Malta: Investing In Real Estate: A REITs Framework In Malta

Investment in real estate has always been a priority for investors holding a well-diversified portfolio of assets. In the 2019 Budget speech, the Maltese government an-nounced its intention to create a regulatory regime for Real Estate Investment Trusts (REITs). With the introduction of this new legislative framework, Malta will join 35 jurisdictions across the world that have already established a regulation for REITs.

REITs are investment vehicles that essentially own property that creates rental income, which is in turn distributed to shareholders. REITs allow individual investors to indirectly access the real estate market with a limited exposure to financial risks. An investor can buy REITs shares which require a much lower capital expenditure than purchasing an entire pro¬perty, as well as being far more liquid, and shares may be sold far more quickly and easily than an entire property.

Stakeholders rely on the expertise of professional operators who commit themselves to maximising the advantages offered by the market. This way, investors can also benefit from a lower management risk, as professional operators have both the know-how and the access to relevant information that usually is not available to a common investor.

REITs originated in the US in the 1960s, where the US Congress established a regime to allow individuals to invest in commercial real estate portfolios that receive a regular income from a variety of properties. Following their success in the US, numerous other countries introduced legislative frameworks that enable investments in REITs.

Real estate investment trust trends in Europeand US

Every real estate market has inherent characteristics, which contribute to create valuable diversification benefits when investing in REITs. Today, there is a trend towards higher interest rates in the US and this creates concerns among investors, as REITs are commonly perceived to be sensitive to interest rates fluctuations. In contrast, the current European scenario sees interest rates remaining exceptionally low, and spreads are particularly attractive.

Additionally, many European REITs are affordable with histori¬cally high discounts to Net Asset Value (NAV). Valuations of commercial real estate are typically performed with the determination of net asset value, or NAV, which is the current market value of its assets, less the current market value of its liabilities and obligations. At present, European REITs trade close to an average of eight per cent discount to NAV, which means that investors are purchasing at substantially discounted prices.

A comparison of REITs in top jurisdictions

While each jurisdiction adopts its own REITs framework, it is possible to identify certain commonali¬ties that are inherent to this type of investment vehicle.  Within the context of a booming real estate market in Malta, the much-anticipated legislation regulating REITs in Malta will offer attractive investment opportunities

In our recent study on the regu¬latory frameworks of REITs, we have assessed five European jurisdictions, namely the UK, Germany, Finland, Belgium and Ireland, in comparison with the US, and for each jurisdiction analysed seven characteristics of REITs, these being: capital requirements, legal requirements, other re¬quire¬ments, restrictions, assets profile and tax treatment.

The comparison highlights that while REITs in these jurisdictions share common traits, different regulations and tax structures offer investors varying benefits. The UK and the Irish models, for example, follow the American model with regard to the capital requirements. In fact, in these jurisdictions the law does not require a minimum capital in order to establish a REIT, which makes the system more flexible and it is therefore easier for investors to enter the market.

However, there are other financial requirements imposed on the REITs to safeguard investors. In contrast, the legal frameworks in Belgium and Finland envisage a minimum capital of €1.2 million and €5 million respectively. Germany requires a minimum share capital of €15 million and at least 100 shareholders.

Concerning the legal requirements, most of the jurisdictions under examination require REITs to be incorporated as a company resident in that jurisdiction, whereas in the US, REITs can also be held under a trust of association taxable as a corporation. Moreover, in contrast with the US, European REITs must be listed on a stock exchange within the EU or the EEA. Different listing rules apply in each country, which makes the process different in each case.

A common trait noted across all jurisdictions is the high percentage of profit distribution to shareholders, with the minimum being 75 per cent of total profits. In the UK, the law requires the REIT to distribute 90 per cent of its net property rental income.

Jurisdictions like Ireland and Finland impose shareholding restrictions, with shareholders owning more than 10 per cent of the capital attracting penalties. On the other hand, Belgium does not impose any restrictions on shareholding, a fact that may potentially prejudice mino¬rity shareholders.

A commonality among the jurisdictions is identified with respect to the REITs asset profile. In general, over two-thirds of the total asset value must relate to property rental business, with Finland requiring a minimum of 80 per cent of the REIT assets to generate rental income.

Finland also imposes a res¬triction on foreign assets, as the law specifies that any entities in which the REIT holds shares must be resident in the EEA. Conversely, other jurisdictions, including the US, do not impose any restrictions on foreign assets. This allows for diversification that is appealing to investors.

Remarkable differences can be observed in the tax treatment of REITs across the jurisdictions analysed. European REITs are not subject to any tax in respect to either the rental income or capital gains at the REIT level. Withholding tax on dividends is charged in most countries, with the US distinguishing between domestic shareholders and foreign shareholders, which are subject to varying levels of withholding tax.

REITs in Malta

Within the context of a booming real estate market in Malta, the much-anticipated legislation regulating REITs in Malta will offer attractive investment opportunities to investors. In this regard, the Malta Stock Exchange has already initiated the processes to develop REITs in Malta and has engaged Chetcuti Cauchi to advise on the legal changes to the regulatory and legal framework that would effectively see the introduction of REITs in Malta in the coming months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions