Malta: island idyll

Malta is a warm, small, friendly Mediterranean island, where English is the official language and the inhabitants were awarded the George Cross 50 years ago for being kind to the Brits during the Second World War. But we haven't been back since. Well, not to buy second homes, that is - until now.

This slightly sleepy country is modernising fast and developing a more sophisticated infrastructure. EU membership is on the horizon, which is enticing more foreign buyers, and the builders are in.

Traditionally, most second homes have been either rural villas, character town houses or coastal apartments. Foreigners have been able to buy only one property (at least 30,000 Maltese lira - about £48,000 - for a flat, and £80,000 for a house) for their own use. This has stopped speculation. However, the laws are being relaxed.

Stamp duty has been slashed from 17 per cent to five per cent. Certain developments have been designated "special areas", where purchasers can buy more than one property and rent them to holidaymakers. And there's no capital gains tax to pay after three years. It is also relatively easy to get residency status, which brings other tax advantages: an income tax rate of 15 per cent, for example.

All these pluses have come together at Portomaso (00356 2133 6802), a new marina complex in fashionable St Julians, on the north-east coast. It is the first scheme of its kind in Malta: a luxury leisure resort of 330 apartments, 110 berths and a beach club, integrated with a new, swanky Hilton hotel.

The scheme is pulling in Brits who previously wouldn't have looked past Spain or Portugal, including footballer Gary Neville.

Such has been the demand that prices have jumped 70 per cent since the first off-plan sales two years ago. The third and final phase is nearing completion, with prices ranging from about £120,000 and rising to £1 million for a penthouse.

The apartments are big by British standards (about 1,500sq ft to 2,000sq ft) and come with large terraces. They have highspecification interiors, with various upgrades available.

Two-bedroom apartments with a sea view start at about £220,000 and residents have first refusal on marina berths. Underground parking costs £8,000.

"Prices have jumped but the homes are still good value compared to similar developments in the Mediterranean, and will almost certainly rise further," says Maurice Tabone, sales director of developer Tumas Group.

"About a third of sales have been to local Maltese who have spotted the investment potential."

Portomaso is certainly expensive by local standards. Elsewhere, 1,500sq ft apartments with sea views, or villas inland, normally start at about £70,000, according to Frank Salt (00356 2133 3696), one of the island's main estate agents.

Popular areas include St Paul's Bay, Mellieha, which has a rare sandy beach, and villages such as Attard, with its pretty stone houses.

Valetta, a 16th century gem with a fleet of 1950s Leyland buses running through it, and neighbouring districts such as Vittoriosa and Floriana that border the splendid old harbour, are becoming fashionable.

Valetta suffered years of decline after the war, but it is now a World Heritage site and restoration is taking place. Many of the magnificent residences were split into flats or turned over to commercial premises at ground level. Intact houses with courtyards and views of the harbour rarely come onto the market. Expect to pay £500,000 upwards when they do.

One, extending to 10,000sq ft, is available through Frank Salt for £800,000. But smaller town houses in need of modernisation can be picked up for between £150,000 and £250,000.

Good-quality flats in Valetta and Vittoriosa cost about £ 70,000 upwards.

Cottonera Waterfront is an alternative to Portomaso. This is in the heart of the "Three Cities " ( fortified enclaves) built centuries ago by the Knights of St John. Eighty apartments are going up alongside a new marina, hotel and casino. Prices start at about £160,000 for a 1,500sq ft apartment with views of the Grand Harbour (also through Frank Salt).

Other big developments in the pipeline are Tigne Point, along the Sliema creek, and Manoel Island, which faces the Valetta peninsula. Both are likely to prove desirable second-home havens.

FACT FILE

Malta is less than a three-hour flight from London. Lying just off the toe of Italy's boot, it has no rivers and no lakes; there's not even a railway on this dry, dusty 160sq mile island. But the people are hospitable and the climate is warm all year round.

As a former British colony (it achieved independence in 1964), the island has an unmistakable affinity with the old country. English is the official language, cars drive on the left and there are even red post boxes. It has a low cost of living and an even lower crime rate. Pensions are freely transferable.