes to become a licensed real estate agent, but there are a lot of decisions you need to make along the way that will dictate whether your journey is successful or not.

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How to Invest in Real Estate

Investing in real estate is one of the oldest forms of investing, having been around since the early days of human civilization. Predating modern stock markets, real estate is one of the five basic asset classes that every investor should seriously consider adding to his or her portfolio for the unique cash flow, liquidity, profitability, tax, and diversification benefits it offers. 


 In this introductory guide to real estate for new investors, I want to walk you through some of the basics and point you to more in-depth content on certain concepts so you can learn about them if you feel it is an area in which you want to become more knowledgeable.

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Should I wait for some more time to buy a house now that RERA has been implemented?

Will residential property prices go up following RERA implementation? Does it have any direct or indirect implication on real estate pricing? 

There will obviously be a higher cost of compliance for smaller developers who have not been obtaining all the necessary permissions for their projects in the past or were taking various short-cuts. Strong, organised developers who have been obtaining all necessary clearances and permissions as part of their overall transparency framework should not be affected, as this is already factored into their cost structures.In any case, the slow pace of sales which has been affecting the residential property segment will not accommodate any price escalations, regardless of the reasons. 


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Glossary for real estate investors

Glossary for real estate investors

07/05/2017 00:00:00

As a real estate investor, you will find the Glossary helpful for understanding words and terms used in real estate transactions.

Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in other contexts. The definitions are intentionally general, nontechnical, and short.

State laws, as well as custom and use in various states or regions of the country, may in fact modify or completely change the meanings of certain terms. Before signing any documents or depositing any money preparatory to entering into a real estate contract, purchasers should consult with an attorney to ensure that their rights are properly protected.

Abstract of title

 A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects that must be cleared before a buyer can purchase clear, marketable, and insurable title.


Acceleration clause

Condition in a mortgage that may require the balance of the loan to become due immediately in the event regular mortgage payments are not made or other conditions of the mortgage are not met.

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How Does Real Estate Affect the U.S. Economy?

Real estate plays an integral role in the U.S. economy. Residential real estate provides housing for families. It’s often the greatest source of wealth and savings for many of them. Commercial real estate, which includes apartment buildings, create spaces for jobs in retail, offices and manufacturing. Real estate income provides a source of revenue for millions.

In 2016, real estate construction contributed $1.2 trillion to the nation’s economic output

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Key Factors That Drive the Real Estate Market

Real estate represents a significant portion of most people’s wealth, and this is especially true for many homeowners in the United States. According to the most recent Survey of Consumer Finances by the Federal Reserve, 65.2% of American families owns their own primary residence. The size and scale of the real estate market make it an attractive and lucrative sector for many investors. This article will look at some of the main factors that affect the real estate market and the variety of investments available.

Factors That Influence Real Estate

Demographics

Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.

For example, the baby boomers who were born between 1945 and 1964 are an example of a demographic trend with the potential to significantly influence the real estate market. The transition of these baby boomers to retirement is one of the more interesting generational trends in the last century, and the retirement of these baby boomers, which began back in 2010, is bound to be noticed in the market for decades to come. (For more on the baby-boomer trend, see Boomers: Twisting The Retirement Mindset.)

There are numerous ways this type of demographic shift can affect the real estate market, but for an investor, some key questions to ask might be: i) How would this affect the demand for second homes in popular vacation areas as more people start to retire? Or ii) How would this affect the demand for larger homes if incomes are smaller and the children have all moved out? These and other questions can help investors narrow down the type and location of potentially desirable real estate investments long before the trend has started.

Interest Rates

Interest rates also have a major impact on the real estate markets. If you’re considering buying a home with a mortgage it is beneficial to research interest rates using a mortgage calculator. Changes in interest rates can greatly influence a person’s ability to purchase a residential property. That is because the lower interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, which again pushes prices up.

It’s important to note that as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate. However, when looking at the impact of interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the relationship can be thought of as similar to a bond’s relationship with interest rates. When interest rates decline, the value of a bond goes up because its coupon rate becomes more desirable, and when interest rates increase, the value of bonds decrease. Similarly, when the interest rate decreases in the market, REITs’ high yields become more attractive and their value goes up. When interest rates increase, the yield on an REIT becomes less attractive and it pushes their value down. (To learn more about these effects, see How Interest Rates Affect Property Values.)

The Economy

Another key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate.

However, the cyclicality of the economy can have varying effects on different types of real estate. For example, if an REIT has a larger percentage of its investments in hotels, they would typically be more affected by an economic downturn than an REIT that had invested in office buildings. Hotels are a form of property that is very sensitive to economic activity due to the type of lease structure inherent in the business. Renting a hotel room can be thought of as a form of short-term lease that can be easily avoided by hotel customers should the economy be doing poorly. On the other hand, office tenants generally have longer-term leases that can’t be changed in the middle of an economic downturn. Thus, although you should be aware of the part of the cycle the economy is in, you should also be cognizant of the real estate property’s sensitivity to the economic cycle.

Government Policies/Subsidies

Legislation is also another factor that can have a sizable impact on property demand and prices. Tax creditsdeductions and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place. Being aware of current government incentives can help you determine changes in supply and demand and identify potentially false trends. For example, in 2009, the U.S. government introduced a first-time homebuyer’s tax credit to homeowners in an attempt to jump-start home sales in a sluggish economy (only those who purchased homes between 2008-2010 is eligible). According to the National Association of Realtors (NAR), this tax incentive alone led to 900,000 homebuyers to buy homes. This was quite a sizable increase, although temporary, and without knowing the increase was a result of the tax incentive, you may have ended up concluding that the demand for housing was going up based on other factors.

What’s the Best Investment?

The size and scale of the real estate market make it an attractive and lucrative market for many investors. Investors can invest directly in physical real estate or choose to invest indirectly through managed funds. Investing directly in real estate involves purchasing the residential or commercial property to use as an income-producing property or for resale at a future time. Indirect ways to invest in the real estate market include investing in real estate investment trusts (REITs), real estate exchange traded funds (ETFs), commingled real estate funds (CREFs) and infrastructure funds. Due to the higher liquidity available in the market, the lower transaction costs and lower capital requirements, average investors prefer to indirectly invest in real estate. (To learn more about the ways to profit from the housing market, read Simple Ways To Invest In Real Estate.)

The Bottom Line

This article introduced some of the higher-level factors that play a significant role in moving the real estate market, but there are also more complex parts that come in to play. And although some of these aforementioned factors suggest a clear-cut relationship between the factor and the market, in practice, the results can be very different. However, understanding the key factors that drive the real estate market is essential to performing a comprehensive evaluation of a potential investment.

Read more: 4 Key Factors That Drive The Real Estate Market http://www.investopedia.com/articles/mortages-real-estate/11/factors-affecting-real-estate-market.asp#ixzz4gOQvq6vX 
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