Property prices

I am tempted to join the bandwagon of property investors as there seems no end to the soaring prices across Malta. Are prices likely to continue to soar for the next few years or are the best days behind us? I have capital to invest but wish to know what alternatives there are available for buying a share in residential or commercial property as opposed to buying outright. I am particularly interested in opportunities abroad.

We have witnessed incredible gains for some years now with annual 'double digit' capital appreciation having been the norm for a number of years. Malta's decision to join the EU next year has fuelled further optimism to the local property market on the expectation of more foreign buyers to the island.

Whether this expectation becomes reality is not for me to comment on, nor is the likelihood of further property inflation in the future. The only general comments I would make are that property is cyclical and appreciation assumes there to be an excess of demand for properties above that in supply. The huge number of vacant properties is well documented and the continued new developments are adding to the supply. Further appreciation will therefore require a general increase in demand.

Buying property requires a large capital outlay or alternatively a bank loan. Property must also be regarded as being illiquid, i.e. you have to find a buyer to agree to pay you the purchase price. It may then take six months before contracts are exchanged and you eventually receive the sale proceeds. If you need the funds in a hurry then this will cause problems.

As an alternative to committing large sums of money into one property, you can purchase 'shares' in property through property investment schemes. The idea being that the fund pools together investor's funds (like in any collective investment scheme) and purchases properties under the umbrella of an investment fund. Most funds require small minimum investments in the region of Lm6,000 - you would not be able to buy much for Lm6,000 if you were investing on your own.

The funds typically invest in the commercial property market in the UK which therefore offers diversification away from traditional residential property investments. Returns are made from the rental income received from the outlets owned. The properties may be office space, retail outlets or warehouses for example. It is quite typical for leases to last for ten years, therefore providing a steady rental income. Compare that to a typical 12-month let on a residential property. The fund managers make the purchases and you buy units in the fund which can be redeemed at any time in the future. Importantly, the property(s) do not have to be sold when you want to 'cash in'. You simply sell your units. For smaller investments or diversification away from Maltese residential property then these funds offer a good alternative.

Please address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01; 341 St Paul Street, Valletta VLT 07. Alternatively he can be contacted on 2137-7920/9984-2614 (office hours) or e-mail admin.malta@fpc-int.com.

Past performance is no guide to the future and except where amounts are guaranteed the price of your investments (and the currency in which it is denominated) may fall as well as rise. Malta Exchange Control Regulations must be observed. Your personal tax situation will depend upon residence, always consult a professional adviser. This article does not intend to give investment advice and the contents therin should not be construed as such. Readers are encouraged to seek professional advice regarding their personal financial situation.