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Introducing Rent: What financial and real estate professionals need to know

22 Sep 2022 10:00 | Anonymous


The growth of the service-based industry and the increase in the cost of property have driven many companies and individuals to seek rental options when considering their next property move. Over the past years, Malta has witnessed a significant transformation in this regard. According to local authorities, a total of 37,976 leases were registered in 2021, a staggering increase of 49% over the previous year.

This study shows that the property rental market is a growing one and is going through a rapid transformation. This context requires finance and real estate professionals to be familiar with the elements which are driving pricing in the market, and how lease terms and rental values have an impact on the real estate lifecycle.

There are three major factors which impact the rental valuation. Firstly, the overarching economic situation, which generally reflects the profitability of the businesses that occupy and /or lease out various types of premises. Changes in rents also reflect developments in the health of the economy because such changes influence supply and demand. Being able to anticipate upcoming economic trends, understand forecasts but also economic policy direction is a key requirement to plan effectively ahead in the property sector.

Secondly, one needs to keep in mind the performance of a property investment, as the objectives of property investors are to benefit from both the rental income which is paid by the occupier, and any capital growth which they anticipate from their ownership.

The third element relates to the valuation of a property, especially investment and commercial properties, as the income approach (which is the main approach to value these types of properties) assesses Market Value by capitalising the future income obtainable from the property.

During a three-hour session held on 27th September, the speaker went through the key concepts, principles and terminology related to leases and rental value. Primarily, the course focused on long-lets for commercial properties, though the key concepts do not really differ significantly for residential properties.

In fact, participants were guided through the economics of rent and the determinants of rental value, while also pointed towards key sources of local data which will support them in their market research. The session also addressed the basics of preparing cash flows for valuations and investment appraisals, thus helped participants to decipher the contents and terms of a lease and provide advice on how to review lease terms.

               

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