Strong demand and positive economy outlook
Lalaine C. Delmendo | February 10, 2022
Malta's residential property market is now growing again, driven by strong demand, improving residential construction sector and positive economic outlook.During the year to Q3 2022, the nationwide property price index rose by 5.2% (1.8% inflation-adjusted), following year-on-year increases of both 1.7% in Q1 and Q2 2022, and 6.9% in Q4 2021, according to the Central Bank of Malta. On a quarterly basis, property prices increased 1.6% (unchanged when adjusted for inflation) in Q3 2022.
Here are the changes in real estate prices by property type during the year to Q3 2022:
- Apartment prices rose by 5.2% y-o-y, on average. When adjusted for inflation, prices were up by 1.8%.
- Terraced house prices rose by 7.1% (3.6% inflation-adjusted).
- Maisonette prices increased slightly by 0.9% y-o-y but actually fell by 2.3% when adjusted for inflation.
- “Other houses”, consisting of townhouses, houses of character, and villas, experienced an average price fall of 3.5% (-6.6% inflation-adjusted).
Before the Covid-19 pandemic, property prices in Malta have been rising annually, registering a cumulative growth of 75% (62% inflation-adjusted) from 2012 to 2019.
Demand is still strong. During 2021, the number of property transactions in Malta surged by 30.1% y-o-y to 14,368 units, according to the National Statistics Office of Malta (NSO). Likewise, the total transactions value also increased 51.5% to €3.16 billion over the same period. Then in the first three quarters of 2022, both the number and value of transactions rose further by 0.4% and 2.6%, respectively.
This can be partly attributed to the government's temporary COVID-19 measures providing for a reduced tax and duty rate of 5% and 1.5%, respectively, on the first €400,000 (US$483,308) of property transferred inter vivos. These temporary measure came into force in June 2020 and has been extended several times from the end of July 2021 to September 2022.
Residential construction activity is also showing signs of improvement. In the first three quarters of 2022, the total number of approved new dwellings in Malta rose by 23.7% y-o-y to 7,459 units, after falling in the past two years due to pandemic-related restrictions.
Overall, the Maltese economy is healthy. During 2021, Malta's economy grew strongly by 10.3%, offsetting the 8.3% contraction seen in 2020 due to the Covid-19 pandemic. The economic recovery continues this year, registering real annual GDP growth rates of 8.3% in Q1, 9.4% in Q2 and 5.2% in Q3, buoyed by strong domestic consumption and exports.
As a result, the European Commission expects the Maltese economy to grow by a robust 5.7% this year while the International Monetary Fund (IMF) released a more optimistic projection of a 6.2% growth.
Analysis
of Malta Residential Property Market »
Rental yields seem to be rising in Malta - now around 4.4%
Malta illustrates the point that, if you are interested in a high rental income, it is worth researching carefully the difference between different areas.
In Malta, the highest yielding areas for apartments are Attard, Balzan, and Lija. By contrast Tigne Point and Valleta have relatively poor returns.
Residential prices in Malta are now moving up again, according to the Central Bank of Malta.
Round trip transaction costs are rather high in Malta. See our Malta transaction costs analysis and our Malta transaction costs compared with other countries.
Taxes are moderate to high in Malta
Rental Income: Net rental income is generally taxed at progressive rates, up to 35%.
If the nonresident elected to be part of the Individual Investor Program, gross rental income will be taxed at a flat rate of 15%.
Capital Gains: There is no tax on capital gains. The Capital gains tax is a generally levied at a flat rate of 12% on the transfer value or the selling price of the property.
Inheritance: There are no inheritance taxes in Malta, but there is a transfer duty payable by the heir at 5% of the declared property value.
Residents: Resident citizens are taxed on their worldwide income at progressive rates. Resident foreigners are liable to tax only on their income sourced in Malta.
Buying costs are low to moderate in Malta
Roundtrip transaction costs ranges from 8.53% to 25.58% of property value. The buyer usually pays for the stamp duty (1% pre-paid stamp duty, and 4% remaining stamp duty). Seller paysreal estate agent commission at 1% to 5%, plus 18% VAT. The seller also pays 12% Capital Gains Tax.
Nonresidents can only sell their properties in Malta to Maltese citizens. They can only sell to other foreign nationals if they cannot find a buyer who is either a Maltese citizen or an EU citizen.
Law is pro-landlord in Malta, but courts are impossibly slow
Maltese rental market practice is pro-landlord.
Rents: Rents and rent increases can be freely negotiated, except for rental agreements entered before 1st June 1995.
Tenant Eviction: Maltese law operates extremely slowly. Hugh Peralta & Associates estimate that a contested eviction could take between 690 and 1,915 days, and the enforcement of a judgment to collect rent could take even longer.
Malta Residential Real Estate Market Analysis 2022
During 2021, Malta’s economy grew strongly by 10.3%, offsetting the 8.3% contraction seen in 2020 due to the Covid-19 pandemic. The economic recovery continues this year, registering real annual GDP growth rates of 8.3% in Q1, 9.4% in Q2 and 5.2% in Q3, buoyed by strong domestic consumption and exports.As a result, the European Commission expects the Maltese economy to grow by a robust 5.7% this year while the International Monetary Fund (IMF) released recently a more optimistic projection of a 6.2% growth.
“So far, economic growth in Malta has only been affected by Russia’s invasion of Ukraine to a limited extent, given its low direct exposure to trade with these two countries,” said the European Commission. “On the back of a strong economic performance in the first half of 2022, real GDP growth this year is expected to reach 5.7%, driven by robust domestic demand and a strong positive contribution from net exports.”
Before the pandemic, the economy had been growing strongly, with an annual average growth of 6.2% from 2012 to 2019, according to the IMF.
The budget deficit is expected to fall to about 5.6% of GDP this year, from 8% of GDP in 2021 and 9.5% of GDP in 2020, according to the central bank projections.
Despite this, Malta’s debt is still projected to grow to 58.1% of GDP this year, from 57% in 2021, 53.4% in 2020 and just 40.7% in 2019.
The labour market remains fundamentally strong. Unemployment stood at 2.9% in Q2 2022, down from 3.4% a year ago and one of the lowest in the EU, according to the Central Bank of Malta.
The total number of unemployed dropped to 8,400 people in Q2 2022, down from 9,400 a year earlier.
In October 2022, annual inflation increased to a record high of 7.4%, sharply up from just 1.4% in the same period last year, buoyed by a surge in commodity prices, housing and transportation costs, according to the NSO.
Inflation averaged 1.1% in 2013-21, a decline from an annual average of 2.9% in 2008-12.